I can hear my baby boom co-workers say it now. “It’s a new year! Renting is a waste of money. You should buy a house in 2023.” As a millennial, my generation has shifted to renting and home ownership has plunged. There are many reasons for this trend from lower home affordability to consistent job switching. Many would be surprised to know that even though we have bought investment real estate for the last five years, we only bought a primary residence this year.
When you rent, you are getting a place to live but you are not building equity. When you buy a home, you pay closing costs which is not building equity. In a financial sense you are betting that the home you purchase will lower your living expenses in the long run. It usually takes about 5 years to recover your closing costs and break even when compared to renting.
In my experience, it takes even longer because most people buy a home that is much larger than the apartment they were going to rent. They end up spending more for their living expenses then when they rented because they only compare rent to the mortgage payment. Rent also includes property taxes, insurance, repairs, and capital expenditures.
A good rule of thumb that I use is to add about 40% of the mortgage payment without escrow to compare the payment for a new house to rent. I bet the numbers will skew towards renting. Remember: friends don’t let friends overbuy non-incoming producing primary residences!
Comments