Being Smart with $$ -- Rent or buy a home? Renting is NOT throwing away money compared to buying.

Rent or buy? When you ask this in public, you are sure to hear someone ask why you would throw away money on rent when you can build equity through ownership.  In fact, one real estate firm has a marketing piece saying that you are throwing away $240,000 over 10 years if you rent for $2,000 per month.  But that completely misses the point that ownership costs money too.  If you buy something for $500,000 (that is similar to what you might rent for $2,000 per month) then you might pay $200,000 over the same 10 years for interest costs that you don’t get back.  Plus, you’ll likely pay $60,000 in real estate taxes that you don’t get back.  This doesn’t even get to the annual cost of maintenance and repairs when you are an owner.  And the recent tax law changes might mean you don’t even get the tax deductions from ownership anymore.  So is renting really throwing away money and owning is not?  Apparently not. The difference may come when or if the value of your home rises and in the long run, it likely will.  But real estate can also fall in value.  Today, real estate research firm CoreLogic said that half of the country’s top 50 markets are overvalued so that may be an ominous sign for future price gains.  Whether you pay cash to buy a home or take out a mortgage or use some combination, the calculation is about the same.  Homeownership can be wonderful but it is not all “win” versus all “loss” for renting, like many people insist on a daily basis.  Ask me about the math if you’re not convinced.

Larry Pike, CFA
www.clientpriority.com