To buy or not to buy?

So, a trader I know on another forum is saying that purchasing a home is not a good idea. His premise is that owning a home is a liability, and I understand there are expenses related to it, but I feel as though it is expense neutral. Why pay rent when you can own for less and walk away with something in the end?

Am I missing something here? If, as a financial advisor or friend, someone asked you whether they should buy or rent, what would your response be?

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Comments (9)

Oct 30, 2010 - 12:55am

this is a ridiculous question without context... i.e. you would need to give background info on your earnings, potential earning power in the future, savings, spouse's earnings and potential... etc... the decision is different for every person because so much of it depends on future uncertainty... a lot of people make the argument of throwing away money on rent whereas paying on a mortgage would build equity, but the opposing argument can be made about the volatility of home values and uncertainty of employment opportunities... in short, the answer to your question like so many questions in the world of finance is "it depends.."

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Oct 30, 2010 - 1:52am

He probably attended the same guest speaker at his local university as I did last last year. To sum up what I remember, after factoring in the amount of maintenance, time & effort, taxes, mortgages, time value of money, and random liabilites your house becomes a net liability (it continues to drain money on a regular basis and most people would be better off renting or in a codo).

I do not agree with this arguement, but I can see the logic in it. I think all Americans want to own their own home and while rent is a relatively fixed expense each month, you are building equity value over time with your mortgage. With the exception of the recent housing bubble, house prices usually rise with or faster than inflation.

Oct 30, 2010 - 2:27am

I think it can be a very good idea, particularly if you know the market well... if you've got very good credit and get a low fixed rate on your mortgage it can be a particularly smart move - especially because of the associated tax deductions.

It also results in a form of forced saving, which I think is constructive.

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Oct 30, 2010 - 9:23am

Owning a home is propaganda fed to the masses. The fact that most of an Americans wealth used to be their homes is shocking. Owning a home can be a good thing in some circumstances, but it sure as hell isn't the end all be all that it is made out to be in this country.

Rent and put the rest of the money in the bank. I would rather have liquid wealth than a home with equity. Renting also usually allows you to live closer to work and shopping thereby reducing travel time and inconvenience. You have flexibility to move to where the jobs are in case of a slow economy. You can also adjust your living space to wso/">suit your needs to that you are not wasting space.

Oct 30, 2010 - 9:39am

This is a very bad question to ask IMO, its highly related to the exact terms of each persons situation. I would say that MANY people who buy homes would have been better off renting, had they the willingness to educate themselves about the opportunities that liquidity offers them. My opinion is not related to current or past markets, I believe that even if home prices do continually exceed the rate of inflation, there are many costs that offset the modest gain, the time value of money offsets much of the resale profit, and there are a lot of risks associated with owning a home that do not come with a term rent.

Of course I recommend buying and owning a home once you are entering your terminal setup and preparing yourself for the future is no longer a matter of clawing your way to the top and maximizing your earnings and profits... once you have a family, what you hope to be your last job, savings, everything in its place... hell yes you want your own piece of the pie. But at that point, it's not an investment.

I think what it boils down to, is once again people think of homes as a long term investment without realizing its an expensive investment to maintain and that it varies from illiquid to extremely illiquid.

Still not sure if I want to spend the next 30+ years grinding away in corporate finance and the WSO dream chase or look to have enough passive income to live simply and work minimally.
Oct 30, 2010 - 7:18pm
Still not sure if I want to spend the next 30+ years grinding away in corporate finance and the WSO dream chase or look to have enough passive income to live simply and work minimally.
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