I am 100 percent certain that if you added up all of the taxes, insurance, plumber bills, lawnmowers, and on and on and on, plus realtor commissions, then compounded those over time, you would see that you are way worse off.

Just another guy who is bad at math. How are those costs not real? If you buy a 4k John Deer riding mower in 1986 that you would never have owned if you rented, how is that not factored in? You guys just take the starting price of the house and the ending price and act like you are geniuses. You are not. You are overlooking at least tens and tens of thousands of dollars of payments over time, and likely 100K worth.

But even those who take those payments into account never factor in the fact that those payments could have been worth more by any measure of compounding, including basic interest in savings accounts over 30-40 years.

It is almost mathematically impossible to come out ahead if you are really honest about the extra money you spent on EVERYTHING associated with the house over time.

Housing is only going to appreciate if incomes go up, unless there is a bubble in housing. This goes back over 100 years. So, those extra payments you make every year on taxes, insurance, etc, wipe that out immediately.

Housing is a bad deal. If that is the only way for some families to have money at the end of their lives, then that is their problem. They got trapped in a house for 40 years, and they would have been much better off in retirement if they had rented and saved the difference.

Just because 90 percent of the people don't have the discipline to do the smart thing, doesn't make their bad decisions correct.

No, you are wrong. I'm quite good at 4th grade math and have run a number of businesses and know how to account for expenses, as well. I've also owned and managed rental houses (not part of the personal ones being discussed). Your certainty and condescension while being completely wrong is amusing.

Owning homes has been a terrific investment for me and millions of others. It isn't right for everyone, and right now isn't the right time for everyone either. But over the past 50 years it has been right much of the time for many people.

I'll just add to the very situationally dependent side of the argument. I own two houses, but I rent the one that I live in now. (Cali, very expensive market) The rent on the house I live in is double both of my combined mortgage payments. All three houses are the same size - just in 3 different markets.

Home values where I want to own and interest rates are low enough that I am shopping for a third house to hold as a rental right now, and I am planning to buy the next home I live in sometime in early 2014 - dependent upon where I move to and market conditions being reasonably close to where they are now.

I'd be interested in seeing an article or thread that really breaks down the math for renting vs buying. I don't know anything about this but growing up I always assumed buying was the smarter play. I saw the NYT calculator linked earlier but I don't understand where they get their numbers from.

The thing I'm hung up on is, yeah sure if you buy you have to take into account taxes, maintenance, escrow costs, etc, but what I don't get is why those costs aren't also there if you're renting. The landlord isn't taking a loss on this, so why aren't those costs just passed onto you in the form of higher rent? I don't see how a monthly payment for an equivalent house is going to be lower than if you're buying, unless the owner is amortizing it over more than 30 years. Is the cost for someone who buys a house with the intention of renting it out different than the cost to someone who buys it as their primary residence?

It also seems to me that rent is always going to go up, so in 20 years your monthly payment is going to be much more than it is now, but the mortgage payment will be the same.

But I do trust the smart people on this forum, and I'm relatively ignorant when it comes to finances, so if you have any links or threads that clearly explain the math, that'd be great. I was thinking I'd be buying a house in 5ish years, but as I've tried to educate myself on the process I see a lot of presumably smart people say renting is better than buying and I want to understand why.

Many, many people come out ahead. You can claim it is due to luck if you like (buying/selling at the right place/time), but you can say exactly the same thing about stock ownership.

That's silly. Knowing you are undisciplined and making decisions that optimize your results based on that self knowledge is always a correct decision.

You could prefer that someone change who they are, but in my experience most people aren't very good at that and are better off making financial decisions that optimize results based on their preferences and likely behavior (e.g., if you freak out and start selling every time your portfolio underperforms the market, you should buy index funds and ignore them, even if it is suboptimal to stock picking).

In the end, you have to do a situational analysis. Much depends on location, market conditions, life state, and future plans that a simple calculator can't really incorporate.

I think there are many places in the US now where it is a good time to buy, especially if you are expecting to live in a place for 8+ years.

I'm not a fan of the "starter home" concept and think anyone buying with intent to sell in less than 5 years is speculating a bit.

I rent, but I live in an expensive big city and have a good rental deal, so it is hard for me to make a financial argument to buy now. If I lived in suburbia, I expect I'd have bought recently or would be looking to buy (for both lifestyle and financial reasons).

Those costs are passed on to the renter in the form of higher rent. Mortgage, taxes, insurance, and other expenses may cost the landlord $700/month, but they rent the house out for more. How much more depends on the market, but the landlord is not taking a loss due to those other expenses.

How do you manage to be so wrong and so confident at the same time?

The only correct answer to the renting vs buying debate is "it depends". Taking an absolute stance on either side is unbelievably stupid.

To be fair, landlords often have economies of scale compared to home owners for a lot of expenses. And a lot of small-scale landlords have a very poor understanding of the maths behind landlording and end up taking a loss on expenses (because they buy buildings that are overpriced in relation to their revenues).

what lawn mower cost 4k in 1986? please lose your password.

Very true. At scale you have a good list of contractors you can get better rates from because of consistent business. You are spread out across a city or region so individual neighborhood fluctuations aren't as big of a hit, stuff like that.

I will say that, while I said earlier that a lot of people buy houses when they shouldn't, I'm nowhere near the "you should never buy a house" clan. I just think that, on top of the cost analysis so many people in here have already done, there is a significant restriction on flexibility (taking a new job in a new city, taking a pay cut at a new local company for better long term options, etc) that a lot of younger people don't full think out. I know too many people who end up stuck in jobs or cities or neighborhoods they don't like because they can't sell their house.

Yes, at some point the market will pick up and that will change, but if it makes years 26-29 of your life suck, how worth it was saving $150 a month?

For some reason, I get the impression that you're a early 20s guy who read the Intelligent Investor and all of a sudden thinks he knows everything about investing. Reality is unfortunately not so simple.

I recommend that you read the spex thread about real estate in this forum and enlighten yourself to a world that perhaps you didn't know existed.

Yes, you can make money from housing, there are many ways to do so, and you can certainly do better than renting and investing the proceeds in stocks/bonds if you really do your homework.

I agree with what you're saying and that's why I think that buying a house should be seen primarily as a lifestyle decision and not a financial one.

I mean, yes there is a financial aspect to it, but if finances are all you're looking at, you should be renting a small 1 bedroom apartment and investing all that money you're saving.

I'm in a situation where renting is vastly superior. As a percentage of the property value I pay very little rent. I have been considering moving and I'm open to buying or renting. One of the properties that caught my eye recently just happens to be available both for rent and to buy.

The way I approach it is to start by figuring out what the rent is as a percentage of the property value. In this case it is 4.8%.

Property taxes on the property are 1.3% so I take that and I subtract it from the 4.8% and end up with 3.5%.

I've always lived in highrises so I have no experience with houses but the internet has told me that 1% a year is typical for upkeep. Subtract that from the 3.5% so now I have 2.5%.

2.5% + appreciation is the landlord's ROI. This is where it requires using some judgement. In my opinion I'd confidently say that the appreciation on this property will be 0% for at least five years after which it will struggle to keep up with inflation. Let this equal A

In my jurisdiction I believe the new rules require a minimum 20% down. For myself personally I would likely need at least 35% down. At this point you calculate the after tax opportunity cost -- how much money could I make if instead of buying the property I invested that 35%. Let this equal B

Lastly, you have to calculate the debt servicing costs. If you have an interest only mortgage this is easy -- if not it is complicated. For the sake of a buy vs rent I think it is fine to treat the mortgage as interest only even if it is not. In the States you'd need to factor in the tax savings as a rebate on your debt servicing costs -- I don't since mortgage debt is not tax deductible here.

Take the debt servicing costs and subtract them from A -- call that C. If C is greater than B then you should buy. If B is greater than C then you should rent.

In this case renting is the clear choice.

this figure would vary so greatly that it would be hard to really pinpoint it.....clearly a brand new house requires much less upkeep than something built 50-100 years ago......also newer houses are going to have an edge on older in terms of resale - def two points that should be considered.