Rent or Buy, Which is Better?

In my 16 years as a financial planner, I have been asked this question many times. For decades our society has told us that renting is just throwing your money away and that buying a house is a good investment. Even the government tries to influence our behavior with offering a tax deduction on the mortgage interest. We have to start realizing that your house is not an investment. Investments should be able to feed you income; and as I always say ‘You can’t eat your house’. So which is it, Rent or Buy?

Let’s compare some facts. First with renting you don’t have maintenance costs, mortgage interest, property taxes and renter’s insurance is dramatically less expensive than homeowner’s insurance. If you average $1000/month in rent over 30 years, that’s a total of $360,000. Throw in another $15/mo for renter’s insurance and the total spent to rent for 30 years is $365,400.

Now if you were to buy, say a $200,000 house with a 30 yr mortgage @ a 4.4% rate, you monthly payments would be about $1000. (Interest on 30 years is $160,547.20). Add in another $270/mo for taxes, insurance and maintenance costs and after 30 years you spent $457,747. Plus, you can’t guarantee that you will be able to sell your house if you need to move, so you do not have the same flexibility as a renter.

The difference between the two examples means you would have spent $265/mo less than if you had bought a house. Not necessarily a bad deal to rent.

* Reprinted from YourSmartMoneyMoves in 2015.