Buying vs. Renting: The Surprising Numbers

I want to show you why renting is actually a smart decision for many people, especially if you live in an expensive area like New York or San Francisco. But first, let’s rid of the idea that renters are “throwing away money” because they’re not building equity. Any time you hear clichés like that — in any area of personal finance — beware. It’s just not true, and I’ll show you the numbers to prove it.

The total price of buying and owning a house is far greater than a house’s sticker price. Take a look at some sample numbers:

In the example above, your $220,000 house actually costs you over $400,000. And I’m not even including moving costs, the cost of new furniture, renovations, and the real estate fees when you sell the house — all of which will add up to tens of thousands of dollars.

You can agree or disagree; regardless, it is your decision to make and I encourage you to run the numbers for your specific circumstances.?

But I do want you to understand the phantom costs involved.

When you rent, you’re not paying all those other assorted fees, which effectively frees up tons of cash that you would have been spending on a mortgage and ancillary costs. The key is investing that extra money. If you do nothing with it (or, worse, you spend it all), you might as well buy a house and use it as a forced savings account. But if you’ve read this far, chances are good that you’ll take whatever money you have each month and invest it.

Of course, like buying, renting isn’t best for everyone.

Of course, it depends on your specific circumstances.

There are?plenty?of examples where homeownership is the far superior option!

The easiest way to understand if you should buy or rent is to use the?New York Times’s online calculator. It will factor in maintenance, renovations, capital gains, the costs of buying and selling, inflation, and more. Three?additional thoughts:

• Not everything has to be a financial decision!?

• There are a strong group of people who?DO?invest in real estate — but it functions more as a business: They flip houses, acquire multi-family units, apartment buildings, syndication groups, and more — which is phenomenal. But I would classify this to be closer to a business, meaning they are actively involved because it requires time, energy, and effort, similar to working a job for earned income. For the majority of people, this is not the case.?

• Renting provides a luxury that most people do not understand. Some do. But most do not. The ability to pick up and go anywhere, and do anything, is a luxury that renters can enjoy and is preferred by most young people. When you lock into a 30-year mortgage, the decisions you make change: You might not take a new job with lower pay but is more fulfilling; you might not travel because of sunk costs; you might not change cities to try something new.