This is a classic question, but now you can hear my take on it. As you probably have read, I am in Taiwan for the summer which means living in a different manner. Here rent is not very expensive, but purchasing a place is. In fact, the price to rent ratio is 768 which means it would take 64 years worth of rent to buy the place. In the condo I lived in in Irvine, the ratio was 18 years.
The basics
There are some simple rules to keep in mind when deciding between renting or buying. First, if your situation is short-term or uncertain you should rent. I’m in Taiwan for two months, it would be ridiculous to try to buy a place. Next, if you can’t afford it, or if buying will put you on the financial brink then stick with renting. In this case, buying can be dangerous because an unfortunate event could cause you to miss payments and could result in your home being taken away from you.
House
One of the most aggravating things I hear is that “rent is throwing money away.” I would totally disagree. In fact, if I owned a home, I’d be throwing money away because I can’t bring my home to Taiwan and therefore would have a mortgage and a rent payment. Both rent and purchasing a home serve a purpose.
If you plan on staying somewhere for many years then buying makes sense. However, it doesn’t make as much sense to buy a one bedroom, then move to a two bedroom when you have a kid, then later upsize again. This is a very common approach to home buying but the issue with it is there are so many fees to buying and selling. Many would argue that this approach is fine because the real estate market always goes up, which may be true over the long run, but there are highs and lows. I would recommend refinancing if it could save you money.
In places outside America it is also easier to get a furnished place. This is very convenient because it allows you to “rent” furniture as well. The furniture we purchased after we got married depreciated quickly and we sold it for about 60% of its value which I consider a huge success, but moving the stuff was definitely a hassle.
Owning a home comes with lots of costs as well. You are responsible for things that break. If you have a Home Owners Association, which most new communities do, you will have to pay hundreds every month regardless of whether you use their pools or facilities. Finally, property taxes can be outrageous. In our area there are homes with a 2% property tax rate selling for $1,000,000. This means every month the property tax bill alone is $1,667. Who’s throwing away money now?
Like I said in the beginning, if the purchase to rent ratio is ridiculously high it may not make sense to buy because it is so affordable to rent. If you want assistance in deciding, the New York Times made a great tool.
Transportation
I have previously provided alternatives to car ownership such as Uber, biking, and car sharing. You should evaluate your need for a car and then once you decide you need one you can figure out the most cost-effective method.
I would not recommend leasing a car. However, if you need to have a new car frequently then this method would make sense. Not sure who this would be. Buying and selling cars also come with costs, but nothing near as much as the home buying process.
For Tainan we could have rented or purchased a scooter which is the most popular transportation method, but I thought instead of paying $200 I would be better off walking and taking up to 60 taxi rides. Despite the lack of sidewalk, I feel safer this way too, especially in the rain.
Clothing
I’m sure you own your own clothing. But there are situations such as weddings where you need something special. For something you are only going to use once I would recommend renting because it will be cheaper and it won’t have to sit in your closet until you declutter.
Equipment
If you own a home you may need to fix something that breaks or may want to improve something. A water pipe broke under our driveway so my dad got a quote of several thousand from a professional. Instead, he rented a concrete cutter and did it himself. Heavy equipment can be rented from Home Depot for about 10% of the cost, but maybe a new startup will be able to lend it to us for even cheaper. Instead of buying a telephoto lens for an event you could rent it. So for something very infrequent it makes sense to rent.
Conclusion
At this point in my life renting is very favorable because it allows me to be mobile and not to worry about losing a purchase due to an inability to pay. Houses are investments and certainly can earn you money. But I think most people underestimate the costs so selling for $50,000 more than you purchased it for seems like a lot until you consider you could have made more had you put the money elsewhere. If you want to read another person’s take on this, check out Mr. Money Mustache’s.