I fail to see why renting can be better than paying towards your own property and your own asset.
Naturally the rent versus buy depends on lots of things, but think of it this way. Lets say you might want to own a $500,000 home and you have $500,000 cash, or you can rent the same home for (I don't know) lets say $30,000 per year.
If you buy the home, you then own the home but have to pay taxes + repairs. You get to find out how smart your purchased decision was XX years later when you decide to sell and you know exactly how much you've invested in the property during those years.
If you rent the home for $30,000 and invest your $500,000 and make 8% per year ($40,000), you gotta pay taxes on your investment income (lets stay $8,000, 20% tax rate), so you make $32,000 after tax profit and pay $30,000 rent and you're up $2,000 already, and you don't pay taxes. And you can move in a heartbeat, you're not tied down like a homeowner. Your savings is in your brokerage account, not in your home.
If you shift your investment return around (up 20%, down 5%, who knows?) it can help you understand the buy versus rent decision.
But if you take out a mortgage (5% mortgage interest by by per year?), then the whole thing gets more confusing. If you have $100,000 down payment and a $400,000 mortgage, you're basically doing highly leveraged investing. Its sort of similar (but not quite) to investing $100,000 capital and borrowing $400,000 on margin. The difference is the bank won't give you a margin call on your home unless you miss a few month playments, but the broker will send you a margin call pretty fast if your stocks fall by 15% levered up 4x!
Probably the way to decide whether to rent or buy is to compare your home you could have bought 20 years ago with the same $500,000 that you invested 20 years ago, something like that. |
