Renting vs. Buying

The New York Post and Investors Business Daily both featured articles this week on the growing benefits of renting, as opposed to buying, a home. The gist of both is that buying a home no longer represents the investment or carries some of the benefits that it did several years ago.

The Investor's article - "Renting a Home a Better Deal Than Buying in Much of the U.S." - points out that the typical historical ratio of home prices to annual rental costs is 13 to 14. But in many areas of the U.S., home prices are now 18 times or more rental costs.

The Post article - "Home Sweet Rental" - argues that people trying to decide whether to rent or buy need to look beyond just the rent vs. mortgage payment question.

There are other financial factors to consider, including:

* Your insurance premium.

* Property taxes (which are usually higher than any tax deduction you get from your mortgage interest).

* Maintenance (pipes break, electricity problems, etc.).

* Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own).

* Yard work, pest control, remodeling, etc. (again, rents usually have this built into the price, but mortgages don't).

And let's not forget those initial costs that always seem to add up to more than you expect:

* A down payment of at least 15 percent, which is $90,000 on a $600,000 home.

* Closing costs, usually 5 percent of loan amount, or another $25,000.

* Initial remodeling costs.

The articles also point out that keeping your savings liquid can be key in today's economy and renting a property is one of the ways to do that. In addition, the idea of eggs and multiple baskets is becoming is more important than ever. Tough times call for a diverse set of investments that focuses on other areas in addition to housing. Home ownership has always been one of the pillars of the American Dream. However, given the economy's decline, renting is becoming an increasingly smart choice. Changing the American Dream, one outcome of this bad economy is the declining importance of the "home ownership" rite of passage.

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