Are you better off renting a home?
May 5th 2008 10:30AM
Updated May 5th 2008 2:59PM
In a column in Parade, Mike Hammer lists 4 "great reasons to rent": renting can save money, homeowners' tax deductions are overstated, there are more options available to renters, and renting gives you flexibility. Hammer writes:
According to popular myth, renters are just throwing their money away. But the reality is that when you buy a home, you're paying for closing fees, mortgage interest, property taxes, private homeowners' insurance and maintenance -- costs that return nothing on your investment.
The first part is a very valid point: at the height of the housing bubble, people were paying far more to own than they would to rent. My suggestion to homeowners is to look at homes the way an investor would: if you're renting, you're probably paying enough to cover the owner's interest, taxes, insurance, and maintenance, plus enough to leave him with a nice profit and a paid-off mortgage in 30 years. This is why people own rental property. If renting in your area really is cheaper than owning, then renting is probably the way to go.
But if you look hard -- and are willing to lower your standards a bit -- you can probably own for about the same amount as you can rent. You might not be able to buy as nice of a home as you can afford to rent, but you might be able to buy something. One of the great truisms of homeownership is that your first is home is the home you can buy, and your next home is the one you want to buy. Very, very few people have accumulated wealth in this country without owning real estate.
Hammer also writes that "before the housing boom went bust this year, homeownership was considered a good investment. But now, with the rash of mortgage foreclosures, renting may be a more attractive option."
Huh? If you parse the sentence, you end up with "Buy high, sell low." Hammer seems to be suggesting that when prices were soaring to heights out of line with rent levels, buying a home was a good idea. Now that homes are cheaper, it's better to rent. That goes against the methodology of the world's smartest investors: buy when there's blood on the streets.
The fact is that homeownership remains the most common -- and best -- wealth accumulation vehicle in America. A decline in prices makes that more true, not less.