This man said to me yesterday “I’m never going to buy a home again, I’ll just keep renting.” So I asked him “are you aware of the disadvantages this poses for you?” Suddenly he became hard of hearing.
For some there's an advantage not to own, like the roaming Gnome in the video below. But for the rest of us the reality is, if you don’t own a home free and clear, then you are paying a mortgage, paying a landlord, living on the cuff with a friend or family, in some involuntary living arrangement, or, you are surviving the elements. Other than the people who have some sort of constraint (mental, physical, financial, or legal), the rest should own a home.
I began searching for statistics to help me write this blog and found this excerpt from an article by Eric Belsky, from the Joint Center for Housing Studies at Harvard University, and it states:
“Leaving aside the question of optimal portfolio diversification of risk to simplify matters, the choice to own or rent can be reduced to an elegant user-cost equation that captures all the variables that influence the costs of owning that must be toted up before concluding whether owning or renting is better financially. It includes house price appreciation (or depreciation), the opportunity cost of making a down payment (the return on an alternative investment of the same amount over the same holding period), the cost of capital adjusted for the value deductions of mortgage interest, the amount paid in property taxes adjusted for the value of property tax deductions, the amount spent to offset the depreciation of the property through maintenance and repair and replacement of worn out systems, other operating costs, the costs of any insurances on the home or mortgage net of any deduction, transaction costs to buy and sell the home, and the outstanding mortgage balance at the end of the holding period. More sophisticated versions may take into account mortgage refinancing and its impact on the ultimate costs of owning as well.”
OMG… What did he just say? Wading through his hyperbole gave me a headache. I think what he wanted to say is… If you rent, you lose the benefits of appreciation, depreciation, tax benefits, return on investment, or even more sophisticated impacts of owning. Even if I missed something else he was trying to convey, these are huge benefits to lose.
He made no mention of lifestyle issues like, it’s a good, safer place to grow a family, with more control over your living space, providing a nicer living arrangement and pride of ownership. Or, the mention of financial issues like, it's a good vehicle for your financial health, providing a retirement instrument, with monthly mortgage payments (savings deposits) until the loan is paid off... WHILE RENT DOES NOT!
Then there are those who believe themselves appropriate not to own due to losses they have incurred during ownership, without considering all the money they will lose while renting. Or those "realists" who think the world's economy is going to hell in a hand basket, they too would be better off owning then renting when it comes time to pay the piper.
I’m certain I've missed something, however, you get the point. Owning makes much more sense than renting, especially while interest rates are low, and payments are considerably less.
If you are considering owning a home please consider The Tracy Kaye Group in helping you achieve your goal. You can check us out by clicking on the links to the right or by going to www.TracyKaye.com
For some there's an advantage not to own, like the roaming Gnome in the video below. But for the rest of us the reality is, if you don’t own a home free and clear, then you are paying a mortgage, paying a landlord, living on the cuff with a friend or family, in some involuntary living arrangement, or, you are surviving the elements. Other than the people who have some sort of constraint (mental, physical, financial, or legal), the rest should own a home.
I began searching for statistics to help me write this blog and found this excerpt from an article by Eric Belsky, from the Joint Center for Housing Studies at Harvard University, and it states:
“Leaving aside the question of optimal portfolio diversification of risk to simplify matters, the choice to own or rent can be reduced to an elegant user-cost equation that captures all the variables that influence the costs of owning that must be toted up before concluding whether owning or renting is better financially. It includes house price appreciation (or depreciation), the opportunity cost of making a down payment (the return on an alternative investment of the same amount over the same holding period), the cost of capital adjusted for the value deductions of mortgage interest, the amount paid in property taxes adjusted for the value of property tax deductions, the amount spent to offset the depreciation of the property through maintenance and repair and replacement of worn out systems, other operating costs, the costs of any insurances on the home or mortgage net of any deduction, transaction costs to buy and sell the home, and the outstanding mortgage balance at the end of the holding period. More sophisticated versions may take into account mortgage refinancing and its impact on the ultimate costs of owning as well.”
OMG… What did he just say? Wading through his hyperbole gave me a headache. I think what he wanted to say is… If you rent, you lose the benefits of appreciation, depreciation, tax benefits, return on investment, or even more sophisticated impacts of owning. Even if I missed something else he was trying to convey, these are huge benefits to lose.
He made no mention of lifestyle issues like, it’s a good, safer place to grow a family, with more control over your living space, providing a nicer living arrangement and pride of ownership. Or, the mention of financial issues like, it's a good vehicle for your financial health, providing a retirement instrument, with monthly mortgage payments (savings deposits) until the loan is paid off... WHILE RENT DOES NOT!
Then there are those who believe themselves appropriate not to own due to losses they have incurred during ownership, without considering all the money they will lose while renting. Or those "realists" who think the world's economy is going to hell in a hand basket, they too would be better off owning then renting when it comes time to pay the piper.
I’m certain I've missed something, however, you get the point. Owning makes much more sense than renting, especially while interest rates are low, and payments are considerably less.
If you are considering owning a home please consider The Tracy Kaye Group in helping you achieve your goal. You can check us out by clicking on the links to the right or by going to www.TracyKaye.com
I think the author is setting himself up for the ever popular "make the stats say whatever you want them to. His open ended discussion leaves a hole wide enough to drive a truck through to make the end results meet whatever result one wishes. Too many what ifs, in my opinion.
ReplyDeleteHey Scott, Tracy Kaye. Long time no see. I hope all is well with you and yours.
DeleteThanks for leaving the comment, I really appreciate it.
If you are referring to my previous posts which have stats in them, as the author, I am in favor of stats that support my convictions, and welcome any discord.
I look forward to your opine in future posts.
If you want to discuss the stats that I posted give me a call 702.384.8630
No reference to your stats, Tracy. I was referring to the way the Harvard person framed his argument.
ReplyDelete