Buying vs. Renting

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from MSN's Money column by Liz Pulliam Weston

'It's a good investment' A lot of people honestly didn't believe real-estate prices could ever fall.

Some people were not only convinced that real estate could only go up, but that real estate guaranteed a far better return than any other investment. Of course, everybody has learned otherwise.

But aren't we near a bottom? Might this not be the ideal time to get in and see some serious appreciation? Maybe, maybe not. Just because prices have dropped a lot doesn't mean they can't go lower.

The pace of decline does seem to have slowed. But the foreclosure crisis isn't over, and prices won't recover as long as banks keep dumping houses with fire-sale prices on vulnerable markets.

Double-digit-percentage returns on home prices were an anomaly. Before the real-estate bubble, average home price appreciation barely outpaced inflation. (By contrast, in every 30-year period since 1928, the stock market's average annual return has beaten inflation by at least 4 percentage points and typically by 7.) Homeownership can help you build wealth over time.  Paying down your mortgage is a kind of forced savings, and price appreciation (when it returns) will help you build equity. But you can't count on home values snapping back anytime soon, so anyone who buys these days should be prepared to stay put for a good long while.

'I'm tired of throwing away money on rent'

Renting usually is cheaper than owning. In really expensive cities, such as New York and San Francisco, renting is so much cheaper that it's tough to make the case for becoming a homeowner. Buying in these markets often means settling for a much worse property or an awful commute, compared with what you can afford if you continue to rent.

You're not really throwing money away when you send a check to your landlord, anyway. You're exchanging it for a place to live. You're also getting flexibility and freedom -- things you sacrifice when you buy a home.

When you're a renter, it's the landlord, not you, who is generally responsible for maintenance, repairs and fixing the toilet that blows up in the middle of the night. If the neighborhood should start to slide or you get or lose a job, you can up and move, often with just a few weeks' notice.

It's true that you may have to deal with rising rents and recalcitrant landlords. Homeowners, however, are often stuck with rising taxes and maintenance costs, as well as recalcitrant neighbors.

Moving is never fun, but moving when you own a home is an expensive, time-consuming process in the best of times. Finding a buyer can take months. Selling costs will eat up about 10% of your home's value, once you add agent commissions and moving expenses. If you're already "underwater" on your mortgage -- owing more than the house is worth, as 20% of U.S. homeowners do these days -- you may wind up with a short sale or foreclosure on your record, which will trash your credit.

What are your thoughts on buying vs. renting?