Hi Robert,

All good points. Can you also explain how you’re calculating the mortgage interest of $77,162 over a period of 6 years? That’s roughly $1,071/month. That seems like a lot of interest for a 4-5% interest loan. Is this due to the amortization schedule and the fact that most of the interest is front loaded in the beginning of the loan?

If that’s the case, and people switch homes every 8 years (quoting your statistic), then people are building very little equity from their payments during that 8 year period (excluding the home’s appreciation). Am I missing something?

How many people do you know really own their homes for 30 years and pay off their mortgages? The statistics say the average length of owning a specific home is 8 years, median is 13 years. Let’s say you actually keep it 30 years, and beat the stats. Well, stats show that less 30% of people ever actually pay off their mortgage. So the odds are actually not in your favor for this to ever happen. Why? Life. People move. Families change. Employment changes.

Then we switch to the renter. Our example is built on the premise that you’re investing the difference (i.e. your housing costs $4,000 if you own, but if you rent, it’s $3,000 and you’re investing $1,000 each month). Homeowners “investment” comes in the form of home equity – which is hard to tap (you have to sell, HELOC and pay, or Reverse Mortgage). Renter “investment” comes in the form of real investments – which aren’t tied to your primary residence and don’t have high transaction costs (i.e. if you’re a homeowner and want to sell, you’re going to lose 5-7% of the value).

And the homeowner isn’t ‘cost-free’ at the end of their mortgage. They still have property taxes, insurance, maintenance, etc. These costs can make up to 50% of the total cost of ownership. And the longer you own a home, the higher the cost of maintenance and repairs will be. And if you read through the full example, to keep the value of your property to be “high” in the market, it will also require you upgrade and maintain a standard comparable to new homes over the years. A 30 year old kitchen will never command the price of a new kitchen, for example. You can either spend the money as a homeowner, or sell for less – either way you’re not getting the highest value in the market.

Finally, it’s a fallacy that home prices always rise everywhere, all the time. In average, home values rise – but it’s also incredibly location dependent. And this is true throughout history – just look at the old Route 66 towns, or Detroit. Economics change, especially over 20-30 year periods of time. While the aggregate value may rise, each individual market is different and may or may not. Rent eliminates this risk completely, and also makes moving for employment opportunities significantly easier.

But property taxes can also increase. Some people escrow it in or they’ll pay it all at once. Regardless, it is essentially the same increase renters are paying.

The advantage for renting isn’t what you think when it goes up 3% every year.