me_irl

You’re making several assumptions in your comment.

1. Like a landlord can raise rent infinitely at will. This is not true. Renting is a market. It’s why renting is cheaper than buying right now. Don’t you think the people buying right now with high prices and high interest rates would like to know they can rent their property for the same price as their monthly costs? Yes. Then why don’t they? Because the rental market is a market. They might try to charge a tenant the $5k/month they’re paying for their mortgage + tax + insurance, but if the going rate is $2.5k, there is no way they can raise rent to that level. Also, depending on where you live, your monthly payment can be very much dependent on property taxes. It may not be the landlord raising your monthly payment, instead it will be the local government. All that increase in equity on your home just becomes extra money every year that you’ll shell out to the city or county.

2. If you rent, you’re basically paying to live in a house as a service. You have almost zero risk. Your monthly payment is locked in for 12 months. If anything needs repair, you aren’t on the hook. How awesome! That $40k roof replacement? Not your problem. Random $1k furnace repair? $500 plumbing bill? $350 garage door spring replacement? $1500 termite tenting bill? $100 rodent extermination bill. None of your problems! Renting is fixed cost, low stress, and pretty much risk free. If you’re an owner, all those bills are your problem and it’s also money that you aren’t going to see again. All properties will eventually have these costs.

If your home value goes down, I still have equity. I can sell and regain at least some of that money…

Not necessarily. The moment you buy a property you are underwater on selling fees. Even if you turned around and immediately resold the property for the same price you bought it for, you’re going to lose 5-8% on selling costs. Also, home values don’t always go up all the time. You might have to wait years before you can sell the property for more than a loss. This means you really can’t leave or get out of the property unless you’re willing to take a loss. If you’re a renter, you can pack up as soon as your lease ends and wash your hands of the place.

Also, remember your monthly payment includes taxes and interest. That’s money you won’t get back. Depending on your rate, you’ll likely pay 2-3x the value of your house in interest over a 30 year mortgage. That means even if you sell the property for 2-3x what you bought it for, you’re just breaking even. That doesn’t include the annual tax you’re paying the city or county, or repairs and maintenance.

So, when renting is half the price of buying (which it is around me), you’re better off renting. Buying should be cheaper than renting given all the risks and extra costs I cited above. In a normal market, that would be the case. When it’s not that way, be suspicious.

Prices around me are insane. It’s twice the monthly payment to buy than to rent. And, that’s before spending on repairs and upgrades. This means most people are not buying to speculate because there is very little upside and no way to cover the monthly costs by finding a renter.

Prices around me are insane. It’s twice the monthly payment to buy than to rent. And, that’s before spending on repairs and upgrades. In my area, renting is much cheaper than buying. This was actually a signal predictors of the 2008 crash used.