Attrayant, don’t put words in my mouth. I never said renting was always better. What I do say is taht it is not a no-brainer, that for many people renting is a better solution, that it is an investment like any other and you need to understand what you are doing which most people do not.
“Buying is better than renting” has become one of those unquestionable maxims in spite that we all know many examples where it is obviously not true.
Yes, it is a good investment for many people but that does not mean it is a good investment for you. If you invest blindly in anything you may get lucky or you may lose your money. If you understand what you are doing you increase the odds of success dramatically.
I do not need to tell stories of cases where buying a home was a bad idea. We all know many. People who were evicted and their credit ruined because they could not keep up the mortgage payments. People who had to move unexpectedly and took a huge loss. These are the obvious cases. Then there are the not-so-obvious: people who could do better financially if the rented.
And yet, the chorus keeps repeating: “buying good, renting bad”. As soon as you make any attempt to seriously analyse the issue, people’s eyes glaze over… “buying good, renting bad” is easier to remember.
Simplified it comes down to this: You invest in buying a house and become your own landlord. You invest in a property and get as income the rent you would be paying the landlord. That’s it. You may not realize it but you are paying yourself rent every month.
I’ll give you a true example: About three years ago i knew this guy who is a financial adviser (!) and he was renting a house in Potomac, MD for about $2500/mo. He had the same thought, that he was throwing money away. The owner had offered to sell him the house for the market value which was about $600K.
Now if you do a little figuring, you’ll see why buying that house at that price is just crazy. He was paying a fair market rent and that was fair market value of the house. You could go to the neighborhood and rent a similar house for $2500/mo or buy it for $600K.
Now this guy thinks he is throwing money away on rent when, in fact, he has the best deal under the sun and he doesnt know it. He just kept going back to the “throwing money away every month”.
Now, if he invests 600K in a house which produces $30K/year in rent gross that is the lousiest investment I can think of. Not only is $30K a lousy yield but you have to deduct all maintenance and other expenses now that you are the owner.
If you can rent a house for 5% a year of its market value, and you decide to buy it, you are making a huge mistake.
As I told him, and as he finally did: take the money and invest it in something else, another property if you like, which will yield more.
This is a huge issue full of ‘ifs’, ‘ands’ and ‘buts’. You need to take many things into account. To say “buying is better, period” is pretty stupid. Buying is better if your situation meets a whole set of conditions. Renting is better if you meet another set of conditions. And in many cases it is not clear cut either way and personal preference is what counts.