PRICE TO RENT RATIO
or
SALE PRICE/ANNUAL RENT
ABOVE 20X -—> RENT
BELOW 20X -—> BUY
Our daughter, SIL and granddaughter are doing quite well financially and refuse to do anything but rent for exactly this reason.
When we lived in Seattle (2001 to 2008) we rented homes in the $1400-$1700 range that, had we bought them, would have cost between $3,000 and $3,500 a month on a 30 year mortgage (including RE tax). And we would have ended up around $200,000 underwater when it collapsed.
But we bought our farm in central KY. And the 15 year loan payments on 32 acres and a new home (when we bought it) are less than the monthly property taxes on our house in King county.
It’s a tradeoff and the financial picture is only one factor. What do you want to use your dollars for?
That and the fact that you never really own it. Stop paying taxes (intentionally or inadvertently) and see how long you keep it.
There is more to buying than the money aspect.
I really don’t want to move every few years, or have to move because the landlord refuses to repair or maintain the property because the rent is just enough to maintain their mortgage. I don’t want to be asked to leave because they sold the place or think they can get more in rent or because they just don’t want to rent anymore. I don’t like the idea that the owner can enter the property to “inspect” it. I don’t like the idea that the owner can abscond with the security deposit, and that happened when we were renting before moving into this house. I don’t like the idea of arguing over “normal wear” after every rental period. I don’t like the idea that the rent price can increase significantly after every rental period, so I have to move or ay a higher price. Unless I rent well below my income level, I don’t like not having that mortgage deduction every year. I don’t like not having equity building up. (Those that didn’t simply bought way too high and knew it when they did.)
Renting has it’s uses, such as we rented after selling at the high of the market while the market then plummeted, so we could take advantage of the cheaper prices, and we did.
I refuse to buy. It’s not like you will EVER truly own the property. Between taxes and other fees you will pay forever. And if you stop paying the taxes the government will simply seize your property.
I don’t see where they are taking into account that if you move - you get part of your payments on the house back in terms of equity, while if you rent you get zip back.
Also, make sure about the neighborhood. Never buy property that is near urban blight, has a highway running next to it or where other homes surrounding you are not kept up. Take a drive around the neighborhood on a Friday or Saturday night to make sure there are no street toughs or other riff-raff in the vicinity. What you want is a quiet neighborhood where people work hard and keep up their properties.
I've read about the financial benefits of renting vs owning but renting just has too many drawbacks to me. I don't like being at the mercy of a landlord. Being told to turn my music down, being subject to surprise inspections, or having my rent raised - just because. I don't want to be told what colors I can paint my rooms or have crappy home repairs done because the landlord doesn't want to spring for a professional handyman. And the list goes on and on.
Buy in rural areas, don’t live in major cities.
It stuck in my mind long ago that the largest purchase you will make in your lifetime is probably not your home but the interest on your home.