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TWO IMPORTANT OMISSIONS IN THE RENT vs. BUY SAGA

 

 
TWO IMPORTANT OMISSIONS IN THE RENT vs. BUY SAGA
Recently on Yahoo Finance I read about another study, this one by Today’s Homeowner, looking at the cost of buying versus renting in 97 major US cities that concluded that renting is cheaper than buying in 46 of them – and the money you’d save by renting could be considerable. This was encouraging as almost every article I read these days on this subject - and there are many - speaks to the advantages of renting instead of buying, usually saying how much cheaper it is.
 

For the study, Today’s Homeowner looked at the big picture of the cost of home ownership, including: the average sale price of homes from July 2022, using data from property taxes, based on figures from the U.S. Census Bureau’s American Community Survey; average maintenance costs, with estimates from Angi; interest rates, sourced by Freddie Mac; and the price of homeowners insurance premiums with figures from Quadrant Information Services.

 

When all 97 cities are considered, homeowners will spend an average of $1.3 million over 30 years, while renters will pay an average of $1.26 million.

 

The article and study proclaimed that nowhere is the comparison between the costs of homeowners versus renters more stunning than in California, home to 7 of the 10 cities where it costs far more to buy than to rent.

 

However - not unlike most of these comparisons (and there are lots) this study is flawed for two primary reasons and its the 2 reasons most of these studies forget, omit or maybe omit purposefully as it serves the best interests of landlords?

 

1.  We live to be around 80 years old and need housing for 60 years, not 30 years. If a mortgage is paid off after 30 years, the next 30 years don't include a mortgage payment.... Even if rents rise just 1% per year over 60 years....

 

2.  At the end of the 30 year period, the homeowner/buyer OWNS an asset. Equity. Even if their home appreciated ZERO over 30 years, that's a more favorable position than the renter who has no asset/equity to show for all their decades of rent payments. Assuming homes escalate at the rate of inflation - let's say 2% - compounded over 30 years a $1 million home could be worth more than $1.8 million....and after 60 years over $3.25 million.

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