Lets say someone is taking home AFTER TAXES $25,000 a year. (You would need to earn about $37,000 a year to do this)

They can RENT and spend $750 a month on housing = $9000 a year.

OR They can OWN and spend $1500 a month on everything that goes with home ownership = $18000 a year.

If they rent, they have $16000 a year left over to invest with, play around with, have a fun life with. No need to BORROW money from banks, you have plenty of cash to live on. You can live DEBT FREE and have fun in life.

If they OWN they only have $7000 a year to live on after paying for the house. SO like most home owners they put everything they have into their house so to make up for the lack of income they BORROW off the equity to make up for it and LIVE IN DEBT paying interest forever.

Tax deduction for interest payments?? GET REAL.. You pay $1.00 in interest to deduct .10 cents from your tax bill.

We have rented this same unit for 4 years, the rent has NEVER ONCE increased during that time. (we have also never once been late with the rent during that time)

We RENT our condo for $750 a month. Our only other bill is our power bill which has never been above $60 a month even with us running everything 24/7 full blast. Cable, High Speed Internet, Water, Garbage Collection, Pest Control, and ALL MAINTENANCE is INCLUDED in our rent.

SO we are paying $800 a month to live here in LUXURY and SECURITY with FREE maintenance. We pay NO Taxes, NO insurance, No Maintenance, FREE Cable, FREE High Speed Internet. We recently needed to have our AC unit replaced, we called maintenance and within 4 days we had a Brand New Very high end AC unit installed and working beautifully. The Cost of this new system? $4300!! Cost out of my pocket?? ZERO because I rent. If we OWNED then I would have had to pay this myself, instead the owner pays it.

I NEVER have to spend a second of my time on Landscaping, painting, repairs, etc.

Anyone who owns in my community pays HOA fees. For my particular unit the HOA fees are just under $350 per month. This includes landscaping, cable, internet, etc.

So by renting my wife and I do not pay: Property Taxes, Insurance, HOA Fees = $350 a month here, Maintenance of any kind including appliances, Water/Sewer, CABLE, INTERNET.

If we owned a house we would be paying WAY more than the $9000 a year we spend on housing.

Good points and thank you for the response. I guess the answers are ultimately market-specific. A lot of people in my area have no equity because they entered into these interest-only mortgages. So, they are still on the street if they can’t pay up…(but more likely back with Mom and/or Dad).

Further, if they sell the house now, many of them would have to sell significantly under the purchase price, so there is no help there.

In my area, the delta between rental rates and mortgage payments (for the home we rent) is roughly $1,500.

I recognize that this means that a lot of people made a lot of money over the years in real estate. I’m not arguing with that point. The problem that I see is that the last 5 years or so (in my market) seemed to be similar to a game of musical chairs. Things were great while prices kept appreciating, but now the music has stopped and a lot of people are scrambling. I never understood how housing appreciation could stay at a steep trajectory indefinitely, while salaries were at a very modest incline. The delta between those two trajectories was greater and greater every year until recently. There was just bound to be a time when people were no longer willing to pay such a large percentage of their salary for their mortgage payments.

I agree with your last point. However, it seems like it all depends on appreciation. If I invest the delta for the next five years, and the housing appreciation flatlines (or only modestly rises…or declines), I am better off at the end of those 5 years than if I bought the house…assuming the investments appreciated. The delta alone in my area would be $90,000 over those 5 years…$1,500 x 12 months x 5 years). (Again, that’s with zero growth). That seems to take the argument back to the stock market v. real estate debate. Which goes on and on and on…

Thanks again for your response…I appreciate it and welcome any other responses.

As for investing the delta, rental prices are partially based on what the landlord is paying for their mortgage. That money delta is really a time delta expressed in dollars; the change in rates between when they bought and what the current market is.

Further, the important point that is being missed here is that if you invest the delta between the rental price and the sale price, there is little gained by “buying” a house in my estimation. I think there is a lot of pure propaganda that goes unquestioned. The real estate industry is tied at the hip the multi-trillion dollar credit industry. They have literally thousands of agents and lobbyists out there dispensing the Kool Aid. The subprime mortgage mess is just an offshoot of the larger problem which is that the credit industry is continually looking for new ways to turn you into an indentured servant. Be wary…they are serpents, and they never sleep. Just my $.02.

The most important points are rents are going to keep going way up and as Ryan accurately said, it’s after 30 years that there is no comparison.

If anyone is interested in a more detailed analysis, I have written a post called “Worst Financial Advice I have ever Heard”.

Unless you are planning to make major improvements to the home for the sake of flipping it for a large profit quickly. A friend of mine does just that in the Memphis, TN area and makes a good living on it.

But for the casual guy who is looking to buy for a home and not a project. Look long term or don’t look at all.