To Rent or To Buy?

"Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent."

This almost makes us feel better that we've resigned ourselves to be renters for life, considering a home four houses up from our ramshackle Silver Lake apartment is being sold for $799,000, with prospective buyers rolling curbside in Hummers. The bubble is deflating, but we'd need it to pop to even consider the possibility of owning.

To figure out whether buying or renting makes more sense for you, check out this chart comparing the costs of renting and buying equivalent homes.

[A Word of Advice During a Housing Slump: Rent via Consumerist]

The adorable Los Angeles Angelino Heights cottage above is from Victorian-centric site, You Are Here. What we'd do for a beauty like that....

Comments (16)

A friend of mine recently bought a $500K house with no money down. According to the NY Times calculator, she'd have to live in it for 23 years for it to be cheaper than renting. D'oh! Guess I'm okay with renting for life.

Thanks Gregory for the link to that chart. I like the sliders on that calculator that allow you to play around with potential break even points.
I would hardly call your adorable apartment "ranshackle" though :)

Erin T: Thanks for the kind words! That chart is like a sliding scale of disappearing dreams for me :D

One day soon I am going to post the ghetto aspects of our apartment...you'd be surprised how different the inside of our place is to the outside (and also the deteriorating infrastructure of a 1907 building that's rotting from the inside out). As an example, our landlord saw it fit to replace our main living room window with a sheet of clear plastic nailed into the window frame...PLASTIC! We love our place...but there's a lot we've learned to live with that some folks would find unacceptable.

"That chart is like a sliding scale of disappearing dreams for me" That made me laugh! I try (really hard!) to feel the opposite way when I used the chart. We rent our current place and when I did the numbers realistically, including everything like down payment, buying/selling commissions, increased utilities, property taxes, homeowner association fees, etc. - I came out with more than 30 years as our break even point. I'd love to own a place but the math doesn't work out in our favor right now. Sure, we could almost make a mortgage payment on a smaller place with what we pay in rent, but once you tack in the additional expenses...
So, this chart just makes me feel like we're doing the best we can for now. We've got some ghetto aspects here too but they are more of the chain-smoking-neighbor-dropping-lit-butts-on-our-balcony variety.

Where does it factor in the tax deduction of mortgage interest?

If you are in a high tax bracket, buying is always better. What you pay in mortgage and property taxes can offset income tax, plus you own an asset. Strange that the NYT didn't take the tax factor into account in this chart.

We just bought a new construction townhouse, and when tax savings are factored in, we won't be spending much more than our current rent of $2900 for a 2 bed cottage that is 80 years old and has NEVER been refurbished. The kitchen is so small and weirdly designed that I'm not cooking anymore because I'm tired of screaming and cursing every time I just make a simple dish like pasta. And don't even get me started on last summer's multiple heatwaves without air-conditioning...

Pelicolina, I don't see where this calc factors in the tax deduction. It would be nice if it did for accuracy, but with the tax bracket I am in and the cost of our home the potential tax deduction barely makes a dent in the increased expenses of buying versus renting in our area. The tax breaks of home-ownership are often grossly misrepresented to potential buyers as a selling point.
Susan c-h is clearly in a different league than I am with a rent nearly triple what I pay (or could afford). If you do the numbers, buying is better for the very wealthy, but the tax benefit is not nearly as beneficial to the middle class.

Buying gives the luxury and freedom of doing what ever the hell you want in your home (design/decor wise), and not having to answer to a landlord. That is more valuble than anything.

I believe that if you can pull it off, it is completely worth the extra financial effort up front to own. (And no, I am not of great means.)

The article mentioned above names cities where renting is often advantageous. I have been shocked to see what I could afford if I lived somewhere else. What I pay for a 1-bedroom flat could buy a 4-bedroom house with a nice yard in Omaha. Renting isn't better than buying across the board, but it can definitely save you lots of money in a number of cities.
To me, having the freedom to do whatever you want in your home (decor wise) is not more valuable than anything. Sure, it would be nice to paint or customize a couple more things than I currently can, but it's more rewarding (to me) to see the additional expenses I would incur with ownership going into IRA's, index funds and high-interest savings accounts. Boy do I sound dull today - good thing it's Friday.

I'm in the camp that believes it's more important to live in an area which best optimizes and suits your lifestyle, rather than moving simply to own. I have too many friends who have moved out to distant neighborhoods with the prospect of owning their first homes, only to discover that the lifestyle afforded by their new 'hood is not one that really makes them all that happy. Life doesn't wait for you , and I really try to appreciate each day I'm given. It helps we can customize our rental unit much more flexibly than most folks.

But I've definitely noted the prices in other cities and have pondered the thought of living in an old Victorian for under a $100K in San Antonio or in other states where the cost of your first home doesn't involve losing a spleen and your first born.

If you click on the advanced tools and explore, you'll see where they factor in the income taxes.

regards,
trillium

I did the math just recently when I refinanced, and with the tax benefits I did way better buying rather than renting. Now if we assumed a great return on investing the down payment in something else, maybe.......

*tax benefits; you get to keep more of your money by taking additional tax deductions (approximately one exemption per $2K of interest per year).

*increases your credit score (provided you pay on time).

*if you sell after 2 years for more than you bought you do not have to pay tax on the profit.

*if you hold the property your equity is better than a savings account, even in a down economy, and, you can use this equity as leverage financially.

But for me the clincher has always been that you can do what you dang well please with the walls, floors, yard, roof, paint, appliances, everything. It's true you are now responsible for all the stuff that can break but if you've ever waited three weeks for your landlord to fix the air conditioning unit in the middle of summer this is a distinct advantage.

I've rented and I've owned and I'll always take owning over renting.

ive rented for about ten years and have always thought about the money ive been throwing away... now i am in the process of buying a rowhome in a charming section of south philadelphia for well below market. i plan on being here for at least ten years, so it seems that i will be paying slightly less to buy a house than i would to rent an exact same house, but the best part is when i decide to move, at least i can sell it and have something to show for my ten years....

it might be cheaper to rent... but i still believe it's always smarter to buy.

It's all about the market.

If average rent is $1200, and a mortgage payment is $2900, you'd be off your rocker not to intelligently invest the $1600/month and keep renting - it makes financial sense. Houses are a terrible investment in and of themselves.

But in many markets where it's very close, that's not the case.

The market here isn't bubbly at all.

I currently rent a 900-ft 2-bed, which is very nice (gorgeous Victorian house, beautiful hardwood/trim/etc) but if I bought a 5 bed, 2 bath home in certain parts of this city, with taxes, utilities, mortgage, insurance, and reserve fund for repairs I'd be paying around the same amount - it's just the issues of getting a down payment together and making enough money for the bank to let me.

I love my place. My hubby and I plan to be here until we buy. But we're in our mid-twenties - if we buy a place, we can use a 15-year amortization and be mortgage-free by the time we're 40 - or even with a 25-year amortization, mortgage-free by 50... and all for the same as paying rent. Imagine all that we can do with THAT.

And having something to pass onto your kids (or donate to a good cause) when you pass on is something too...