Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 17, 2012

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This question has given rise to a very passionate debate with plenty of experts on both sides of the fence, but the simple answer is that it depends. Anybody who claims otherwise is uninformed, lying to themselves, or has another agenda. The reason is because market factors, personal income, individual situations, and available opportunities all contribute to support and oppose both sides of this argument. Sometimes buying is better, whereas other times renting is better.

 

In a recent news story by Reuters, an adjunct professor from the University of California, Berkley, named Rich Arzaga made the claim that renting 100 percent of the time was better than buying.

 

His reasoning behind such a statement is that owning a home comes with many hidden expenses, ranging from improvements, maintenance, taxes and insurance. However, if home mortgage loan borrowers decided to rent instead, their landlord would be responsible for all of those costs.

 

“I don’t have the emotions a lot of people do surrounding real estate,” Arzaga explained to Reuters.

 

But that’s not quite the case, at least according to Jeffrey Rogers, president and COO of Integra Realty Resources. “To state that owning a home is or isn’t a good investment is too simplistic,” he explained to the Reuters reporter. “It depends. In times of relatively higher rents, low home values, and low interest rates, it makes sense to own a home. But in a reverse market, it wouldn’t be economically feasible. Over time, those who purchase in down or flat markets with low interest rates come out ahead.”

 

And that’s absolutely true. Sometimes owning a mortgage loan is far too expensive, and far too risky. In housing markets representing such a trend, renting would certainly be a better option. But one should always keep in mind: money put towards paying off a home mortgage loan is going into the purchase of that home, whereas money being given to a landlord will not be seen again.

 

That point is very important, because when a home loan payment is affordable and on par with a rental payment, borrowing on the home loan and working towards homeownership is almost always the better choice.

 

Greg McBride, a senior analyst at Bankrate.com, sided with Arzaga’s point of view, by giving an example of a possible 30-year mortgage. He wanted readers to consider a home purchased for $200,000 by a buyer in the 27 percent marginal tax bracket. Assuming the buyer takes out a 30-year mortgage loan, $1,200 in annual home insurance, $1,000 in annual repairs, property taxes, and a $5,500 closing cost bill, he calculated that 10 years later the owner would have to sell the house for $395,404 to break even.

 

But the fallacy with such an analysis is the assumption that homeowners are looking for a short-term place of residence.

 

Those interested in taking out a home loan and purchasing a house usually do so because they’re content with settling down in a location. Investors and flippers aside, most would be wary about purchasing a property knowing full and well that they will want to move a few years down the line. Instead, those with a mentality such as that are usually renters and plenty content with not owning a home.

 

The home mortgage loan borrowers are the ones who are in it for the long haul. Oftentimes new couples purchase a home to start a family. And barring the chance that emergency selling situations may arise, if that family is staying in their home for more than 10 years—and in all likelihood, if they’re planning on staying in their home for the full 30 years of their mortgage—the money invested in the home would be of far greater value than being invested in a landlord’s home loan.

 

When borrowers are considering whether or not to take out a home loan, they ought to draft up a detailed budget and determine how much they can afford. Then compare that number to possible renting opportunities in the same area. Free-to-use quote gathering engines, such as the one found on this site, can be used to help compare prices, and guide a potential borrower to a decision of either homeownership or renting.