There has been a lot of buzz on the blogosphere about renting vs buying when it comes to houses. Since I live in a part of the country where the costs of buying a house and the costs of renting, at least on the surface, are not that far off (and houses to rent are pretty limited in availability, I am comparing apartments for rent to houses to buy here) I find the idea fascinating that in some areas of the country, it is significantly cheaper to rent a house than to buy its equivalent. It is not that I doubt the truth in this, many bloggers have done the math and shown it to be true, I just don’t understand how it can be true. And I also find it interesting that housing may be the last frontier where there is any instance where it’s better to rent. No one thinks renting appliances are a good idea, and very few financially-oriented people advocate renting (leasing) a car. But a house, that might be better to rent than to buy.
Why don’t I understand how it can be better to rent than to buy? Because someone has to own that house you’re renting. If you’re paying so far below what a mortgage on that same house would be, aren’t those owners losing money on the deal month after month? I understand how renting an apartment can be a good deal – there are tons of apartments in a complex and so the cost for the building as a whole gets offset by all the many rents that get paid to them. But a house? And by house I mean a single family detached house. I just don’t get the math. Do big rental companies buy up scores of houses and then offset the ones they lose money on versus the ones they make money on? Do individuals not rent out houses any more? I know that isn’t true – I read blogs all about individual people renting properties for profit.
I understand that in some cases, the owners already own the house outright. I understand that there are tax advantages to being a landlord. I just don’t understand how those factors can account for such a huge disparity between renting and buying, from the perspective of the person or people who own the house you’re renting. I can’t wrap my head around the math end, and I’ve tried. Even if the owners own the house outright, they had to pay for it in the first place, and there are carrying costs like property taxes and insurance to contend with. They need to make back the money they’ve invested in the property, correct? Have all owners who rent out their houses fall into the category of “I’ve owned this house forever and already made all my money back on it”? That seems unrealistic to me, but maybe that’s the answer.
This is not to say that I am asking about this because I’m worried about the owner’s welfare, they made the choice to buy the house. Just like I’m not really all that concerned with the people who choose to buy new cars so they can take the depreciation hit for me when I buy their used car two years later. I’m just completely befuddled about how this can work out from a mathematical standpoint, and I’ve tried to do some research on it, but haven’t really found any answers.
So I ask my readers – how does this work? Anyone know how renting can be so much less expensive than buying, yet the home’s actual owners don’t lose piles of money? In the case of renting an appliance or renting (leasing) a car, the numbers always work out for the actual owners in the end… do they here? If they do – why are you renting?