Once you have bought, you step off of that one way escalator of rising rents. Rents increase at a yearly rate about comparable to inflation in most cases, and rents never drop. I have never heard of a rent decrease except in areas that were so far gone they might as well have been war zones. You only borrowed $X when you bought, and unless you take cash out (which is under your control) you should never owe more money next year than the previous one.
So buying stops your situation from getting worse. What about making your situation better? First off, I need to observe that with rising rents, your situation will always get worse until you sell. But buying really does make your situation better. Not immediately; there’s always a hit for buying, and it always costs money to sell. But within a couple of years the average person will be above any reasonable return they can earn any other way, and the reason is leverage.
Fact one: you always need a place to live, and the options are to rent or to buy. Renting typically requires less cash flow, but returns nothing. Once you have bought, all that lovely appreciation belongs to you and nobody else but. Let’s look at an actual scenario for San Diego, one of the highest priced places to buy.
The article runs through a side-by-side, dollar-for-dollar comparison of the costs and benefits of homeownership — even in a high-priced area like San Diego in a slow market.
Technorati Tags: blogging, real estate, real estate marketing
sold 2004, now renting: says:
I think owning is the way to go long term, but one shouldn’t ignore the unprecendented divergence between rents and house prices over the past five years. In SF, where I live, home prices are up a good 50% since 2000, more in some areas — but rents are about flat. Not only does that tilt the calculation in favor of renting, at least over the short or medium term, but it also should make you wonder whether home prices are sustainable at current levels. I plan to own again, but I’d like to buy at the right part of the cycle. Not the absolute bottom, necessarily — but I would like to avoid buying at a historic peak. Does that make me a Chicken Little? Am I unfairly denying some buyer’s agent his justly deserved commission, and thus stealing food from his table?
August 9, 2006 — 6:45 pm
erin says:
You can’t wait forever for housing prices to come down to where you want them to be, and you’re never going to get that rent money back. I hope it works out in your favor, though.
August 10, 2006 — 2:33 pm