Question: Now that we’ve beaten the lease/buy car thread, let’s try homes! 
Except for the fact that I like wide open spaces, I’m seriously considering *renting* for as long as I can before (if ever) buying a house. Does this make sense? I’m trying to work out the numbers: if I want to borrow $180K @ 5% for 20 years, I’ll end up paying about $285K, with a cost of borrowing around $105K. Yikes!
It seems that I could rent for 20 years at a cost of around $160K, invest about $5K/year for 20 years and then have enough to buy a small house — cash.
Maybe the hardest part is actually doing the investing instead of spending the money? If so, doesn’t that make house-buying just a kind of masochistic way to save money? It doesn’t seem to build up a whole lot of equity imho.
Anyways, please set me straight.
Answer: You forgot to take the tax break on the loan interest into account. This is a *major* reason for buying a house.
Secondly, under normal circumstances, real estate prices rise (and out-pace the inflation rate) so you are likely to have more value for your house than what you paid over the 20 year period. In the alternate scenario, the $100K that you will save for twenty years may not get you even a one bedroom condo at that time.
Thus, your calculations above are valid only if : 1. There is no inflation. 2. Real estate prices remain at current level for next 20 years. 3. There are no tax benefits of taking a mortgage loan. or You can get your savings to grow as fast as the real estate prices and you don’t get taxed on the dividends/capital gains on your savings or other investments and get some tax break equivalent to a mortgate loan. The rental arrangement is certainly less stable than the homeownership arrangement. I would argue that this is an advantage rather than a disadvantage–all parties concerned can get out of a rental arrangement easier than homeownership. In a world which changes really quickly, is it really an advantage to tie yourself to a particular geographical area and its changing economy? If there’s a better job opportunity in another city, you should take it–if you own your home it’s tough to do so. If you wait for your employer to decide your job is redundant, you will have a tougher time in the job market, because it probably means your skills are no longer relevant to the current job market.
Unless your job is *really* secure it seems to me that you’re better off renting. I would have a tough time identifying any jobs at all these days that are sufficiently secure. Perhaps being a tenured prof at a *really* big name school is secure. Perhaps being a long-term congressperson is secure–but you better not have any incriminating personal diaries lying around. For most of the rest of us, the mobility that comes with renting is a decided advantage.
Related posts:
- What will $150K buy?
- Buying vs Renting on Starter Home
- Pre-approved home loan OK? Was “Help me buy hpuse”
- URGENT: Home loan OR rent
- home loan
- Giant expensive homes everywhere
- Home loan OR rent
- Need advice on buying home vs. investing
- Giant expensive homes everywhere
- Giant expensive homes everywhere
- buy down interest
- How do I get a home loan with little income