Tuesday, September 30, 2008

Rent vs Buy

Renting makes more financial sense than homeownership

Very interesting argument with a lot of valid points. Currently, I'm still a renter and probably will be for at least a while since housing prices have inflated to such a ridiculously high amount, but that's more a personal choice of what works best for my current situation. Personally, I still believe with the right consideration of the following points, buying trumps renting.

The first thing to consider is the specific market you are analyzing. In the NY market, I could see why there is a significant difference between monthly rental rates and ownership mortgage payment rates, but in other markets the balance is the reverse, you can actually end up in a situation where the rent is more per month than the mortgage payment. A year or so back, I did some sample evaluation in North Carolina and found a market where the prices were almost equal, something I have never seen in my home market. There is enough public information out there that you can research markets across the country to find ones with better ratios so that the odds of finding a deal in that market is statistically favorable. This of course assumes you have the freedom to choose where you are buying, which works better for an investment property than a primary residence.

The second thing is the price and method of purchase. Just like how rental price can be negotiated, a house purchase price shifts by the laws of supply and demand. You don't have to buy a house through a Realtor, you can purchase a foreclosure, a bank auction, or do a lease option. Regardless of how the national market is, there will always be people desperate to sell and offering great deals if you are willing to look for them. It comes down to a matter of preference, esp if this is your primary living space, but with an investment property it becomes more about finding numbers that work in your favor for making a profit off of the rent.

I will say this, there is no blanket right or wrong answer for whether renting or buying is better. The bottom line is your individual financial situation, expectations and desires. Business and real estate are great investment tools, stocks and bonds being better for the passive investor and real estate better for the active investor, so it comes down to your preference for level of involvement. Sometimes the burdens that come with buying a house add a level of stress or frustration that tips the scale against the value any monetary gains would give.

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