You Be the Judge: Rent or Own?
By Ryan Healy | April 1, 2008
There’s a lot of talk about the benefits of renting vs. owning. The trouble is, so much of it is theory. And most people argue for what they’re currently doing.
In other words, if they currently own a home, they argue for home ownership. If they currently rent, they argue for the benefits of renting.
Whatever a family is currently doing, they are doing for a reason that they feel is in their favor. So it makes sense that they would defend that position.
I thought it would be fun to use a real-life scenario to see how you would choose. Here are the specifics you are to base your decision on.
Option #1: Buy This Home
- 1,398 square feet above ground
- 400 square feet finished in partial basement
- Mortgage payment: $1,553
Option #2: Rent This Home
- 2,179 square feet above ground
- 916 square feet unfinished basement
- Rent payment: $1,500
Assume that each house is equidistant from your place of work. Assume also that the larger house is 20 miles closer to parents, which shortens the drive for family get-togethers.
Answer This Question
Based on these facts alone, would you buy the home in Option #1 or would you rent the home in Option #2? Why?
After you and a few others have responded, I’ll write a follow-up post with some more of my observations.
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Topics: Debt Reduction, Mortgages, Renting |
11 Responses to “You Be the Judge: Rent or Own?”
Comments
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April 1st, 2008 at 7:46 pm
Hey man. I was just talking about this today. Personally, I have no idea. What I’ve been thinking about is my current poor credit score and whether house prices would continue falling.
That coupled with the fact that I want to continue moving around makes me want to rent. But I’m not sure what’s the best financially.
April 2nd, 2008 at 8:01 am
Hey Stephen - Got your book in the mail yesterday and started reading it this morning. Thank you!
Falling home prices are extremely relevant to this conversation, as are credit scores, down payments, etc.
And if you want to move around, it doesn’t make any sense to buy. (My opinion.)
Thanks for “de-lurking,” Stephen.
April 2nd, 2008 at 5:37 pm
[…] Ryan over at the Debt Reduction Formula blog asks the age old question of Rent or Buy. He’s looking for opinions on a specific scenario - a choice between buying house A or renting […]
April 2nd, 2008 at 6:38 pm
I think it boils down — now — to your lifestyle. Buying a house versus renting a place is more about how you wish to live, your time horizon, how much you like a change in scenery, how much you like to garden and do upkeep, etc. It also depends on your credit score, area, depth of the price fall, etc. Is there any growth expected in the community? Do you like the area?
A few years ago, the answer was easier to give: Buy a house.
Now, since things have returned (somewhat) to normal, it’s less a “I can turn this thing over” to how, where, and with whom do I want to live?
In your scenario, you leave out a lot of things; that’s the way hypotheticals are. But given your facts alone, I’d pick the house. With the mortgage, you get approximately $500 in tax savings, you’re forced to save a few hundred a month, so the “rental” of your house is maybe $900, which sounds like a bargain to me. Plus, I personally don’t need more than 1700 square feet of “space.”
Thanks for the nice thought puzzle.
April 3rd, 2008 at 7:54 am
Bill - Thanks for such a well-thought-out response. You make some great observations. I especially like what you said here:
“Now, since things have returned (somewhat) to normal, it’s less a ‘I can turn this thing over’ to how, where, and with whom do I want to live?”
April 3rd, 2008 at 10:04 pm
Cool man, glad the book got to you.
April 16th, 2008 at 3:43 pm
I also think a lot of it is a lifestyle choice. There might be reasons to buy. Is the smaller house in an area you know you want to stay in a long time? Can you add to it later? Though there are market trends, what historically has happened in that neighborhood?
Personally, in the above scenario I would rent. With 4 kids more space is desirable and going through a transition period we aren’t sure where we want to “plant roots” just yet. Besides, with the market so poor, we have time to find the right “deal.” We are renting an apartment now, (yeah no yardwork!) We also own 2 homes and have a partner in a 3rd. The area they are in has dropped appreciation over 20% while the property taxes went up, off setting any “savings”. Financially it’s no fun.
Of course, I have one clever friend who, being single, bought a duplex. She enjoys the owner benefits and lets someone else pay the lion’s share of her payment, almost living for free.
April 17th, 2008 at 5:16 am
Dawn - Great observations. Thanks for adding to the discussion. I’ll be writing a follow-up post next week. I leave this morning for Phoenix and won’t be back until Sunday, so my blogging has been put on hold.
April 17th, 2008 at 2:10 pm
As you have shown it without other info, I would rent say rent. But that is only because in our situation we have enough kids that even though we can itemize on the taxes, we don’t because our personal exemptions throw us over the top to no tax anyway. We need the space, not the tax deduction.
The main things to think about are:
1. Length of time before next move.
2. Property value trends in your area, both long term and short term.
3. Do you like the neighborhood? Are there good schools and kids of a similar age to your own kids. Do you like the house and can see yourself living there?
4. What type of loan can you qualify for?
5. Would you rather be closer or further from family? Some people NEED the space.
April 18th, 2008 at 2:58 pm
Maybe I missed it but the #1 question is whether or not you have debt. It certainly is the better choice to rent until you are debt free but not the popular one. We all know how even the most frugal people overspend on their newly bought home. Having debt and buying a home is risky, it’s only a matter of time before something breaks!
April 24th, 2008 at 11:28 am
[…] couple weeks ago I offered a hypothetical renting vs. buying scenario and asked you to vote on which option was […]