Rent vs. Own - sunday 2005-08-07 0540 last modified 2005-08-07 0540
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All the reading I've done on real estate investment has included the supposed truism that renting is a waste of money while owning property is one of the best investments one could make.

I don't think those experts took the real estate market of the greater Boston area in 2005 into consideration when they made that pronouncement. Two bedroom condo on Mass. Ave. in Cambridge: more than $600k. That's disastrously overpriced, in case you had any question.

As much as I presently pay for rent, there's almost no chance I could be making a wise investment and stay close to my two major activities at these kinds of prices. An investment means I make a profit at the end of the day. Can I actually expect that a condo that badly overvalued is going to eventually be sellable at an inflation-adjusted price that will make it profitable?

Undoubtedly I lose capital in renting. Yet frighteningly enough, some say that renting is cheaper than owning in the Boston area.

But I'm no expert, and I lack the training and data to make a good determination on the opinions of both those with vested interests in the supposed bubble expanding without end and those who, for whatever reason, disagree, such as: Boston Bubble, patrick.net Housing Crash blog, The Housing Bubble 2.

Should I be saving up for the real estate crash or diving in as soon as possible?

Comments

Good Question

I've been wondering the same thing myself. Different city perhaps, but it seems to me buying now would end up being buy high, sell low. I'm pretty sure it's supposed to be the other way around.

Ryan Anthony on August 28, 2005 08:09 AM

Buying can throw more money away than renting

One common misconception that makes people want to buy a home is that renting is "just throwing many away". Presumably, this is because the money is permanently consumed and can't be recovered via resale. However, the same thing applies to a large proportion of what you pay when you buy a place. For example, mortgage interest payments are not recoverable and do not contribute at all to your equity, so that too must be considered money that is thrown away when you compare renting and buying. Even if you pay for your place in cash and have no mortgage payments, you are still throwing money away because that $600K that you spent could be sitting in the bank earning you very substantial interest. And even if the property value is higher when you go to sell (a shaky assumption in Boston), the unrecoverable costs of owning can still outweigh the unrecoverable costs of renting. I've written a more thorough analysis.

Are you at MIT? If so, I would recommend taking 14.01 (intro to microeconomics). It will help you catch a lot of the things that are left out of the arguments presented by those who falsely assume that buying is always better than renting.

By the way, thanks for linking to my site. I found your journal from my referrer logs.

Boston Bubble on August 31, 2005 01:12 AM

Thanks for the i...

Thanks for the insights. I'm not a student here anymore; were you?

Ryan Lee on September 17, 2005 01:57 AM

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