Inspired by Metroplexual’s suggestion to read the NJ Real Estate Report (linked on our sidebar now), I came across a post that compared renting a home to owning a home. In truth, the article was linked from another source, but it gave some interesting points of view on the classic owning vs. renting debate. For my part, after I read Rich Dad, Poor Dad series I began thinking about money in a different way. What I like about the article linked on the NJ Real Estate Report is that it talks about some of the same principles (in a roundabout type of way) that Rich Dad, Poor Dad talks about. For example…
The NJ Real Estate Report post lists 5 different reasons why you should rent instead of own. One of these reasons is because it’s cheaper. The post says:
Cheaper. When you consider the cost of being a homeowner — mortgage payments, association dues, property insurance, property taxes, repairs, maintenance and upgrades to protect your home’s value — most of the time, renting will be cheaper.
This is true. The financial planners who subscribe to the theory that a home is one’s biggest asset are at odds with these realities. Assets should appreciate in value (not in this market!) and they really shouldn’t cost you too much money. Look at the costs above from a New Jersey perspective: mortgage payments are between $1200 and $1500 depending on the size of your mortgage and the rates; I’ve seen association dues range from $175 per month to $350 per month; property taxes are out of control in New Jersey and for the places that I’ve been looking at, they are around $4000 per year; repairs, maintenance, and upgrades – let’s place a conservative $200 per month into this pot. All in all, you could wind up spending $2400 per month on your house alone! That doesn’t take into account utility bills, food, gas, clothing, etc.
Now, as the Rich Dad, Poor Dad series taught me, let’s say you spend $1000 per month on rent. That leaves about $1400 open each month. If you were to sock that $1400 away in a the stock market, a high-yield savings account, even bonds – you’d get a higher annual return than your house would appreciate. This ridiculous current housing bubble aside, houses appreciate between 3% and 7% per year depending on market factors. Long-term returns from the stock market show double-digit gains for investors.
Makes you think – is it really worth losing money to own a house?
Thanks for the hat tip Joe. A cautionary tale about “Rich Dad Poor Dad” google Casey Serin and you will find someone who thought that they could get rich quick and has listened to everyone who had a tale to tell. That said the book has some interesting and counterintuitive views on money. I would recommend it with a skeptical eye.
BTW, the place I rent has $4,500 per year association fees and $5,500 in local taxes. I rent 2000 sq feet for $1,600 a month. If you do the math the payment per month on a mortgage on the house at my given rent is about $770 give or take. At 5.75% fixed 30 year the payment would get me around $130-$135K. What are these places selling for in my area? In 2005 $330,000. Yeah there is no bubble, right. This is why I rent. Besides there is the intangible benefit of choosing to leave when you like.
I am able to save money vacation and hve enrichment activities for my kids, all because I did not bury myself in debt. I will buy in the near future but only when prices have reverted to the mean. You cannot time the market in stocks but in the case of real estate when things are this out of whack you can know not to dive in.