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The Truth Behind "Rent vs. Buy"

I've seen so many cheesy real blogs talking about Renting vs. Buying for years now, so it's finally time to weigh in.

First off, most people don't need to be convinced to buy a home. We all get it. However, these blogs miss the point:

Two Guarantees:

  1. It is a GUARANTEE that a renter will constantly pay more each year to live in the same place, and never gains a CENT of equity.

  2. It is ALSO a guarantee that even if home values go to ZERO, you will still have to pay rent to live somewhere.

The appreciation on your home in Los Angeles is just as good as an IRA or 401k. Very few cities in the U.S. can say that.

A Few Observations:

  • Long Term... In Los Angeles, the majority of better neighborhoods appreciate on an average of 6% - 7% each year, over the last 60 years (and probably further, that's just all the data I have).

  • Rent increases at a minimum of 3% each year, and the longer you stay paying those lower-than-market rents, the less caring the landlord usually becomes (I wonder why.)

  • In fact, the longer you stay, the harder it is to move and adjust to market rents.

  • If you own, your mortgage payment stays the same, and you earn a 6% - 7% return on your investment for just paying rent.

Fun Fact: The appreciation on your home in Los Angeles is just as good as an IRA or 401k. Very few cities in the U.S. can say that.

Here's the real issue:

You're not really entitled to stay in some other person's house forever and ever. It's not yours.

For all you reading this:

You want to buy, you know you SHOULD, and you're saving for a nice down payment. But... you have a good apartment with good rent. So what's the rush?

Here's the rush:

  • Prices. They’re not getting any cheaper. And, every time the prices increase, you need to save MORE money for a down payment. Even when they do eventually, do you actually think it's going to be EASIER to get a loan and buy a house?

  • Interest rates. They're finally going up. They haven't been this low in 4,000 years. And they're going up.

Let me put it this way: In the last 10 years, they have raised rates 3 times. Two of those have been in the last six months. It’s finally happening. When they go up, I am betting they will eventually end up around 7% - 8%. That’s where they hovered in the ‘70s, and late ‘90s and early 2000's. So basically double what they are today. Think that's going to affect your mortgage payment a little bit?

My Point:

I'm not trying to convince anyone to buy. But for those who have made the decision, and are just waiting for the right time... maybe waiting for someone to light a fire under their seat. Well, if you made it this far, you know the answer.

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