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Is It Better to Buy or Rent?

Actually, You Might End Up Richer If You Rent

Although we saw the housing market crash, most people still think buying a home is a better option in the long run. However, renting doesn't mean that you're throwing money away. The New York Times cites a paper written by Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, which shows that renting can actually make you wealthy:

[Yet the] analysis in this article shows that while homeownership often builds more household wealth than renting and investing the saved cash flow, it also often does not. More specifically, for most ten-year occupancies beginning during the 1970s and 1990s, homeownership unambiguously built more wealth. In contrast, for most occupancies beginning during the 1980s, renting and investing unambiguously built more wealth. Renting and investing is also likely to build more wealth than homeownership for many of the occupancies that started in 2000 through 2009. These results suggest that either homeownership or renting and investing can be reasonable strategies for building household wealth.

In other words, the conventional wisdom that homeownership is usually the better strategy is probably too strong. For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership . . .

Of course, buying would make sense in some cases in which the price is worthwhile and if you're planning on living in a place for a long time. If you're a renter, you can take all the extra dollars that you would've spent on a home — mortgage fees, property tax, repair and maintenance expenses, closing costs, insurance — and investing it to see a good return on your money. There is a definitely a lot of downside to buying in some property markets, so you'll be wealthier down the line if you choose to rent in those circumstances. If you're mulling over the decision of whether to buy or rent, be sure to check out this neat calculator by The Times which compare the costs of buying and renting.

Source: Thinkstock
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