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Home ownership is part of the stereotypical American Dream. Renting the place you live in has traditionally had a less romantic connotation. On this episode of Good Money, we show why renting shouldn't get such a bad rap, and why in many cases it's less of a headache, and more affordable, to rent than buy.

Sure, it all depends on the numbers. But hardly anyone works out the numbers.

Think of it this way: if the rent is $1/month for a reasonable house, you should absolutely rent that house.

You're not "throwing away" $1, it's simply a fantastic deal, way cheaper than owning the same thing.

Renting is shredding your money, shitting on it, pouring lighter fluid on it, then setting on fire.
It's not a question of is a Shit Sandwich better than drilling your abscessed tooth with a Milwaukee cordless drill.

The solution is either demand fair housing stock free from market manipulation, or move a way to where there is adequate housing stock.

If for what ever reason you can't do that, or wont do that. Then it's really just a sad reality that we're being screwed and told high rents are the sensible reality.

As a renter all my life, I have never been happier in all my life owning my own house. I was supposed to pay on it until 2040, but I'll be paid off next year.
Then I'll be paying myself Rent, which I'll put in the bank. As for rent goes. I'm paying $1400 a month(escrow included), I would have to pay $2400 to rent a house with the same features I have here. I would have to pay a lot more for an apartment. That's if they would accept 4 adults and 3 toddlers. I wouldn't be able to split large rooms and repurpose floor space if I were renting, to suit my needs either.

Bloomberg, Patrick and Tenpoundbass are all correct because the location dictates whether it's better to rent than to own.

I wonder what the mortgage is on the house next to where I live which sold for $1.8 million? I wonder how much the guy put down. I know his property taxes are in excess of $18,000 per year. Since the guy works at Google, he may have put down a lot of cash.

He could never rent that house to other people to make enough to pay it off unless he remodeled it into several apartments at huge expense and of course there's no parking lot for his "apartment building" which the city would not permit in the first place.

clambo says

I wonder what the mortgage is on the house next to where I live which sold for $1.8 million? I wonder how much the guy put down. I know his property taxes are in excess of $18,000 per year. Since the guy works at Google, he may have put down a lot of cash.

Googlers have a lot of money.

@Patrick

You are absolutely right that very few do the rent vs buy analysis (or even know how to).

I’ve owned and rented. I currently live in San Carlos and it’s FAR cheaper to rent here today than to own the same thing.

Over the past few years there was huge equity upside to buying even though you could rent for cheaper. Given that we are at the peak (or a little past it on some Bay Area cities), that equity upside no longer is what it was.

But here is the crux: most people that choose to save by renting in affluent cities, probably don’t have the discipline to invest that savings. And so the experts are generally right that the average person should probably just buy when they are financially ready to, take advantage of the long term equity upside, and avoid the tragedy of being a renter into old age with limited capital.

In silicon valley, the housing prices are so high they dominate maintenance and tax costs. So, the rent-vs-own comparison really boils down to whether or not your "investment" goes up or down. You put 20% down on a $1MM shack, it doubles in value in 10 years, and you have basically made $1MM with a $200k gamble. No amount of "renting makes more sense" will overcome that gain, unless some landlord is willing to pay you to live in his house. On the other hand, if housing prices go down then renting is financially the right way go.

In other parts of the country housing prices aren't nearly as large, so maintenance and tax costs are a major part of the long-term equation. You'll also have higher rents as a proportion of house price. In that case, even a doubling or halving of house price won't dominate the cost equation over 10 or 20 years of ownership.

As for silicon valley right now, I can't believe the price of a $2 MM shack is going to double in the next decade unless by very high general inflation (think: Carter era of the late 70s). The most realistic way you'll be better off buying right now is to put minimal money down, get a 30 year fixed mortgage at 3.75%, and hope for a decade of 10% or higher inflation.

for Bayarea,

I was one of those renter guys for other reasons but I saved and invested the extra dough; I also had a roommate for years and invested that dough too.

When I was doing this people thought I was "broke" and a "cheapskate". I drove used cars and fixed them, etc.

BayArea says

the tragedy of being a renter into old age with limited capital.

This was the only reason my partner and I bought 30 years ago. Not to be Cool and Hip, not to be Smug Homeowners. Not to be Savvy Investors, nor for The Appreciation.

It was only for this reason. There were times when it seemed like a lousy investment and being Debt Slave, Slave To Our Possession.

Now, in an undesirable zip code in Silicon Valley area, including about $6k/yr for all sorts of maintenance and repair on a 50 year old sh*tbox, our owners' equivalent rent is about $1100 per month.

FortWayneIndiana says

Googlers have a lot of money.

I'm immersed in this stuff.

You might be surprised.

B.A.C.A.H. says

FortWayneIndiana says

Googlers have a lot of money.

I'm immersed in this stuff.

You might be surprised.

Between college debts, high California taxes, and enormous housing costs, a whole lot of young Googlers are finding out $150k/year total compensation doesn't make them the king of their city. That said, keep your expenses down and your income up and you can retire in 15 years. Too bad about the 5-to-1 male/female ratio. Maybe you can move out of silicon valley and get married at age 40.

SunnyvaleCA says

B.A.C.A.H. says

FortWayneIndiana says

Googlers have a lot of money.

I'm immersed in this stuff.

You might be surprised.

Between college debts, high California taxes, and enormous housing costs, a whole lot of young Googlers are finding out $150k/year total compensation doesn't make them the king of their city. That said, keep your expenses down and your income up and you can retire in 15 years. Too bad about the 5-to-1 male/female ratio. Maybe you can move out of silicon valley and get married at age 40.

It’s not called “Man Jose” for nothing