Should You Buy or Rent a House?

Critical points missed by many analyses

A Deeper Dive into a Familiar Question by Someone Who Has Rented, Purchased, and Rented Out Properties

Renting is much better than buying for a variety of reasons mostly having to do with how little of your payment goes toward the principal for many years, and all the other expenses of home ownership.

Owning a home is not cheap where most of us live. Here are the biggest expenses and how much they’re likely to cost per year.

The True Expenses of Home Ownership

Payment against Principal is not an Expense

Payment against Principal is not an expense. It does affect your cashflow and needs to be covered each month, but it’s really a self-imposed investment in real estate, specifically in your home’s equity.

Clearly, owning a home isn’t cheap where most people live in the US. However, there are two critical points that most analyses miss when they argue that those expenses are a reason to not buy.

Why Costs Should (almost) Never be Seen as an Argument Against Buying

When Buying a Home is a Bad Idea

As is true for every aspect of personal finance, it depends on your individual circumstances.

2. Live on the New Mortgage Payment

• You can’t afford a 20% down-payment

Here are the main situations when buying a home is a bad idea, and potentially a disastrous one.

• Your income is not stable enough or high enough to afford the mortgage payment and other expenses of home ownership

• You’re not likely to stay in one place for more than 5 years

• Your credit score is too low

Other Considerations

1. Flexibility

2. Potential appreciation

3. Predictability

4. Tax deduction

5. Forced savings

Analyses that cite the high costs of home ownership as an argument against home ownership miss several critical points. Most importantly, that the landlord sets your rent based on his costs of ownership, plus a profit margin.

The Bottom Line