mercredi 6 janvier 2010

Renting vs buying: the financial arguments

I love our apartment, I really do. But sometimes I feel like I should be thinking about buying a house, that all the money I'm putting into the apartment (in rent) is money wasted, and the longer I wait, the longer it'll be until I own my house. But after reading a few articles, I'm reassured. Buying a house would cost WAY more than what we pay in rent (we don't even have to pay for heating!). There are taxes to factor in, plus the cost of repairs, heat, electricity, etc. And especially: interest! A lot of articles on home ownership mentioned "don't fall for the zero-down trap!". So ideally, when we buy our house, we'll have saved up a huge amount of money to pay for most of the amount of the mortgage cash.

This article says that "theoretically there doesn’t have to be any economic difference between renting and buying. Ideally both renters and home owners should be invested in equities and real estate and will benefit if either investment class does well."

Good tips:
If you are a homeowner, you should only buy as much house as you can afford to still be able to save money and invest in equity markets. You should pay down your mortgage at a reasonable rate – 20 years maximum. In case your house value goes down the more equity you have (had) the better off you will be. If your house value goes up then you are still better off with less mortgage.

If you are a renter, you should save as much as you can (more than the home owner) and increase your asset allocation in real estate investments. You could also buy rental properties although that’s another ball game altogether. Don’t feel like you are being left behind. I honestly believe that a renter has more financial options than a home owner. The trick is to make sure you take advantage of those opportunities.

[EDIT: See also this article: "Why Renting Makes More Financial Sense than Home Ownership".

Renting is for poor people."

True. But it's for rich people, too. [...] poor people rent modest apartments for lack of choice. Middle-income people buy houses. High-income people, presumably with a dose of financial savvy, often rent nice apartments instead of buying.]

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