The value of a mortgage investment vs renting

Recently, we’ve seen multiple news stories suggesting buying a home and having a mortgage is not necessarily a good investment, and when making the decision to buy a home, you really should not consider it as an investment vehicle since your “rate of return” would suck. Why has this become a news-cycle theme all of a sudden?

Here is an article from May 1, and there were many other such themed posts during that week.

A mortgage is a terrible investment

Last week, my colleague Ryan Cooper made the argument that it is time to kill the dream of subsidized universal homeownership, by ending the subsidies that are being funneled toward it. He argued, “The problem is that a house is a crap investment.”

At least the above article mentioned RENTING, yet they suggested renting would be a better “investment” even though when you walk away from the property you walk away with nothing more than your security deposit. I’ll argue even though you have to pay property taxes and maintenance on the property, historically during the past 50 years you end up well ahead of the game, and are in a position to buy a new smaller home when you get older.

About those maintenance costs and taxes… Most of these articles remind us that when we are renting, we don’t have to worry about property taxes and maintenance. Oh really? Where the heck do the authors think the money comes from to pay property taxes and maintenance? It comes from the rent paid! Do they think the landlords have some sort of special account they draw from to pay taxes and other expenses? I can tell you this for a fact – when property taxes go up, rent goes up. When maintenance costs go up, rent goes up. And by the way … rent rarely if ever goes down.

Certainly, there are people who lease cars for the low payment and reduced maintenance cost, but leasing is not a good investment unless you’re the type of person who has to have a new car every two to three years. In a similar faction, it may not be a good move to buy a home if you are one to relocate every two to three years.

Here’s another story from the other day, which focuses in on the short-term mortgage view.

Without a huge mortgage hanging over one’s head, money is instead invested in productive assets and, even better still, allows entrepreneurial risk taking, like starting up your own business or following your dreams.

So why not use Chinese money for an overvalued, unproductive asset with very poor returns, and instead use our money for productive investments and do what we want?

Well I don’t know, maybe because instead of paying a mortgage, I’d have to pay RENT and may or may not have money available to invest? Rent may not be any cheaper than a monthly mortgage.

Another post from the Christian Science Monitor. Of course buying a home is not always the right choice! Who would think that? There are unending variables involved each individual or family must consider.

Another headline from the Chicago Tribune.

Don’t liquidate retirements savings to buy house

No kidding? And from Fox Business

Rent vs. Buy: It’s Not All About Money

“If you have stable income and have the down payment and can qualify, it can make more sense to own a house if the mortgage is less or the same as paying rent,” says Patti Frank, vice president at American Mortgage Group.

A home might be an affordable purchase now, but it’s also important to make sure it will still work in the future when finances and lifestyles change.

Throupe recommends considering the costs associated with operating and maintaining the home, along with the added costs that come with expanding families and living. It’s never a good idea to create a situation that the entire budget covers the home and there’s no room left for other things.

These are just some of the articles I found on the subject starting May 1. I’m not at all suggesting buying a home is the better decision across the board, I just have to wonder why these articles started popping up throughout the news-cycle during the last couple of weeks?

5 replies
  1. Erik Blazynski
    Erik Blazynski says:

    I notice these trends in journalism as well. Usually it is a trade organization that writes articles and distributes them for publication. Maybe that is the case here.

    We are moving out of CT and we may rent for a while in VA, but I can’t think of another reason to rent.

  2. bien-pensant
    bien-pensant says:

    A couple of months ago, the must-acknowledge, be-concerned-about topic was the cost of getting a college education. The argument was that (almost) anyone who got a higher education was, well, er, stupid. Next? Own a home? Not a bright move for you, at all!
    But, is this coming from someone who has a college (masters?) education and very probably owns a house.
    Property ownership has always been the bedrock of credit. Try to get out of jail on good looks.
    True, home ownership is not for everyone. Witness the mortgage debacle. Most people I know who have any appreciable assets got it through inheritance. Not every college graduate has a well paying job (/sarcasm). Why promote that ownership of real property is not for anyone or, is it just for some? Who then is the landlord? Who benefits here?
    I don’t buy it. Home ownership is the American Dream.These articles and talking-head chatter smack of sophomoric superiority. Jealousy, perhaps?

  3. Aaron0084
    Aaron0084 says:

    The idea of your home as an investment is really a recent one and i think it is incorrect. Your home is a place for you to live and keep your stuff as George Carlin once said. This ridiculous idea that home and real estate values will always go up is what lead to the housing melt down in the first place. I agree that owing your residence makes better financial sense then renting. But name something else out there that goes up in value while we use it for its intended purpose. The primary value of a home is it’s use as a residence. If it goes up in value, that is just gravy. If it goes up in value too much, it inflates the cost of housing and puts new buyers at a disadvantage. Lets stop referring to homes as an “investment” unless you are purchasing real estate to generate rental income as a source of your mortgage payment.

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