A recent piece in Wired got me thinking. I really like renting. I think a lot of twenty somethings get worried about not owning and fret about their monthly rent going to somebody else’s mortgage. But you don’t own anything until it’s paid off. Even then, if you stop paying property taxes, it’s the government who’ll come in and own it. And renting has flexibility: if your neighborhood starts to go downhill, so-to-speak, you can move. If you lose your job, find something cheaper.
We discovered that [the renting mindset is] emancipating and remunerative, and applies to a lot of things that in the pre-Internet age you had to accumulate in order to enjoy. We sold our car and now use Zipcar or Avis when we need one — my somewhat technophobic wife refers to Zipcar as “Netflixing a car.”
Granted, I live in Manhattan, where you don’t need a car to get around every day. But no matter where you live, you’ve probably begun to embrace the Rentership Society without even realizing it. When was the last time you bought a DVD? Sales have plummeted because we all stream our video or get discs by mail. Amazon reportedly wants to get into the rental business, too, by creating a streaming service — their current (failed) model sells TV shows by the episode. I get my music from Microsoft’s Zune Pass service these days — $15 a month buys me flexibility, mobility, and freedom from having to upgrade when a new standard replaces MP3s (which it inevitably will).
Enter the Freddie Mac (remember those guys from the news a year-and-a-half ago?) Owning versus Renting calculator, where you can type in a few values (property tax rates in your area, current rent payment, the cost of the house you’d buy), and it’ll tell you if you’re making the right decision.
But as a recent Planet Money podcast pointed out, one capability in the calculator was conspicuously missing. For the appreciation field (your best guess at how much value the home might gain over the years), you couldn’t put in a negative value. One of the biggest mortgage providers in the country had a housing calculator that was completely detached from reality. Makes for a nice metaphor for the whole past couple of years, eh?
Since the calculator is still online, and since it still won’t accept a negative appreciation number, I ran the comparison using the closest possible number: 0. Turns out, over the next seven years, I’ll be saving over $45,000 as a renter compared to a buyer. Try it out for yourself!