Monday, May 14, 2007

Renting Versus Buying Redux

Many thanks for the congratulations from people on buying the house.

Some of you questioned whether it really is better to rent than to buy. What I meant in my last post is that it is not ALWAYS better to buy than to rent, obviously. But I think that in our case, all things considered, we would have been financially better off by renting.

I should point out that I don't really know anything about money, but here is my reasoning: We will live in this house for 4 years. After that, we'll hopefully get real jobs, and will probably move to another city. In those 4 years, we will "throw away" more money by buying a house than by paying rent. Obviously rent is all wasted money, but so are taxes and fees and maintenance. In the first 4 years of a mortgage, almost all of the monthly payments are interest, which is also wasted money. These payments work out to more than rent.

Sure, we're also building equity. I don't really know how to work that into financial reasoning, but basically, that's money we get back when we sell the house. It's neither thrown away nor gaining value, assuming the house stays the same price. Of course, it probably won't, and if it does appreciate in value enough to offset the difference between non-equity owning payments and rent (which, given past trends in London, is actually pretty likely), then we come out on top dollar-wise.

If not, we could have stayed renting, saved the difference in a high interest account, then, at the end of the 4 years, put that money toward a down-payment, and got a shorter mortgage with less money being thrown away to interest now that we could afford it.

This is only looking at money, though. Practically, we are gaining psychological value by living in a house. And practically, there's no way in hell we would be saving more money if we stayed renting. We'd spend it on hookers and blow (as suggested by Rob). And psychologically, having a porch to drink beer on in the summer contributes to our lifelong mental health. So even if we lose a few thousand dollars in the 4 years we live there, it's still worth it, which is why we did it.

Here is a flamingo which you may colour yourself. But please, mind your face:


Jason said...

I rent in a house, and I have to admit, I really like having a backyard and front porch (especially in the summer).

madamerouge said...

I like beer.