Prolonging the journey

I’ve been in the personal finance game for a little over two years now and it’s been a ton of fun. Many of my goals, during this time, have ebbed and flowed (much like my mother’s love for me), but home ownership has always been an urgent necessity. It would validate my significance and success in how I managed my money. At least, that’s what I thought.

Does home ownership really indicate one’s financial stability? For my wife’s parents it does. They own their home outright and it has significantly increased in value over the 20 years they’ve owned it. For the thousands of Americans facing foreclosure’s and short sales, not so much. “The American Dream” should not be owning a home, but owning a home when you can actually afford to own one. Novel concept right?

Renting seemed like the stupidest thing in the world to me. Why would I throw away $1,500/month, when I could own a home instead? Well, it turns out renting has quite a few perks of it’s own.

It allows me to put more in the savings vehicle of my choice. Taking on a mortgage forces you to save a sizable part of your income in your home, and as we all know, the real estate market is not always stable. I would rather throw $1,000/month away in rent and put $1,500/month in to my savings account, than just have a $2,500 mortgage.

It allows me total flexibility. If I get fired tomorrow, I am not limited to a 50 mile radius when hunting for my next job. Not only can I move wherever and whenever, but I can also determine how much I want to pay. If I ever feel like my rent is too high, I can always ask the landlord to reduce rent. How many homeowners can call their banks and say “Please lower my mortgage for no reason besides I’d like you to.”? And if my landlord says tough luck, I can pack my bags and begin looking for a new place.

But the real reason I most likely wont own a home in the next five years is this. It wont be a good time to buy one. If someone gave me $150,000 right now I’d sign a mortgage tomorrow. Unfortunately I don’t think that is going to happen. This means that I will keep on saving and saving and saving. Who knows where interest rates and home prices will be a few years from now, but if either are at crazy highs (to counteract the current crazy low) I don’t think I’ll be buying.

Renting isn’t a bad gig and one I won’t mind doing for a while longer. One day I’ll join the ranks of you homeowners, but I hope to do so at a time where I am financially able and at a point in my life where I am ready to commit 10+years of my life to one area.

Anyone else care to chime in with their two cents on renting vs owning? Do you think renting is “throwing” money away? For you homeowners, what lead you to the decision to quit renting and begin owning?

I think we can all agree that both renting and owning are stupid when compared to the third option…. living at home with the parents. You hear that Mom Ninja, the wife and I are moving in!!!! Muwahahahaha!!!!!

31 thoughts on “Prolonging the journey

  1. Unfortunately, I do agree that renting is throwing money away. I also agree with all the benefits of renting too. I think the problem with your situation regarding buying a home is that the median price in San Diego is quite high. I bought my home in Las Vegas for 130k with a 15 year mortgage in 1999. In 4 years, I think I will be as excited as you were when you paid off your student loan. I think if you can swing it, do the 15 year or less mortgage, it will truly make you richer in the future.

  2. If you moved in with Mom Ninja and paid her $1,500 in rent at least you would be building your inheritance 🙂 Or that Porsche Cheyenne Turbo she would probably buy with it…

  3. We bought a house because we live in a very rural area and there aren’t many apartments/places to rent. A lot of the apartments are for low income families, and we don’t meet the criteria. It only cost us an extra $500 a month to own a home vs. renting, and we can easily swing that, so we bought. Now, we were super stupid and took on a USDA Rural loan with 0% down (how did we even find that in today’s market?????), but we will pay off our house in the next seven years anyway (provided we don’t end up crippled and unable to work).

  4. My stepdaughter & her husband live 1.5 miles from us in an apartment – at $1300/month. We live in a 3 br/2ba home with a mortgage of $1200/month (PITI)…only $220 of which is actually paying down the mortgage (stupid amortization table! wish I knew then what I know now!). Their rent is going up – another $75 this year and no end in sight. We have increases in our escrow amount to cover taxes, but never that much in a year.

  5. I don’t think this is about money. I think you know if you want to own a home or not, and there are bigger concerns here than money. Just like I assume you didn’t get married for a tax break, that’s not why you should buy a house either.

    There won’t be a better time to buy a home in your lifetime (by that I mean a few years, not right this second), especially in California. You either take advantage of it, or you don’t.

    • This is really surprising to me. I always figured we’d start looking at home ownership when the long term finances made it apparent it would be cheaper than renting.

  6. I dont think renting is throwing away money. You mention some great advantages, but if you look at a mortgage amortization table, almost all of the first years of the loan are going to interest. So, instead of “throwing money away” to a landlord, you’re doing it to the bank. Only difference is the target.
    I also think stacking cash has a good point: San Diego is expensive. I think you’ve put up the amount that you want to save for a down payment before, and I remember thinking that would buy (free & clear) a very nice house in my area.

  7. Wow. I was half expecting a justin bieber post today, but I’m pleasantly surprised.

    In my case, home ownership makes sense. Housing is fairly affordable where I live, so my 15 year mortgage was $900/mo. In the beginning it’s almost like paying rent because almost all your payment is going towards interest…plus homes are money pits. It would be hard to do it in many parts of CA where renting is definitely cheaper.

  8. Jordan and I will defn. be buying within the next year – somehow, we’re also going to pay for a wedding. Lucky we’re buying my aunts family home and we have already settled on a price that she can live on and we can live with. If that wasn’t the case, we would likely be looking into condo’s right now. The market is only going to go up as the economy improves, so I really feel that now is the time to make large purchases (provided you have the cash flow)

  9. This is an “It Depends” question.

    If you live in a very low cost of living area, it probably makes more sense to buy because rents are comparable to payments. Is there a huge discrepancy between rents and mortgage payments in SoCal?

  10. I don’t think renting is throwing money away so long as you live in a high (purchase) price area, want the flexibility to move around, and aren’t ready.

    We’ve been renters all along. We knew the bubble would burst so we waited and watched as people bought homes that were outrageously priced. But while they bought and weren’t ready just to “live the dream”, we saved and got rid of ALL our debt except 1 student loan which we plan to be done with in the next couple of years.

    Now we are ready to buy and plan to do so. Housing in our area is about the same as the ridiculous rent due to the bubble bursting. And because we spent the last few years saving and have almost no debt, we’ll benefit by getting low rates. So we can actually afford to stay in the home we buy.

  11. Definitely not. While prices in the LA area have come down, they are still ridiculous. I love my little 1 bdrm apartment, but if I were buying, I’d definitely want at least 2, since it is a long term thing. That alone makes renting much cheaper than buying.

    NYT has a rent vs buy calculator which can help you determine at what point buying is financially better than renting, and under what assumptions. Last time i tried it, it came out to “never” for my assumptions.

  12. Okay, here’s the thing about renting being “throwing money away…” You can make that argument for anything! “Don’t spend your money on eating out EVER because it’s throwing money away!” “Don’t go to that concert! You could invest the money in your retirement account instead!” I don’t understand why RENTING is the one thing that is singled out as “throwing money away” when people are throwing money away almost every day on other frivolous things. And I don’t really consider paying to live in a place where all of your maintenance needs are taken care of and you have a ton of flexibility to be a waste of money.

    Especially for the area you live in, Ninja, it would be a pretty big step to buy a home. It’s when you live in areas that you could feasibly buy a home and make a mortgage payment that would be close to equal with rent payments that you’re “throwing money away.” But even then, once you take into account maintenance, pest control, structural concerns, property tax, you’re able to save more money by renting.

    One last thing – it is my biggest pet peeve ever that people immediately start hounding you about when you’ll buy a house after you get married. Who said we HAD to buy a house? D and I are students, trying to graduate college, and we’ve already heard about 20 relatives wax on about how NOW is the time for us to buy! Give me a break! We’ll buy when we’re financially ready to buy, and the rest of you can suck it! :-p

  13. Home ownership is great if you are going to live in the home for a very long time. if you relocate for a job and can’t sell the home it becomes a nightmare – at least it did for me. I own and I rent, unfortunately the home I own is 200 miles away from where I live now and my tennant’s rent covers the mortgage, but not the taxes, insurance and association fees. Can’t sell I am underwater. I am relatively ok with the situation because my rental income is just about equal to the rent that I pay every month for my apartment, so I can break almost even there and pay the ins, taxes and fees as if I was living in my own property. Bottom line for me, if I knew where my life and career was going to take me, I never would have bought the property I own.

  14. All of this “renting is throwing away money” talk results from the one major assumption that house prices WILL go UP – I don’t think we’re all that sure of such things in this day and age, and once people realize that, they’ll stop pushing that line. 1 in 5 people are upside down in their mortgage – that’s a huge risk if you ask me. While I agree that in some rural places the prices for renting are very close to buying, that’s not at all the case here in big-city California.

  15. I think it depends on your future plans. If you are planning to stay in the same area for an extended period of time, if you feel that the both of you are willing and able to take on (possible) renovations, home repairs, the extra bills that come with owning, and if you WANT to own, then go for it! You’ll be building your (already awesome) credit, earning equity, and you can call your home YOURS, 100%. Not to mention you can do whatever the heck you want to the place without asking anyone first.

    However – if you don’t want to have to worry about buying a new fridge if yours goes kaput, if you are even possibly thinking about relocating, if painting and flooring and other renos do not interest you at all, if you like the fact that you don’t have to pay property tax (etc) then continue to rent. But keep in mind, you are gaining absolutely nothing by renting except having a place to sleep. AND…you are building someone else’s credit, helping them earn equity.

    My husband and I decided we wanted to own about two years after our son was born. We were living in a small to fair sized 2 bedroom apartment and hated it. No yard to run around with the son in, the inability to decorate how we wanted because it wasn’t permitted, and it bothered us to no end that we couldn’t truly say it was OURS.

    So we bought. And, WE LOVE IT!!!!!!!!! I cannot tell you how much we love it. It’s a lot of work, it’s a lot of extra money, and sometimes we want to scream and throw things and pull our hair out about renos (we bought an oldie on purpose, which needed renos). But we have never been happier, our marriage has gotten unbelievably better and our challenged son has grown and learned in leaps and bounds.

    In regards to your 10+ years comment, that’s exactly how long we plan to stay here. At MINIMUM 10 years. We have no reason to leave! The house we chose has an extra bedroom upstairs in case we decide to add another critter to the family, and we have a massive unfinished basement with another bedroom and bathroom that my husband can’t WAIT to make into his man cave, the spare bedroom is mine to create a gorgeous guest bedroom with. Our yard is gigantic for this day and age (ah the expansiveness of the 60s) and the renos, well, we really do love doing them.

    We’re all about owning now – when a person is READY to do so. There are pros and cons for both renting and owning but it’s a very ‘depends’ situation for each person’s wants and needs. Good luck!!

  16. Debt Ninja and the MRS. The basement would be pretty crowded with brother Ninja and all the band equipment, I think we have a rule only 1 of you back home at a time..

  17. Home Ownership is really up to you. As you stated renting has some flexibility to it. I don’t think renting is throwing your money away, it’s about choice.

    Ownership for me seemed right when my wife and I were settling down and starting a family. We wanted to have control over what we could do or not do to the house. You just recently had to ask permission to paint your apartment, in a home you just do it.

    You certainly need to be ready for it financially, and a bit of hard work. Things will break and need repair and there is no landlord to call. Ownership can be rewarding, having a sense of accomplishment after complete improvement projects or host great parties.

  18. Interesting discussion you got going on Ninja! I think that you have benefits when renting, and the ones that you mentioned I agree with 100%. However, I don’t think that living at home with the parents/relatives for a few years is not a bad idea either. Many people actually get to save so much money by doing this, although it might not be as “fun” as living independently, it’s actually the best bet. Glad to hear that you are saving and thinking on ways to make the most out of your money. Hope you continue on that path and get to buy your dream home when the time is right 😉

    • Right about the same as my return on closing costs, mortgage interest, property taxes, homeowner’s insurance, HOA fees, maintenance, and repairs.

  19. hmmmmm….thought I’d throw in something my dad would say (and no, it’s no #$%^ by dad says). He often said that if rent is cheaper than the interest on your mortgage, what’s the point in the mortgage? Interest is money thrown away.

    BTW — enjoying your blog! It was rec’d to me last week.

  20. I bought 2-bedroom house when I was a single mother. Several years later, I met my soul mate. We got married in Febuary and lived in our 2-bedroom house for 4 months and realized that it was not big enough for three humans and 10 pets!! So we bought a 2200 sq ft 4-bedroom house in the country. We have HUGE equity in all both houses. We owe $110k on both mortgages and they appraise at $290k. The small house has been on the market since July (we were going to rent it to a family member, but that fell through and I missed selling it when they were giving out the tax credit!) and nobody is looking. Luckily, we are still in our “twenty five percent” for housing, even with two mortgages. If we could sell the small house, it would take care of a huge chunk of the principle of the large house.

    Anyway, we thought the big house was our dream house, but we lived in it about a month and had “a serious talk” about how much we didn’t like it! We plan on staying there for 5 years, until our son graduates from high school and then….? I’m hoping to fill in that blank with something exotic….

    Another reason to rent is if you are a natural nomad. I hate to admit it, but I am. I don’t settle down well.

  21. I rented for 10 years before we decided to buy our house. We bought it at a time when the housing prices were low, as were the interest rates, and we got the 8k first time home buyers credit. Now our PITI Mortgage payment is $960 for a 3 bedroom 1.5 bath house in a nice neighborhood, with good schools, and a nice yard… that is OURS. Our rent for a 2 bedroom 1 bath apartment with shady neighbors and worse location was about $560 so to us paying that extra $400 a month, while tight at times, is worth it a hundred times over. I just couldn’t see having kids in an apartment…

  22. I pretty much plan to rent forever. I live in NYC-so I would end up paying a coop fee even IF I didn’t have a mortgage.

    I’ve worked in the mortgage industry and I really don’t see any value for ME to own.

    I just broke my dishwasher last week. I walked down to the front desk in my lobby and put in a work ticket for it to be fixed. See? There are some joys in renting.

  23. In our area, renting is throwing money away IF you won’t be moving in 5 years. It’s really that simple. Our mortgage is $10 more a month than our rent was (and that would have been raised 3 times in the last 3 years). In our area, if you need to be able to move at any time, than you’d need to rent month-to-month for a premium. If you don’t need to move soon, owning is an obvious choice – the problem is that most people don’t have enough savings for the downpayment and $3000-$5000 closing costs around here.

  24. Sounds like you’re doing what’s right for you. There are different variables for everyone, plus the regional differences in cost. Where you are (CA) and where I am (NJ), it’s likely to ALWAYS be “cheaper” to rent in the long run. Not only is our mortgage about 20% more than we were paying for rent (although we’re living in a place 2 1/2 times the size of our old apartment), you have to take into account property taxes. Our property taxes? They’re 50 percent of what our mortgage itself is. So yes, it sounds insane that we bought a house, but we 1) Had 20% to use as a down payment 2) Love the town and found the prices to finally be in our price range again and 3) Don’t plan to move, ever. We can comfortably pay the mortgage and taxes and still have money to save. Not as much as we could save by renting, but for us, we’ve never been happier. This isn’t a ‘starter house’ for us, it’s home.

  25. I plan on renting for a long, long time. I’m happily single and have no plans to get married or raise a family. I don’t entertain guests. I don’t own “stuff” so I don’t need or want the space to store it. I just want a small place to cook a meal and lay my head. A house to me means responsibility, expense, excess, stress, liability, and debt. I don’t want to spend my weekends painting, mowing, cleaning gutters, fixing walls, and washing windows. I don’t want to be on the hook for burst pipes, replacing septic systems, furnaces, leaky roofs, and moldy cellars. I’d rather pay my $450 in rent each month to NOT have to worry about the stress of owning and put the rest of my money into diversified investments. There’s no way owning makes more sense for me on an emotional OR financial level.

  26. I don’t think renting in throwing money away, if its cheaper to rent than to own. I live in NJ where houses are still crazy expensive, and property taxes are ridiculous. Plus if something breaks, I’m not the one who has to pay for it. Owning a house is a big financial responsibilty and if you aren’t ready, then don’t do it. I think the past few years of our economy definitely proved that. I’m surprised people are even still thinking that renting is throwing money away after what has happened these past few years.

  27. I’m stuck renting, and I keep on hearing the “perks” that people say come with being a renter, but I’m having a hard time finding these silver linings.
    (For the record, I’m trying to get a big chunk of money together for a large house deposit – it’s actually going ok (but not fast enough!! Will be renting for the next year, hopefully buying after that) Just thought I’d point out that this is my current financial goal – so I’m probably biased 🙂

    But I don’t know whether it’s because of a different country and the way rentals are run, but over the past 3 years of renting:

    * People say you can “just move” (if you lose your job, or want to lower rent etc). Our leases are usually 6 or 12 months, 12months being the usual. If you want to break lease, you have to continue paying rent until they find a new tenant (I vaguely read somewhere that you’re also liable for advertising costs to find a new tenant.. could be wrong tho). Plus all the costs of moving (hiring trucks, bribing friends to help etc), I really couldn’t be bothered.
    * We had our hot water system stop working. In winter. We contacted the real estate agent. Several times. It took almost a month for someone to come out to fix it. I’d much rather be able to pay someone as soon as it happens than to wait for the real estate, to contact the owner, to find someone, to come out and fix it.
    * I’ve never heard anyone personally say that their rent ever went down. Every 6 or 12months my rent goes up. Without fail. When interest rates plummeted, my rent didn’t go down, but I know the owners mortgage rates did. When interest rates went back up? “Oh, interest rates went up, we need to increase your rent!”
    * We’ve asked repeatedly if we can use some 3M wall mounts for pictures. We have 1 hook in the entire 3 bedroom house. They continue to ignore the question. Apparently art & even clocks are lost on my landlord!

    Buying isn’t for everyone, but renting truly isn’t for me. I can’t wait until I can paint the walls the colour I want, hang as many goddam pictures as I want, and set up a drum kit without the owner disapproving!
    And don’t even get me started on the quarterly inspections!!

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