Two recent posts outline different views on this.
William Cowie posted on the GetRichSlowly blog an article about why you should make your home your first investment.
He observes that most millionaires built their wealth with real estate. If done right it is hard to beat as an investment, especially over a long time period.
Among the advantages he cites for buying rather than renting a home are these:
Retirement: if you buy with the plan to pay off the mortgage and stay put you can find yourself in retirement with no rent or mortgage payment to make. This is a great way to enter retirement.
Leverage: buying allows you to invest up front in real estate and use leverage to end up owning something worth far more than hou paid for it – if you wait long enough and if your home is in the right market.
Tax Advantages: there are some tax advantages to paying on a mortgage but as he notes this can be deceiving. You have to look at it critically to determine if it really benefits you.
Avoiding Rent Inflation: in some markets rent goes up steadily and continually. If you buy a mortgage on a fixed interest rate it will not go up over time and you can avoid rent inflation altogether.
He also lists some caveats you need to be aware of. Read the rest of Cowie’s post here.
Conversely Erik Franks posted an article on Realestateconsulting.com that suggests that buying costs more than renting. It can. He cites these factors:
First time buyers normally pay 10% down rather than 20%. This reduces leverage and forces the buyer to pay more in interest over time.
The tax advantage can be dubious for people in a 25% tax bracket.
Projected appreciation rates may be misleading. He claims that over a 30 year period homes may not appreciate as fast as one hopes and if mortgage rates fall over time this can hurt you.
He acknowledges that it will depend on what market you buy in and what happens to that market over time. Read the rest of his post here.
What neither of these authors discuss are the other factors that affect your decision to rent or buy. Do you plan to move soon? Do you anticipate frequent moves due a job? Do you want to maintain a home and have you calculated the cost of taxes, insurance and upkeep? Are you a DIY sort of person or would you rather leave that to someone else? Can you afford to buy where you need to live or a size home you feel you need for the size of your family? Do you travel often?
These and many other questions need to be considered before making the buy vs. rent decision.
You also need to determine the best place to buy. Location really is important in real estate. Some locations will meet your needs and preferences and others will not. For financial reasons it is even more important to determine how likely it is that property values will increase where you want to buy.
Read the articles and look into the question carefully. The best advice on this will vary depending on your needs and abilities. For the person who plans to buy for the long term in a good location and who is not frightened away by home maintenance buying can be the best choice. For many others renting is better.
Learn how to manage your money, eliminate debt and build wealth in my book, Your Financial Success.Wishing you well,
Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.