Renting Versus Buying
Home ownership can easily be worse than renting.
It's not only that after adjusting for official inflation, home prices have historically only grown by about one percent per year! (If one adjusts for real inflation, then it is easily worse.)
There are a lot of other cost hurdles associated with owning a home and attempting to profit from it.
1. Mortgage Interest - When you're paying 5% or 6% or even 9% on your mortgage, that basically counts against "equity" buildup!
Consider that with a $200,000 home purchased with a 30-year mortgage fixed at 5% interest, that means 360 monthly payments of $1073.64 each, and at the end of 30 years, you'll have paid $386,510.40! At 7%, that's $1330.60 per month for a total of $479,016.00!
2. Property Taxes and Maintenance - People forget that while you owned the house, there were maintenance costs like plumbing, roof repair, yard work, painting, costly property taxes and other fees. That also eat attacks the equity you are trying to grow.
3. Selling Costs - Then consider that sprucing up a home for sale - painting, improving the landscape, money spent on home repairs - also takes away from the bottom line. Let's not forget broker commissions. Anywhere from 3% to 6% of the total sale price is typical (buyer's agent and seller's agent typically split the commission).
4. Taxes At Time Of Sale - Not only do you have to pay to own, you also pay at time of sale. There's local, state, and federal taxes on profits. (Unless you elect to take the once-in-a-lifetime IRS exemption on federal taxes.)
Bottom Line
Think carefully before you decide to buy a house. Most people underestimate the total costs of ownership.
A house can be a great thing! You don't have to deal with landlords. You can modify the premises and improve it as you like. You can deduct the mortgage interest from your taxable earnings. If you pay off the mortgage you have only utility bills and property taxes to worry about. And every year, your monthly mortgage payment remains the same (though other maintenance costs and taxes increase) while other landlords will raise your rent.
Owning CAN be cheaper than renting. Except when renting is cheaper than owning.
To find out more, here is a simple Buy versus Rent calculator:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html