Rent vs. Buy: One person's actual data

Recently, after doing my taxes and figuring out how much of a tax benefit I get for my mortgage, I thought to myself, "I wonder if owning a house really does pay out the way everyone says?" So I proceeded to tally up every expense and benefit owning a house had compared to if were to have rented a place at the same monthly payment. I've lived in my place for over 8 years. I figured it would be a great real life, raw hard core data example to share with people.

In a nutshell, after brainstorming everything I could possibly think of, it came out remarkably even. In other words, if I had rented a place for the same monthly payment I was making, I would have come up no worse for wear. In fact, I didn't even include any time costs, like mowing the lawn, weeding the yard, etc. Here's a breakdown of the costs I came up with:



The equity and appreciation that we hear so much about is offset by realtor and repair costs. What's this I keep hearing about "throwing your money away" when you're renting because you're not building equity? Well, too bad when you sell it you need a realtor. And when the roof needs fixing or the runoff water needs to be re-routed to the front because it's flooding the back, that comes out of your pocket too. Not that I have any personal experience of that.

Here are the assumptions I used to come up with the costs:

Years in house	8
Purchase Price	170000
Down payment investment	2.00%	Assumed rate of return if you had invested the down payment
Sold Price	184086	My own guess based off comps
Appreciation %	1.00%	Based off the sold price
Down payment	30000	20% of purchase price

Here's a breakdown of all the costs that went into the graph, and some more detail:

HOA fee	-150	per year	I live in a house, so this fee isn't too bad
Closing costs	-3000	one time
Insurance	-400	per year
Maintenance/Utilties	-38	per month	Garbage, water, and sewer
Down payment opportunity cost	-600	one time	Earnings if I had invested the down payment
Tax benefit	1050	per year	After the standard deduction, and 25% tax braket
Repairs	-9400	one time	See chart below
Realtor costs	-11045	one time	6% of sold cost
Appreciation	14085	one time	Based off my own estimate of comps
Equity built up	150	per month	Average over the 8 years

And here are all my repair costs, in gory detail:

Siding and wall damage from storm (deductible only, insurance covered all)	$1,000
New roof (plus deductible minus insurance)	$3,000
Roof boots (3X)	$300
Reroute runoff and drainage	$1,100
Landscaping	$1,200
New carpeting	$2,000
New drywall from fixed leaks	$800
Total Repairs	$9,400

These repair costs are even before anything a home inspector might come up with when I sell the house. Plus I need to re-seed my yard, it's looking a little sickly. And the back fence needs painting. Again, I didn't count the money I paid my neighbor kid to mow my lawn, or the hundreds of dollars of mulch, or fertilizer, or the tree I had to cut down that died... I better stop and continue this analysis before I lose everyone.

So what happened to all the great benefits that my parents and everyone else told me owning a house had? I tried to figure out what went wrong. The answer, as you might expect, is the housing market. I had a 1% appreciation per year over 8 years. I did a little sensitivity analysis... if I had gotten a 3% appreciation per year, I would've been $30,000 ahead! Whoa. OK, so let's say it was -1% (where it was in a lot of markets I bet). And the answer is... -$25,000. I think that's what everyone calls "underwater."

So this whole idea of owning a house as an asset boils down to how well the housing market does. And it's a huge swing. This is what economists call leverage... you borrow money to invest in something. So owning a house is an investment. It's owning a very risky investment. Would you put down $30,000 and buy shares of any stock? How about borrowing $170,000 on that $30,000 and buying up that stock? So why would you do the same on a house?

Here's raw data. Buying a house is a very risky investment. All the equity built up and the tax benefits gets sucked up in realtor fees and repairs.

Yes, it's the American dream. I plan on selling this house, but I will probably buy another one in the future. It's great to own your home so you aren't at the mercy of a landlord or a lease. But go into it knowing it's very risky, and be able to mitigate that risk by having a LOT of money in reserve. Buy a house because you want to live in a house, not because it's an investment. And make sure you can truly afford everything that comes along with it (see above).

Rent vs. Buy: One person's actual data