Renting makes More Fiscal Sense than being a Home owner

I agree with this article.

In our society, there is a prevailing assumption that buying is better than renting. The fact is, there is no shame in renting, especially right now. Home prices are due for a major correction. When prices finally hit bottom, renters are one of the few groups whose finances will survive the crash.

Renters are always being bombarded by the same question: 'When are you going to buy a house?'
Nobody ever assumes that the decision to rent is a conscious choice. People have become so enthralled with status that they seem to have forgotten the reason why we live under a roof and between four walls--shelter.
At one point, that's all a home really was. Nowadays, things are a bit different. Owning a home has not only become the equivalent of owning a piece of the American dream, it has become a way to measure success.
An overwhelming number of people embraced this concept during the most recent housing boom. Home prices began to swell beyond reasonable levels as more and more people bought into the market.
It wasn't long before it became impossible for most people to buy median-priced homes on median incomes. By 2005, people were spending 60 percent more on average in the largest metro areas to buy rather than rent.
This should have been enough to deter potential home buyers, but it was not. People were still buying into the idea that a home is the best investment an American can make.
They were so confident in their beliefs that they were willing to finance their dreams with preposterous mortgage products like interest-only loans and option ARMs. The desire to keep up with the Joneses was so strong that some went as far as to lie about their incomes and their ability to afford the required monthly loan payments. In short, they committed mortgage fraud just so they could buy their homes.
Were these people really that ashamed to admit that they couldn't afford to buy? Was renting so embarrassing that they were willing to risk their financial futures and possibly even their freedom?

Why Home Prices Will Fall



Source: NAR; US Census Bureau
As you can see from the graph, affordability problems first began in 1997 and have since culminated in the biggest price bubble in U.S. history.
The home prices we see now are not sustainable. They are built upon an artificial foundation instead of upon the traditional fundamentals that have always ruled the housing market.
You see, it is not right for median incomes to increase by only 10 percent when median home prices increase by 50 percent during the same period. Any time the two deviate, a bubble forms and pops.
In the end, home prices always fall back to previous levels. It's the way markets work.

Renting is Smart


If you want to play it smart during a housing bubble, renting is the best thing you can do. Renting is not risky. Unlike the people who bought in the last decade (or those who plan to buy in the next five years), renters have nothing to lose.
When home prices begin to fall, homeowners stand to lose 100 percent of their investments. As equity erodes, any money they put down on their homes will disappear. But that's just a start.
Prices are predicted to fall back to 1997 levels. If this happens, it will be devastating to homeowners who bought their homes in the last 10 years.
Picture it:
It's 2005. A family buys an overpriced house in San Diego for $550,000. They think they got a great deal.
Flash to 2007.
Home prices have already started to fall. By the time prices hit bottom (1997 levels) that $550,000 home will only be worth $250,000.
But the family still owes the bank more than $500,000. Refinancing or selling is out of the question. Renting the house out to someone else is also not an option--no renter is crazy enough to cover those mortgage payments.
The family is left with two undesirable choices: stay in their bad investment or hand the keys back to the bank.
There is no shame in renting. If the family in the previous example had only realized this, maybe they wouldn't have been so quick to gamble with their future.
Remember that the next time someone asks you when you are going to buy a house. Tell them about this example--or better yet, tell them you'll buy when buying makes sense.

That's BS, DS. The renter will never see his money returned. Never ever.

Ever.

Ever.

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Na, you were right the first time. I'm sure there are plenty of people in California finding creative ways to make money suing their landlords as we type.

Actually, I won't say the artical has no merit; renting does make perfect sense if not planning to be planted long. And I will agree, those building/buying McMansions solely as speculative investing or to keep up with the Jones deserve to get burned.

I suppose somebody getting a great deal on renting might beat the taxes/maintenance ect even vs. any investing value, but doubt very often.

So: never ever.....but still not never ever, ever!

I'll agree.

bobpierce said:

That's BS, DS. The renter will never see his money returned. Never ever.

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Ever.

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You crack me up man!!

I look at renting from a different perspective. I can see renting to be a good idea if you don't plan on staying in one place for too long but if you have plans for staying for a while, then I think that buying is the way to go as you stand to possibly make a profit on your investment if you buy for the right price and can sell for more. I currently own two houses(one I rent out) and am currently in the process of buying a third.(which will not be a rental unit as the house is basically ready for demolition, I just want the property its on) Both houses are paid for...........the rent I take in from the other place pays for my utilities and expenses for this place. If you buy smart, you make make some good $$$ on rental units.

Sure, you take a chance when you buy as it's hard to control the market prices. Right now in the town I live in, the market conditions are low for housing. This is why I am investing in property while its still low. There are several mines that will be opening up in the near future in my area and this will more than likely increase the housing prices drastically. So I stand to make a good $ if I decide to sell in the future.

One tip I can make for those looking to buy a house as a rental unit is to keep an eye on the market and look for houses which have been repossessed by the bank. The house I'm in now originally listed for double of what we bought it for and we picked it up after the previous owners went bankrupt. It took a little work and not much money to get it in top shape. We still saved big time compared to what the original asking price was. The key to owning VS renting is to buy at the right time and sell at the right time. If you do it right, there's $$$ to be made!

There are some benefits to renting.

From today's local paper.

Mercury drops, anxiety rises


Carmen Gelpi adjusts the thermostat in her family's apartment. With her out of work and her husband collecting Social Security, paying the heating bills is a problem. They're still $1,800 in debt from last winter.

For some, paying for heat each month -- even with help -- feels like climbing a snowcapped mountain.

Carmen Gelpi, 43, faces paying down a gas bill of more than $1,800.
She and her husband have two children, ages 8 and 9. Both kids have asthma, which is not helped by the cold.

Because "it was too high to keep up with," she had her gas service to the family's four-bedroom apartment shut off earlier in the fall, then reconnected.
Back problems have left her unable to work, her husband collects Social Security, and by the time the rent and monthly bills are paid, "there's nothing left," she says. Even if she can pay the $119 her monthly budget plan calls for, the next month's bill calls for more.
"You

Carmen Gelpi and her husband, JosŽ Robles Jr., are struggling to keep their apartment warm for themselves and their children, JosŽ Jr. and Ivannalyz.


They are among a growing number of local families who rely on Low-Income Home Energy Assistance Program. We pay some, but it comes back higher," she says.

As winter approaches, theLow-Income Home Energy Assistance Program (LIHEAP) is bracing for an unprecedented number of people seeking relief from the high cost of home heating.

Last year, we drew applications from 6,682 people. By the end of last month, they'd already received 7,263 applications.

I have too agree with groomerguyNWO. I own 4-homes, three that I rent. I live in the fastest growing County in Maine, Hancock Cty. I live near the coast, at my home I can see salt water (Egypt Bay) I own 38 acres here and some of it is high enough to over look Egypt Bay and the Mountains in Bar Harbor (if anyone knows that area) I paid $128K for this in '98, put a guest house on it (that I rent) for $80K this place is worth ALL of $650K today. You think I'm going to lose equity after the housing bubble, not hardly. groomerguyNWO is right, you have too do it Smart. Don't buy in an area thats already hit it's growth potential. What many, many home buyers did to keep up with the Jones was to buy & over pay for a home that sits on 1/4 of an acre thats next to 100 homes on 1/4 of an acre. No one wants to live like that. Everyone wants as much Land as they can have, I want 200 acres, thats what I grew up on in the country but thats not realistic for the major population. What is realistic is 1 or 2 acres with some trees to make it look like YOU have your own little woods to hide in, thats what you should invest in because it will hold it's value because everybody wants it. OK I'll get off


David

Glad I still live in the first house I bought, owe less than it is worth.......alot less, and if things go as planned, in 5 years I wont be paying a mortgage on it.

I dont keep up with the Jones, I outran them a long time ago............

For the short term renting might be the better option, but in order to settle down and be in control of your own destiny home ownership is a must IMHO.

Doc said:

For the short term renting might be the better option, but in order to settle down and be in control of your own destiny home ownership is a must IMHO.

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There are only a few limited conditions I can think of for renting for short periods of time. We rented for 6 months when we relocated to OKC while waiting for our home back in Georgia to sell. This gave us time to learn the area and pick a community we wanted to live in that will be easy to sell in the future. We found a great place on 5.5 acres in a gated community damned near in the OKC city limits for a great price. Our rental house was 5 miles west of where we bought, so the short rental period was beneficial in locating this unique opportunity.

If you plan to hold the property for at least 5 years, you will come out far ahead of renting in most communities. There are some limited and unusual situations where this may not hold true, especially if you bought at the top of the market and had to sell during a correction. But if you have the time, even bad market corrections will eventually improve.

The mistake many people in our current market have made is treating their primary residence as an investment, and getting caught in the market-momentum flipping game with a teaser-rate mortgage coming due when the correction hit.... I imagine those folks would rather be in a lease situation right now if they could.

A reply: http://biz.yahoo.com/pfg/e10buyrent/art011.html


Rent is not a Mortgage Payment
Let's assume you currently are renting for $1,100 a month, and you now have your sights set on owning a home with a $200,000 price tag. You put $20,000 down and qualify for a mortgage of $180,000. On a 30-year fixed rate mortgage you're looking at an interest rate of six percent these days. That works out to a mortgage of about $1,079 a month. You're thinking, "Wow, this is a piece of cake. If I can currently afford $1,100 in rent, I can certainly afford a $1,079 mortgage." Stop right there. Do not pass go. I cannot tell you how wrong you are.
The base mortgage is just the beginning of your housing costs. On average you need to add another 40-45 percent to get a more realistic total monthly cost. Yes, you read that right: 40 to 45 percent. So if your mortgage payment is $1,079, the true total cost is about $1,519 per month. Let me show you how the costs pile up.
When you buy a home you owe property tax on its value. If the house is worth $200,000 and the property tax in your area is about 1.25 percent, that is a total of $2500 a year or about $200 a month. You also need to have homeowner's insurance. That can run you $25 per $100,000 of value, or, in this case, $50 per month. And if you make a down payment of less than 20 percent, you are also going to be stuck paying Private Mortgage Insurance. That fee runs about $45 per $100,000 of mortgage. If we assume a 10 percent down payment on our $200,000 house we're talking about $90 or so a month in PMI costs. (Yes, there are ways around PMI but those will cost you too, so just stick with me here while we do the numbers.)
And we're not done with the "extras." Let's not forget all the costs of keeping the house running. Plumbing on the fritz? There's no landlord to call. If you want it fixed, it's going to have to be on your dime. So you better plan on having a reserve fund sitting around to cover repair and upkeep costs for your home. My advice is to plan on about $100 a month for that repair fund. Add up all these costs and you're looking at a total net housing cost that can indeed be 40-45 percent more than the base mortgage. In this example it's $440 per month more than the $1079 you were thinking it was going to cost you. Yes, yes, I know what you're thinking now: What about the tax savings, Suze? Isn't that going to bring down my real costs?

Sushi, have you been reading Suze Orman's articles?

Give it up dude...she ain't gonna put out. She is a confessed lesbian and says she has never been with a man and never intends to.

Sorry to bust your fantasy. She claims to still be a virgin:

http://www.afterellen.com/people/2007/2/suzeorman

Sorry to bust your fantasy. She claims to still be a virgin:

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And if it was up to me.... she would stay a virgin. bleck!

In the past sixteen years, I rented the first twelve years.

No compalints.

Never paid over $300 a month in rent for all those years. I figure why through all your cash away on a place you don't spend much time at nor own.