Buy v. Rent

Ahh..that tis the question. Clearly if you frequent any of the NYC real estate forums, there is a "war" going on between owners and renters. So, is one better than the other? Like anything else in life, it's not a one size fits all situation. I currently rent and I have owned...where ever I am that is home to me, after all "home is where the heart is". But like any other major investment we certainly need to enter home ownership carefully, because as many have recently discovered it can be perilous! For many people their purchase of a home puts all their eggs into one basket, as most will use a substantial portion of their savings as a down-payment and still employ the use of substantial leverage. You actually don't own the home; the lender does...at least until you pay off the loan. Since the lender makes his money by charging you interest on the loan, roughly the first 10 years of payments go towards interest. They want their money NOW!

Renting on the other hand may give you more freedom to move regardless of market conditions, but all you have at the end is a box of rent receipts. Unless of course that money you are saving on property taxes, fuel/water charges, insurance, up keep and a more than likely higher mortgage payment verses rental payment is being invested in the S&P 500 every month. Then historically you have a good chance of coming out ahead of your home owner counter part. I am not a great saver, and think that owning a home and getting it paid off in 15 years would be a good thing. Problem is, I felt I did not have a long enough time horizon to purchase in Manhattan(or the money at times!). In my opinion you need to know you will be in your home for at least ten years, this mitigates the risk of fluctuating markets.

But really at the end of the day we buy a home to use as shelter, a "nest" perhaps for our family, a place to call home. I think the investment angle is secondary, but by no means am I suggesting one buy a home without careful analysis of economic conditions and comparable home sales.

Here is an interesting article in the ECONOMIST that examines our belief that home ownership is always something to strive for, I think it makes a lot of very good points. Enjoy!