Interesting Article about why your home may not be a good investment for some folks today.

I guess I've never thought of my home as an investment...whatever increased value ours has (currently 2.5 times the price we paid for it), the kids can have whenever the time comes...

article doesn't seem to mention the leverage factor with buying a home...I've been thinking a lot about this subject recently, anyone know of other articles on the subject? it feels like there are so many factors it's hard to model it (I tried putting together a rent vs buy spreadsheet and ended up quite confused)

I thought this was an excellent article...quite insightful....one thing that would have made it much more useful would have been a buy vs rent calculator...if you have, say a 2 b/d home...the eqt rent would be $1000 (depending on the market, of course)...and that would have helped in finding which was the better option down 30 years adjusting for real estate inflation in the rent as well....

Yep, there's a LOT to consider. Let's start off with some simplifying assumptions. I'm not saying these are realistic, but they'll help you get a handle on the problem, and then you can add things back in later:

• Assume you're paying cash for a house (no mortgage).
• Assume equivalent houses for renting/buying.
• Assume the house's value stays exactly the same for all time.
• Assume that utilities are in addition to any rent paid (ie - ignore utilities for comparison).

So if you buy the house...

• You pay $X for the house up-front.
• You get $X for the house when you sell it at the end.
• You pay roughly 3%-4% of $X in closing costs up front.
• You pay $TAX monthly property taxes.

And if you rent...

• You pay $Y monthly rent.

The cost to live somewhere for NUM_MONTHS months would be:

• Buying: (0.04)X + (NUM_MONTHS * TAX)
• Renting: (NUM_MONTHS * Y)

a google search for "buy vs rent calculator" will produce many results, all of which seem to give different answers

good approach. what started throwing me was (not surprisingly) tax concerns...property tax and mortgage interest deductions, capital gains taxes on investing the difference in monthly payments, etc.

thanks for informative article

If you're just looking at this decision as a financial one, this article might be of some use. But homeownership is so different from renting an apartment lifestyle-wise that it's difficult to make a straight comparison. And renting a comparable house to one that you would buy (to make it more of a true comparison) is often much more expensive on a monthly basis than buying one. I think this is one of those decisions that you make because of how you want to live and not how you want to pay for it.

link to useful calculator from the NY Times that shows the rent vs buy option graphically. not sure how deep the analysis is (e.g. all tax related issues) and it doesn't allow you to enter HOA fees (could approximate it via property taxes I guess)

This reminds me of a psychiatrist woman (divorced) who was the mother of my DD's friend at school. It was obvious she made way more money than the house/neighborhood she was in (houses from $350K- $500K) and they also had another house on the beach.

I asked her why she lived in that neighborhood vs. a Country Club type one, and her response was that she only put 10% of her salary into her house.

Wish I had that kind of cash!

I think there are still a number of scenarios where paying a mortgage is better than renting aside from only purchasing places in highly appreciating areas.

1) If your mortgage plus (insurance/taxes) plus the relevant tax deduction on taxes and interest is close to total cost of rent (including renter's insurance), and you can buy with no/minimal down (combo loan, etc.) because you have good credit. This definitely does not occur during crazy market times.

2) When you start renting a home to someone else (moving up). The tax benefits there are very different as well.

Rasheed