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Now that the real estate market has tanked for three consecutive years, renting doesn't seem like such a bad idea. Until 2007, buying was considered the only financially sane option, a view strenuously espoused by those who profit handsomely every time a house is bought or sold - real estate agents. It goes without saying that you're likely to get a much better deal today than if you'd taken the plunge in 2005 or 2006, when every financial expert and his brother were touting home ownership as a no-brainer. But should you buy or rent?
For nearly a decade, home ownership was billed as a sure path to riches and financial independence. Millions of renters tore up their leases and jumped on the housing bandwagon buoyed by stories of office clerks that bought a $100,000 homes in the nineties and just sat back and watched it appreciate to $500,000 by 2005.
If you go on the Internet, you will find thousands of 'rent vs. buy' calculators. They all do a fairly decent job of comparing mortgage costs to that of renting. Unfortunately their complete focus on the financial aspects overshadows the very fundamental differences between the two. What nobody tells you is the both renting and buying suck. Your job is to pick the option that sucks the least.
Buying a house is a big commitment. If you are living paycheck to paycheck, you should think twice about buying a home. First, if you don't have a 10% or preferably a 20% down payment, you don't have any business buying a house. If you're having a hard time coming up with the down payment, what makes you think you can take on the higher costs of home ownership when you're barely making it as a renter? How are you going to pay your property taxes when they come due and what are you going to do when the furnace breaks? Besides, forking over $50,000 of your hard earned money sucks no matter how anyone paints the picture of the "American Dream"
Buying a house isn't really buying, it's borrowing. If anyone tells you buying a house is a quick way to build equity - ask them exactly how much equity you are guaranteed to build in the first 10 years. Would you be surprised to know it's about 16% of the purchase price? After 10 years of making monthly payments totaling about 60% of the purchase price, that's what you'll get - a 16% ownership stake. I'm not going to hit you with any hardcore financial analysis in this article so just take my word for it - the equity you build in the first few years of ownership sucks. Of course you can build additional equity if the price appreciates, but there's always the risk that prices will go south - something we all conveniently forgot during the housing bubble.