Home sweet rental vs The Benefits of Buying a House

By JAMES ALTUCHER

 Home ownership has often been considered a critical part of the American Dream -- an unwritten privilege of living in America bestowed on its financially secure citizens.
Owning a home was the ticket to financial security and, for several years earlier this decade with home values soaring, seemingly the best investment Americans would ever lay their hands on.
But in the wake of the housing crisis -- with home values down 35 percent or more and with little robust growth seen on the horizon -- it may be time to ask whether buying a home is still so vital to financial happiness.
The current economic environment is making a strong case that renting a home and smartly investing your savings can be just as rewarding.
When making the decision to buy vs. rent, people usually consider several factors -- the rent vs. mortgage payment being the primary question. But there are other financial factors to consider, including:
* Your insurance premium.
* Property taxes (which are usually higher than any tax deduction you get from your mortgage interest).
* Maintenance (pipes break, electricity problems, etc.).
* Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own).
* Yard work, pest control, remodeling, etc. (again, rents usually have this built into the price, but mortgages don't).
And let's not forget those initial costs that always seem to add up to more than you expect:
* A down payment of at least 15 percent, which is $90,000 on a $600,000 home.
* Closing costs, usually 5 percent of loan amount, or another $25,000.
* Initial remodeling costs.
Remember that you are completely out of that cash down payment you made because even if you sell, homeowners usually roll over that initial down payment into a new house for tax purposes. Cash is king and many prefer having cash in the bank.
Okay, so when you buy you definitely spend more per month and your initial costs mean that the house has to appreciate 10 percent-to-20 percent on Day 1 in order for you to break even. But that's supposed to be okay because you have the house as an investment, right?
Well, except for earlier this decade, it's been a so-so investment.
Between 1890 and 2004 (when housing prices began being tracked up until the peak of the housing boom, so I am giving zero credit to the decline in housing prices that have made these numbers a lot worse), housing went up a dismal 0.4 percent annually vs. 8 percent for the stock market, according to the Social Security Advisory Board.
Critics of renting point to real estate being an asset as opposed to throwing money away renting. But they forget about the massive amounts of money that it takes to get into the home ownership game.
Rather than spend $100,000-to-$200,000 on a home's initial cost -- and that has become completely illiquid as long as you own the house -- you can put that money in a portfolio of diversified real estate investment trusts, including residential investment trusts, if you truly believe in the housing market.
Renting in today's market and investing your savings will allow you:
* To diversify your savings, something buying a home prevents you from doing.
* To keep your assets liquid, a real security blanket, particularly in times of stress.
* To keep from becoming way too leveraged in housing for a significant chunk of your portfolio.
So while the banking industry, the White House and your Uncle Bob are all telling you to buy a house already, your portfolio may be better set if you rent a place to live.
And maybe you can get your landlord to shovel the snow  

The Benefits of Buying a House

 James Altucher has a lengthy column on why you should rent rather than buy.  

I agree with all of this.  You should not buy a house because "renting is throwing your money away" or because you expect the house to become a cash cow.  As an investment, housing is a good form of forced savings, but do not expect price appreciation to make you rich--nay, not even if it made your parents and all your neighbors rich.

But these articles, and the homeownership-skeptics (of which I am sort of one) often give short shrift to the benefits of owning.  Renting has hidden costs, too.  Outside of New York, with its massive stock of professional landlords hamstrung by restrictive rent rules, renting means you usually have to move every few years, because the landlord wants to live in the house again, or is selling it, or wants to raise the rent too much in the hope that you'll be too lazy to move.  Moving costs a ton of money, between the movers (now that I'm getting old and creaky), the new furniture that is inevitably required, and the old furniture that cannot be fit into the new house and must be thrown away.  Moving also soaks up a month or so of your time on each side of the move, which needs to be factored in for both lost income and sheer misery.

Then there is the inability to have your house the way you want it.  Sure, it's not like we could afford high-end appliances.  But if we owned our house, I might be able to hope that someday we would acquire a water heater bigger than a thimble, rather than hopelessly resigning myself to shallow, lukewarm baths.  I might also be able to sink screws into the ceiling for a hanging potrack, install blackout curtains so that I could sleep later than 6 am in the summer, and otherwise make the house over more to my specifications.  But the owners are fond of their home the way it is, so it stays.

For a long time, I didn't care so much about this.  I liked the freedom renting gave me.  But once you're committed to a city, and another person, that freedom starts looking overrated.