Rent vs. Buy: If You Have to Ask, You Should Probably Rent

Image Credit Martin St-Amant – Wikipedia – CC-BY-SA-3.0

Four years into writing this blog, I thought I had seen almost everything when it comes to the most common financial suicides committed by the middle class. But today I was hit in the head by a shocking realization:

When choosing between buying versus renting a house or apartment, people are making much, much worse choices than I would have thought possible.

The implications are so striking that logically, some of the world’s busiest stretches of road should not even exist. We could save millions of lives and trillions of dollars by just helping certain people operate a basic hand calculator at a beginner level. It sounds improbable, until you review the following stories from this Canadian vacation I am currently wrapping up:

Case Study One: North America’s Fourth Largest Miscalculation

The City of Toronto is famous as one of the world’s most happening and expensive places to live. With over six million people in the highly car-oriented metro area, it sprawls on forever and people commute in from an insane zoo of connected cities comprising 31,000 square kilometres, or roughly a quarter of the entire land area of England.

There’s only one real highway across this thing, the 401, which has the dubious distinction as  busiest and most traffic-jammed highway in the world. Rush hour extends roughly from 3:30AM to 11PM, so I don’t even attempt a crossing except in the 4-hour window outside of that range*.

So what has created this incentive to commute? There are great jobs in Toronto – some of the highest paying in the country. Unemployment is low. The city is clean and quite beautiful along the lakeshore and the many ravines and rivers. But unfortunately, as the saying goes, nobody could ever afford a house there. Average price for a detached residence is up to $1.05 million, and even a car-commuter special runs you $730k. If you don’t have that kind of money, you just follow standard Realtor advice and “Drive ’til you Qualify”.

Mr. Money Mustache Moves to Toronto

For years, I have accepted these prices as a given and told people to either get creative with roommates unless you have secured at least a $400,000 salary, or get the hell out of the whole area as I did.  Until I conducted a little experiment in Mustachianism: asking myself “what would I do if I had to move to Toronto myself?”

Let’s assume a worst-case scenario, because if you can prove that it also covers every other situation. Somebody offers me a job in the most expensive and hardest-to reach region right downtown. It’s an a amazing job that I can’t resist and it pays well.

And wanting to maintain my current luxurious lifestyle, I insist on only the best: living in a huge apartment in a brand-new, modern building near the shore with beautiful views, within walking distance of work, the stadium, the train station, and everything else downtown has to offer. No buses or subways for me, and let’s assume I’m not even willing to ride my bike, because hey, it can occasionally get snowy in Toronto and nobody can possibly ride a bike in winter.

So I pull open the useful apartment-hunting site called padmapper.com and set my criteria to unlimited price, insisting on 2 bedrooms and 2 baths, so I can comfortably bring my family along for the ride. I select one of the nicest looking listings at random, because it overlooks a park with floor-to-ceiling windows, has a sweet balcony, granite and stainless kitchen, and heck, there’s even a gym and a rooftop patio on this 40-story building:


This place looks appropriately fancy. A high-end pad in an expensive city’s most desirable district. I brace myself for an astronomical price, because after all, let’s look at the math:

People are commuting 40 minutes from $700,000 houses in the “closer” suburbs. A $700k house costs a minumum of $4,000 per month to operate in this area counting only mortgage interest at today’s amazingly-cheap-but-temporary 2.5%, a 7% opportunity cost of capital in the downpayment, plus property taxes, insurance, heating/cooling and maintenance at 1% annually. Let’s assume you’ve been wise enough to avoid areas with an HOA. 80 daily minutes in a car translates to roughly 900 miles ($450) and 22.5 hours of your time (say, $900) a month, for a grand minimum total of $5350.

All that, just to live near nothing but strip malls and TV-watching suburban commuters. So I’m assuming an apartment like this would list for upwards of ten grand a month. I look at the price.

$2300 per month

 Oh, and that includes free heat and an underground parking space
(parking for mere mortal visitors in this area costs about $30/day)

Is this a joke? Are apartments really that cheap? Looking through a few dozen other listings in the prime areas, I realize that yes, they are. And if you’re willing to be really badass and step onto a subway for your morning commute and move down to a less luxurious apartment building, you can find central-Toronto 2/2 apartments for $1200.

Share one of those with a roommate, and you can work a minimum wage job ($11.00/hr) in this city, pay for rent and food, and still save almost 50% of your income, retiring from your job working at Starbucks by age 37.

I repeated the same experiment in Canada’s capital city of Ottawa. Brand new 900 square foot luxury apartment with 9 foot ceilings and two walls of glass overlooking the city’s hottest “Byward Market” district: $1950 per month. And this is in a city where people defy death by driving an hour through a blizzard before paying for parking and heading in to the office. It’s also a city where some people spend $900 per month on their winter heating bills alone (this apartment also includes free heat).

The implication of this is that an amazing majority of the traffic jams, car dealerships and SUV pileups and harried lifestyles and stress-related diseases and obesity that come with a car commuting lifestyle are completely stupid, optional, irrelevant byproducts of our choices. Almost every expensive suburb should not even exist. Every major urban highway should be shut down and converted to gardens and bike paths, with a few solar awnings thrown in – just enough to power the entire city.

So I ran these numbers by a fellow Canadian, expecting full astonished agreement. Instead I got the start of a bizarre set of justifications:

“But people want a back yard. For their kids, or their dogs.”

Are you JOKING?? When you live in a high-end district, ignoring the fact that luxury apartment buildings typically have amazing landscaped common areas, you have literally a multi-billion dollar back yard. The Toronto lakeshore is an endless expanse of beaches, bike paths, fountains, gardens, play structures, volleyball courts, patio restaurants, and of course one of the largest expanses of sparkling blue freshwater in the world. In Ottawa you have a stunning riverfront, forests and parks and bike paths that lead everywhere, and rapid transit that would eliminate any need to ever own a car.

Would you really waste an extra $3,000 per month just so your kids could play on your personal fenced-in postage stamp overlooked by vinyl-clad suburban houses in every direction while you are out stuck in traffic? No.

But what about the dogs?

$3,000 per month, plus the $400 it costs to feed and treat and house and transport and occasionally kennel the a dog, compounds to roughly $588,200 every decade if you invest the money instead. That’s every decade, and they live longer than that. Are you really rich enough to spend a million dollars, and clean up warm squishing chunks of excrement daily with only your bare hand and a plastic bag, just so you can have this extra bit of companionship during your sparse time outside of work? No.

And we haven’t even mentioned one of the biggest joys of renting: unlimited mobility. On a whim you can jump to a new place anywhere in the world. Never be subject to the pain of fighting with buyers in a hot real estate market, or begging for sellers in an icy-cold one.

The lesson? If you live in an area where houses cost more than $300,000, take a close look at the rent prices around the areas you currently drive. Budget your driving costs at at least a dollar per mile (80 cents/km in Canada to account for higher costs) because you absolutely must put a high value on your spare time to get ahead in life. Doing the math on life decisions like this was by far the biggest factor in my own early financial independence.

Buying a house is a great thing to do when you’re settling down in a beautiful, affordable spot right near everything you need to do for the next ten years. And if your schedule and temperament allow some time for a good several hours a week of maintenance work. But for the rest of us, it’s worth having another look at Rent vs. Buy.

Further Reading: The New York Times has a pretty great Rent vs Buy Calculator that covers many bases and includes some nice conservative default assumptions (except I’d personally assume higher than 4% investment returns and less than 3% property price appreciation in expensive markets where the price-to-rent ratio is out of whack, such as those in this article). Also, many areas have property taxes higher than the default.

The biggest difference between NYT and MMM is just the focus on location. Rentals often dominate the market in the most expensive and walkable areas, so if you want to work and live in such a place, it might make sense to go straight to the apartment buildings.

*Luckily we have now switched to taking the VIA – here’s a video I took out the window of the train traveling at 150 km/hr past a line of car commuters stuck in the usual jam leaving Toronto. This train is both faster and (usually) cheaper than driving a car the 450km from Toronto to Ottawa, which reveals a few hundred million more dollars of savings available, since thousands of people make this drive in any given week.

  • Dividend Mantra July 27, 2015, 11:38 am


    Good stuff. Love to see something like this.

    I recently had a spirited debate on this subject over at my own blog, where my opinion mirrors that of this article. I view the rent vs. buy debate as less financial and more about lifestyle. I’m glad this post addresses that. Too often people look at buy vs. rent armed with a calculator and that’s it. It’s really about lifestyle. And if you’re interested in living in dynamic environments where you can walk everywhere (a.k.a. get rid of your clownmobile), renting often works out cheaper. I’m currently car-free and saving a boat load of cash over those who own in the suburbs and commute everywhere. Now, if you REALLY WANT that lifestyle where most of your net worth is tied up in a house and you’re surrounded by strip malls, so be it. I’m just afraid people assume that ownership is better than renting no matter what, and that’s just not the case. Really depends on what you want out of life.

    Best regards!

    • Dividend Growth Investor July 27, 2015, 11:48 am


      I might have debated you on that issue as well. The problem is that there is no one size fits all approach.

      The thing of course is that it matters on your entry price, circumstances etc. In some areas of the world, it is much better to own than to rent, while in others it is much better to rent than own.

      Of course, if you have two left hands like I do, or change locations every few years because of a job for example, it might make sense to rent.

      Opportunity cost on down payment matters. The 20% downpayment on the $30,000 house Warren Buffett put in 1956 had an opportunity cost of billions of dollars.

      • a1smith July 28, 2015, 6:29 pm

        $6000 invested in Berkshire Hathaway in 1964, when Warren took over the company, is worth $69.6 million as of March 2015. Only off by three orders of magnitude. ;-) See http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3

        • Don July 30, 2015, 2:45 am

          Buffett didn’t buy BRK until 1962 – $30k extra in 1956 invested in one of his earlier partnerships, then rolled into BRK could very well have been worth over $1B.

          But then again, maybe the transient lifestyle of a renter would have filled his life with extra distractions, ultimately making him a worse investor. Who knows, if Buffett were a renter, maybe we’d never have heard of him.

      • procrastinator July 29, 2015, 5:12 am

        yes, exactly different circumstances, different countries..in US the prices are insane, so I understand that rational decision is to rent there

        I can see it also in my neighborhood (capital city in central Europe) – new apartment buildings 2 room flats for 100+ K euros depends on location could be also for 150 vs. renting for approx 500 -600 ..suburbs and commuting are hell, and it will be worse here with new developments in progress. the prices are insane compared to average salaries here..but in current interest rates environment and maybe 50% downpayment – buy will probably win in most cases

        trying to save as much as I can, hate debt but if I check the numbers the answer is buy..sadly:)

      • Mrs. Dibidend November 17, 2015, 12:46 pm

        I totally agree! We are a military family and we move every 2-3 years or less. It would NOT make sense to own a house in our circumstance since our living situation is not certain. We are however thinking about purchasing a property to rent out so we can have additional income.

        • SteveO March 3, 2016, 7:00 am

          Military have gotten a raw deal since the financial meltdown. For The better part of a decade, your housing allowance and COLA Really twisted peoples arms into buying, even with the knowledge that you would move in three years. Department of defense figured it was cheaper to throw a couple of books at troops via housing allowance van invest in infrastructure and base housing. When the bubble burst, about 20% of military families were stuck with a home it was underwater, and PCS orders telling them they had to leave.

          I’ve always said, “support” is an action verb. If you’re going to say you support the troops, show me what you’re doing, don’t tell me. This is a perfect example of a story the media isn’t equipped to handle: the numbers are too small to generate enough public buzz, and most folks not understanding the issue, and the solution being rather expensive, so our political leadership ignores the issue

    • Stockbeard July 27, 2015, 1:57 pm

      The problem with renting though is the fear of the future: My wife and I had a very long discussion on renting vs owning. Today we rent, but ultimately she wants to have a place sh can call home even if our income dramatically dropped ultimately

      • Richard Howes July 28, 2015, 12:18 am

        The problem with your wife’s motivation is that her idea only works once the mortgage is paid off (or largely paid off). If you rent and your income drops dramatically you have flexibility. If you buy you might be trapped – particularly if the reason for the income drop also drops house values as happened to so many in 2008.

        • Jim Wang July 28, 2015, 7:16 am

          Even when you pay off your mortgage, you still have property taxes and ongoing maintenance/repairs. Taxes are predictable and smooth, so a lot like rent, but ongoing maintenance/repairs is not, those come and go at seemingly the most inopportune times.

          • Richard Howes July 29, 2015, 3:14 am

            Amen Jim. As a (regretful) homeowner I know too well how maintenance costs are grossly underestimated and indeed ALWAYS come at the worst times.

          • Mr. Modern Millennial July 30, 2015, 4:36 pm

            A close friend of mine recently bought a house. She explained to me that she was saving ‘all this money’ by not renting. Never once did she mention things like the property taxes, HOA fees, etc. I smiled and nodded, because she’s my friend. But I can’t help but think: even if her circumstances ARE such that owning a home is more affordable for her lifestyle, it would seem that she is in for a bit of a surprise with some things that come with a mortgage.

            • Rory October 14, 2015, 10:16 pm

              So many pro-ownership folks conveniently forget to factor in: property taxes, mortgage interest, HOA fees, maintenance, and opportunity cost associated with the down payment. Seems to me that it’s RARE for a home investment to actually come out in the black when you factor in these things and correct for inflation.

        • Dave August 16, 2015, 5:28 am

          You don’t have to own a house free and clear before it is your home. I remember when we bought our first home the immediate feeling of freedom was overwhelming. If I wanted a dog I could get a dog, if I wanted to pain the porch a different color I could paint the porch because it was MY porch, not someone elses.

          And of course if I wanted to stay there for 30 years and not have the house sold from underneath me, which happened to me twice, I could do that too.

          • Robert August 16, 2015, 2:47 pm

            I believe it is disingenuous to say you own the home before the mortgage is gone. A property purchased with debt is effectively being rented from the bank and the government in the form of mortgage payments and property taxes. People do not say, or at least I believe they shouldn’t, say they own their car when they are still making payments on it.

            Additionally, the choices quoted around pets and physical attributes are non-financial ones. If someone emotionally really wants to say they own their house then great, more power to them. That’s not a number that can be crunched when comparing the financial aspects of buying versus renting a home.

            • Michelle August 16, 2015, 10:57 pm

              I agree on this concept, but disagree that people don’t say it. I’m pretty sure every “normal” person in this country says they own their home when they have a mortgage on it still. I get asked all the time whether I own my home or rent it. I respond “uh, I have a mortgage.” No one has fully understood my response, since if you have a mortgage, you own it, according to everyone else, lol.

            • Robert August 17, 2015, 2:37 pm

              @ Michelle,

              I am glad it’s not only me that finds that the response to the buy vs rent question when a mortgage is involved odd.

            • Nancy L August 30, 2015, 10:57 am

              Michelle’s made me laugh. When asked if I owned a home my answer was “Yes me and the bank”. I do own my home now, and it is significantly cheaper than you might expect even with maintenance, taxes and insurance. It gives a stability in the foundation of my family’s life to know we have a stable roof over our heads. Even if maintenance has to slide occasionally, we still have some place to rest our heads at night and call home. And that, as they say, “is priceless’.

            • Andrew October 10, 2015, 8:40 pm

              There’s a difference between making payments on a car and having a mortgage on a house. In the first case, the bank holds the title to your car until you pay it off, then they send the title to you. In the second case, you have the title to the house, but the bank has a lien on it. Legally, you DO own your house while you have a mortgage, but you don’t own your car if you’re making payments on it because the title is not in your possession.

              However, from a moral standpoint, I agree….it’s not really your house until the mortgage is payed off.

      • Jeff July 30, 2015, 3:09 pm

        It might not apply as much depending where you live but I recently sold my (mostly paid for) house and went back to renting so “I could have a place to call home even if my income dramatically dropped”.

        I now live in a nice apartment 40 minutes closer to where I work than my house was(i loved that hour long bike commute!), it is barely smaller in terms of sq.feet and it is entirely paid for by the interests on the money I got from selling my house. I will continue to add to that ‘stash the few k I used to pay in taxes, fees and maintenance so that my housing stash will be big enough to cover for inflation too.

        So in a few years, I should be mostly done paying anything at all to have a place to live. And it doesn’t cost me anything more than I was paying for.

        All the money I am saving from the mortgage payments is now going to my other stash so I can stop working sooner but that’s another story.

    • KiwiKaz July 27, 2015, 5:29 pm

      Here rental properties are not owned by real estate companies but Mom & Pop investors looking to make a buck of capital gains. Leases are only for 12 months. After that they can boot you out with 4 weeks notice. Consequently renting is very insecure – you can be forced to move every year as landlords decide they want to sell up, move in themselves, rent it to a family member, renovate so they can get a higher rental, etc. Its very expensive to have to keep looking for a new place to live every year. You are totally hostage to the whims of your landlord. Buying a place gives you security of tenure, allows you to put roots down and commit to a neighbourhood, make the place your home, and plan for the future. Imagine disrupting your kid every year to move to a new place – leaving behind friends, changing schools, new environments to learn, etc.

      And 99% of rentals dont allow pets. So while MM is clearly not a pet person, some of us are. Our pets are like kids – sure they cost money, and can be inconvenient at times, but the love and joy they bring to your life is worth all the $$$ in the world. I have 3 dogs and 1 cat – wouldnt give them up for the world. Pets are also beneficial to your health, and your kids health, so who would put saving money before their health and mental well being?

      Lastly, while you can take your child out to parks and common areas while living in an apartment – they would need to be supervised at all times. Quite different from having your kids play all day in the back yard by themselves. A child needs to develop a sense of autonomy and independence – cant do that when their parents are present every second watching them.

      Renting vs Buying should never be a financial decision – but one made with a view to how you want to live your life so that you are happy. Saving money while you, your kids, and your pets are miserable, is not worth it.

      • Captain Hammer July 27, 2015, 8:05 pm

        At least in Ontario, landlords can’t actually deny you the ability to have a pet. The law tends to take the sides of tenants in disputes involving restricting behaviour, since for the landlord it’s an investment, whereas for the tenant it is their home. Landlords can’t limit the people living in a home (except to comply with legal requirements for space per person), can’t keep their tenants from smoking, or from keeping pets. So at least in Ontario, there’s no excuse to get a house to give your pet a backyard.

        Nor do they really need one. I live in Toronto, and me and my fiancee had a dog perfectly fine in our apartment. We took her out twice to the local park on the corner to do her business, and we took her for regular walks out to one of the numerous parks around for exercise and she got on fabulously.

      • MY July 27, 2015, 9:03 pm

        It depends on the laws. MMM is using Ontario as a case study – where the laws are very much in favour of the tenants. It’s hard to evict tenants, even for non-payment of rent. No pet clauses are unenforceable in leases as well, unless they can prove that there are health drawbacks to having pets in the building.

        It sounds like things are very different in your jurisdiction which just suggests that, when making the decision, people need to make the decision that’s right for me.

        I live in Toronto. Owning will probably never be the financially advantageous decision for me.

      • BlackDog July 27, 2015, 10:47 pm


        If by ‘here’ you mean New Zealand, I think it’s important to point out that there is a difference between property investors and property speculators. The ‘quick buck of capital gains’ really only occurs in Auckland (and laterally Christchurch) and is desired by property speculators. I’m a property investor and, of course, interested in capital gains but primarily cash-flow over a much longer term (20+ yrs) and as such would love quality, longer term tenants (pets welcome too)!

      • SisterX July 27, 2015, 10:57 pm

        You forgot to mention that those aggravations come even with accomodating landlords. If you get a crappy landlord? Forget it. The aggravations of renting are way higher than the costs of buying, in many cases. I’ll note here that I’m currently involved in a dispute over the security deposit with my previous landlord, which I’m quite certain will end up in small claims court soon.

        However, I disagree that buying vs. renting should “never” be a financial decision. That should be a huge part of your decision. As proof, I’d like to point out the housing bubble which crashed and blah blah blah. A lot of people clearly could not afford homes, or at least the homes they bought. I know there are a lot of factors that went into that, but at the base level if people had done their math right and realized that they couldn’t afford the homes they bought, these past few years would have been a lot different. I’m saying this as another pet owner and parent. Of all the factors going into my and my husband’s decision over whether to rent or buy next, the financial aspect is a huge part of that, as it should be for everybody regardless of pet or parental status.

        • KiwiKaz July 27, 2015, 11:13 pm

          I took the article to mean that people who can comfortably afford to buy houses, should still consider renting instead. So for those for whom money is not a problem, I am saying that one should not base the decision to buy or rent solely on the financials. There are far more important things in life to consider. If you cant afford to buy a house, then obviously you should not buy one.

          • maybeoneday July 28, 2015, 7:49 am

            To MMM, DM, and KK; First I want to point out that it may be prudent to buy the condo in the city. if it is renting for $2500 I would guess the buy price to be $300,000 or less, about half the suburban house and the mortgage payment will be less than rent. It seems people think you can only rent apartments and buy houses. My wife and I bought our townhome in a college town but had to move when we found out she was pregnant with twins to our sfd, didn’t want the kids playing in the parking lot, and now lease it out to very reliable college students. We also had a beagle that got walks every day and he enjoyed long bike rides in a rear basket mounted above the wheel; quite the spectacle. The only reason I would rent is if I thought I would be in an area for less than a year, but not based on the type of housing. I am sure someone is going to say “but what about mobility” and to that I would add if you take care of your apartment; updated appliances, nice hardwood floors and fancy fixtures it won’t be a problem.

            • Matt August 2, 2015, 7:29 am

              In normal circumstances, that projection for purchase price to rent could be realistic. But Toronto is anything but realistic right now. The disparity of rent vs purchase price is a key metric showing how,out of whack the real estate market is here right now.

              I looked at a number of listings matching the description above, and an average typical listing is a sale prices of $666 900 and monthly condo fees of $484. The ranges go anywhere from about $599k up to a million, with monthly condo fees somewhere between $375 and 650.

              Things are so out of balance here that renting a downtown condo is usually a slam dunk financial decision compared to owning one.

            • Jeff August 4, 2015, 12:39 pm

              “if it is renting for $2500 I would guess the buy price to be $300,000 or less”
              You seem to have missed the larger point of the article, which is that the ratios are badly out of whack in Toronto right now. Those houses in the suburbs aren’t just expensive because they have yards… they’re also expensive because space in the city costs even more.
              One of my Toronto friends rented a crappy old house for far less than the rent in this scenario two years ago, and even back then the house was worth half a million. Who knows know – $600k, more? It was a 2BR tearout worth about $60k in my town.
              Always watch for a bubble when property prices keep rising after rents plateau. The underlying economics that normally drive value have been lost at that point, and debt-fueled speculation is the only remaining growth factor, leaving the market vulnerable to corrections.

            • Fleurdelis August 8, 2015, 9:05 am

              I am not sure why you guess that a 2k rent is less then 300k price tag for buying… in Canada (not only toronto) it’s more a 600k-700k price tag

              the 2k rent includes the heating/cooling, which could be quite pricey in Canada as we have extreme weather.

        • TomTX August 1, 2015, 5:07 am

          Interesting that you seem to value the possibility of losing a $2,000 security deposit more than saving $50,0000 a year in housing costs.

      • Bart67 July 28, 2015, 1:50 am

        You’re dead right KiwiKaz about the challenges of finding long term quality rental property in this part of the world. I’m not so sure though about pets being worth “all the $$$ in the world.” That sounds like a way of fobbing off any rational assessment of the trade-offs, a fob-off that is not very mustachian.
        And even the house vs apartment thing, strange as it sounds I’ve heard that some children have managed to grow up healthy and happy in apartments.
        The finances always matter in the end because they dictate whether your time belongs to you and your family or to someone else.

      • Laura July 28, 2015, 11:17 am

        Mr mustache is not advocating putting your money before health. He is simply pointing out that many of us destroy our heath by sitting in cubicles at jobs we HATE, just to have the money to buy 5 minutes of “joy” from a pet at the end of the day, that we can’t even enjoy since we’re too tired and stressed out from the job.
        May you and your pets find the time to sit, bond and really READ this blog.

      • Kiwikaz July 28, 2015, 4:19 pm

        I rented for about 20 years before buying, so I am not blindly advocating house buying over renting. Just that the decision to rent or buy should be made with a view as to whether you will be happy or not, not how much you save, simply because in the grand scheme of life some things are more important than money. I am much happier being a home owner, even though the financials absolutely do not make sense for me (I am early retired already, and I have to buy houses with cash as no-one will give me a mortgage without a permanent income, so its a direct hit to my capital pile that I rely on to generate income).

        Once retired I became an animal rescuer – at times I had up to 8 (very small) dogs living in my house – try and find a landlord anywhere on the planet that would accept that! But it brought me great joy, and as I dont have children, my pets are worth every dollar spent on them just as I am sure people think their kids are worth having too. Should I have rented because it saved me money or should I have bought a house because I can indulge my passions in life? I am currently painting and redecorating my house, and learning how to garden and grow things, and thats been fun and a good learning process – MM says we should learn new skills. Should I not have my animals, because it would enable me to rent and save money or would I find coming home to an empty house and having nothing to do but look at my ever growing bank balance to be an ultimately soulless life experience?

        At the end of the day if all you want is a roof over your head and four walls to store your stuff, then by all means rent. But it will never be a home – a place that you feel safe and secure in for life, that you can personalise to your taste, that you can live in undisturbed in whatever manner you choose, and to do whatever you like with it.

        Even if I move on from here (currently Marlborough Blackdog, recently arrived after 13 years in Melbourne, and no, even here there are no pet friendly rentals) and go elsewhere (which is likely) this place will become a rental and thus is a future investment. However, I know that I will always have somewhere to come home to.

        • El January 20, 2016, 10:56 am

          I live in NYC.
          I got into a rent-stabilized apartment nearly a decade ago before the neighborhood started booming though it was obvious it would get expensive eventually since I live on a great subway line and next to one of the big parks. In NYC rent-stabilization makes it so that a certain % of apartments in the city fall under specific laws, the landlords can’t raise my rent, have to paint every 3 years if I want them to (I can paint whenever and whatever I want though), have to provide a working fridge/stove but I can get my own fridge/stove/etc if I want to. I’ve replaced fixtures and faucets (I keep the old ones to put back if I were to move) I have painted, I’ve hung heavy things from the walls and ceilings, in my younger years I occasionally smoked, I have pets. Its all within my rights.

          There are people in this building who’ve lived here 60+ years. This is their home where they feel safe. My neighbors know me, they worry if I forget to tell them I’m going on vacation, I’ve left my keys stuck in the door and they knock to tell me. The longer I live here the more I understand that building in Batteries Not Included.

          Yeah, I’ve had to make a few noise complaints about a neighbor, but that happens in neighborhoods with detached houses too. I’ve had issues with leaks from the upstairs neighbor’s apartment before but hey the super had to deal with fixing that, much nicer than having to worry about whether the pipes in my house will freeze or other maintenance issues. My next door neighbor didn’t like me putting plants outside my window on the fire escape, which is too bad, I wasn’t blocking escape but it is illegal so I conceeded her that point but then again if I had a house there might be neighborhood rules and of course all sorts of city codes I’d have to follow so I wouldn’t be free to do whatever.

          I pay for rent, renter’s insurance and electricity and drop my laundry off for someone else to do. I spend under $5 on transportation, usually just walking to work. Simple, easy, cheap. If I lost my job unemployment will always cover my rent + a bit for a year so it is very safe and stable.

      • Heidi Kneale (Her Grace) July 28, 2015, 11:26 pm

        Ditto for Australia.

        Here in Perth, the housing market is redonkulous. Likewise, the rental market is halfway-to-Sunday ridiculous. Affordable housing simply does not exist here, thanks to the mining book (which is now collapsing).

        Me, I’d love to live closer to Perth. It would make life most convenient for husband to work and daughters to school. But I can’t afford the $1.5M price tag a house would cost. Even now, our current (fully owned) home is worth $500K, an hour out of Perth.

        Renting isn’t plausible. When MMM quoted $1950/mo for a really nice apartment in the heart of the city, I wanted to move to Toronto for the cheap housing. Nice places near Perth start at about $900/week. Oh, there’s tiny little hole-in-the-wall 1/1 apartments in the same area that will run you as low as $500/week, if you don’t mind thin walls and questionable neighbours. After all, isn’t it about location location location?

        In Perth, $1950/mo would get you a grotty 3/1 in a less-than-stellar neighbourhood with an hour commute to the city.

        Housing hurts here. It really hurts. His Grace and I got lucky in that we bought in before the housing boom about fifteen years ago, when mortgages were cheaper than rent. When we finally sold our first house, we got FOUR TIMES what we paid for it. That’s a boom for you. that enabled us to score a $.5M with enough equity to score a mortgage with similar payments to the first one.

        Yes, it was sheer luck. Our daughters are not going to be so lucky.

        As for pets, landlords have the say on whether pets are allowed. Most places don’t allow them. Those that do tend to hike up the rents by a few dollars.

        • Vik July 29, 2015, 1:09 am

          Hey Heidi

          I agree that housing in Perth is overpriced, but I think you’re quite off the mark in your assessment. I live in Northbridge, in a very nice, 93 sqm 2/2 with 1 car park, an 18 minute bike ride from my office and a 5 minute walk from my partner’s office. All for 500/week, which we get 200/week back from subletting the 2nd bedroom (we don’t have kids).

          Rental housing in the new apartments in Northbridge and East Perth is actually very high quality and exceptionally affordable relatively to the truly ludicrous price of buying in Perth.



          • Heidi Kneale (Her Grace) July 30, 2015, 9:35 pm

            Nice! My BIL lives in Northbridge. Alas, we have young teen daughters and would need more than two bedrooms.

          • Damien August 1, 2015, 7:42 pm

            As a fellow Aussie, I think we tend to overstate how unafforadable it is to rent a decent place in a good location. If you want to compare, CAD1950/mth in Toronto is about the same as AUD550/wk in Perth (after currency exchange and a 15% increase for the higher median household income in Perth). For that price, you can get a similarly stylish 2/2 apartment in the nice suburbs around Perth city (e.g. Leederville, East Perth, Northbridge). You can even get a 3rd bedroom for an additional $100/wk. I definitely wouldn’t call these places grotty or tiny.

            I just wanted to make the point that if you’re truly interested in reducing your time & money spent commuting each day, there are affordable options available in the city. It simply requires a change from the standard Australian view of a “home” being a 3-4 bedroom house on a medium-large block.

      • TomTX August 1, 2015, 5:02 am

        Funny. My Dad grew up in Brooklyn from the 1940s into the 1950s, without even those parks and “common areas” let alone a private yard. He developed a full sense of independence somehow.

        • Laura August 1, 2015, 6:44 pm

          But that was the 40s and 50s when nobody blinked an eye at unaccompanied children. Now, parents get arrested for letting their kids walk to the park alone.

      • Crystal August 11, 2015, 2:39 pm

        I agree. I know that renting makes more sense from a $ standpoint, but haven’t to move frequently is both expensive and emotionally/physically draining as well. I always pay more to rent nicer apts in better areas yet I still end up with neighbors dogs attacking mine, stalkers who wont leave me alone, cars being/ stolen/ hit and run etc vandalized etc. I am a previous home owner and now I rent, and having a house were I could have a fence and have me, my dogs and my things left alone undamaged, unattacked, unstalkered is worth whatever I can pay. I agree with the article hands down about the finances but I doubt MMM has had male neighbors three times his size who took a shine to him, folllowing him to him everytime he stepped outside (every single place I’ve rented btw) , peeping in his windows. Or had an idiot off leash dog attack his beloved pet. I can’t wait to purchase a house again. Sorry.

    • DocMD July 30, 2015, 6:51 am

      After purchasing a home in my mid-20’s that ended up being a huge mistake (lost a lot of $ and it was in a terrible neighborhood) and now renting (which I call the new American Dream), I have a few opinions on why a home is a terrible investment.

      1) Most other investments – talking about stocks, bonds, mutual funds, etc – do not fix the cost basis and selling price on the value of the commodity on only two particular days. With the other types of investments, there are opportunities for dollar-cost averaging. With real estate, you are making a HUGE gamble that the prices on the days that you buy and sell are the best prices that you can get.

      2) Real estate is ridiculously leveraged. Who would buy $250,000 in stocks on margin with only $5-15k down, or even $0 down? That would be ridiculous. Particularly with the conditions of #1. Yet, this happens every day with real estate

      3) Transaction costs eat up a lot of your profit. Getting into a $250k home might cost around $10-20k in fees up front, then you have to pay the realtor’s 6% (which I think is a scam) when you sell. That’s roughly another $12.5k. So, at least $25k in transaction costs for a $250k home = 10%. What does Vanguard charge? Something around 0.25% per year? What’s that, you say, you really aren’t paying the 6% realtor fee? Yes you are, and if someone convinces you that you aren’t, they are just playing a shell game – you pay it one way or another.

      4) If something breaks, you are the one to pay for it.

      5) Ongoing taxes, HOA, etc, that other people have mentioned before.

      The mortgage on my first home was around $1700/month. However, if you include all of the money that I lost from it (bought in 2006 and sold in 2013, dumb move to buy), the actual cost was somewhere around $2700/month. Plus, the house was too small, had a terrible layout, and was in a terrible neighborhood with mediocre schools. We wanted to move after about 3-4 years but were stuck there due to the market until around 2013. You read that right – it took us around 4 years to finally get out of that place.

      Now, we rent for $2200, live in a much nicer house in a wonderful neighborhood, some of the best schools in the state, and don’t have to pay for any repairs. Plus, we can stay or leave whenever we want.

      Yes, I’ve made some simplifications here, but I think the overall ideas still stand. In general, you have to have a good amount of appreciation in the value of a home to make it a worthwhile “investment”, IMO.

      Renting is definitely the New American Dream

      • Da55id July 30, 2015, 1:03 pm

        Once you have capital and experience, most of the items you list become optional. We “built” (general contracted) our own home between 2003 when we sold a home without an agent, and 2006 when we finished our new house. We:

        Sold without a realtor = no commission. We waited until we got our price also. It was NOT an accident that we sold then. We had a long term target price that we set. ie “If the price gets to X within the next 10 years, we will sell”. It hit the price, and we sold.

        We then rented a house during the silly 2003 – 2006 house price insanity and used the rental as home base for the build project.

        We began selecting and researching neighborhoods that met our geographic and other criteria. Example criteria: NO homeowners association. We simply excluded them from consideration.

        Searched county real estate tax records for properties that were 40% of the going house prices. We did this to find land…lots that had no house on it. This worked beautifully. None of the lots were for sale. We sent letter of interest to the owners of record, and one became our “winner”. We negotiated directly with the owner and purchased at $200,000 under market (you read that right!) and paid zero commission to nobody. We did use a title attorney…tiny cost.

        Next, my wife and I hired an architect and modified a standard set of plans. Then hired a structural engineer. Then looked for contractors and established a relationship with a builder’s/contractor’s yard. etc etc.

        The house would have cost $1,250,000 but instead cost 1/2 million less. Remember, this was the season of crazy valuations.

        No commissions. All materials purchased at wholesale. All permit work done by us. I was in charge of all non-visible elements, and wife was responsible for everything seen by humans and birds.

        I had a very full time job. Wife was a homemaker. Literally LOL.

        As MMM has demonstrated, DIY is the way to go.

        • Laura August 1, 2015, 6:49 pm

          I want to read your book. This is exactly what we are considering doing in Oregon.. but we have ZERO experience with any of this. And we have a two year old without close family nearby.

    • retire40 July 30, 2015, 5:52 pm

      From an investment points of view, it all come down to the numbers, you have to consider cost, fees, tax, interest rate, percentage borrowed etc. There’re lots of costs in buying a house, but you also get the chance to borrow relatively safely. Profit from borrowed money is the best way to wealth building. If market rent covers all costs and mortgage payments, then it makes sense to buy, because rent will go up, while mortgage will go down. Property tax may go up, but it’s a good thing, coz it means you can sell the house for a profit, and if it’s your primary residence, it’s also tax free.

    • Dave August 8, 2015, 4:50 am

      While this may be great for you some of us enjoy the freedom a “clownmobile” provides. I lived in a apartment once in college. I will never again share walls with strangers whose schedules do not mesh with mine.

      Me? We bought a farmhouse on 5 acres, never had a mortgage payment over $1,200, paid it off by the age of 54, and now I have a home that is assessed at over $400,000.

    • Anthea November 23, 2015, 9:50 pm

      I stumbled on this blog from a treehugger article that I found through a tiny house site. There’s so much great information here and this post specifically addresses what I’m wracking my brain over.

      As a 30-year homeowner whose house is in escrow after 2 short days on the market in the US Pacific Northwest, I’m looking at options and have seriously considered becoming a renter, at least for a while so I can weigh out the financial and/or lifestyle pluses and minuses. Escrow closes in 3 weeks.

      Two months ago, I lined up two rentals (Plan A and Plan B) — a 450 sq foot cottage in the woods for $600 p/month and a 1000 sq foot cabin on the mountainside for $1000 p/month. Both are in the town where I live and work, and where I have rich social connections. I was so excited to sell my house (due to a divorce) and live in a much smaller space (the cottage was my first choice). Then I learned over the weekend that both landlords were not fully forthcoming. Although they knew I needed to move in mid-December, I learned the cottage (under renovation) won’t be ready for 3 months and the cabin was promised to the landlord’s friend who is taking her time to decide.

      My town has almost NO rentals of any kind, unless I want to pay $6,000 p/month for a fancy estate. That’s 5 grand out of my range, and not the lifestyle I would choose. And that’s when it hit me that there are drawbacks to renting. Landlords have the prerogative to pull the rug out.

      I’ve been considering the mobile tiny house option for years and dreamed of someday owning one. I have friends nearby (more than one) who would let me park and live on their land.

      Also, this transition after marriage is allowing me to finally make financial decisions that my soon-to-be-ex took charge of throughout our marriage. I’m learning about new ways to create financial independence. Although we owned our home for nearly 30 years, he refinanced it not too long ago. Thank goodness the market is healthy. I will be receiving about $100K (the house sold for $425K and there’s 5% commission to pay the realtor, minus $150K to payoff the loan). I could sit on that and spend it on rent month to month, or invest in to buy a tiny home and not have a mortgage payment. My career is new and not particularly lucrative yet, so I need to be very careful until the business grows.

      I would love to know what Mr. Money Mustache and the other savvy money folks here have to say about paying cash for a brand new, quality built tiny home on wheels. Here’s a link to the company I’m strongly considering. Note that prices include delivery of the finished home and airfare to visit the build location. http://www.tinyheirloom.com/tinyheirloomwelcome/#tinyheirloom

    • C.P. February 2, 2017, 6:44 am

      Mustache, you know I adore you, but your dog calculations are steeeeep. Our, albiet small, dog costs us maybe 40 bucks a month including fairly high-end dog food. I know you’re not a dog person but really you have to recognize how much genuine, lasting, deep love and affection that our canine beasts bring to the lives of many of your readers. Perhaps we should do an article on mustachian dog ownership?

    • Ava June 19, 2017, 8:31 pm

      In my opinion, the American dream of home “ownership” is nothing but a joke! The average American has 62% of their net worth tied up in their home, but how much income does that investment earn? Nothing! or better yet, negative nothing! Property tax, insurance, upkeep, HOA dues, etc. on a paid off home can take a huge bite out of your Social Security check!

      Me? I’m either going to purchase a home for cheap (all cash) during the next crash, or just keep saving my money and renting! As I save money on rent, my cell phone ($20/month from MetroPCS), my car insurance ($25/month from Insurance Panda), etc., I’ll be able to invest more into index funds with my freed up capital… something homeowners can NEVER do!

      • George Goetz June 20, 2017, 8:16 am

        Kind of did what you are planning: bought a coop during the last RE market downturn, in cash, in an area where house costs and RE taxes are high. Can walk or cycle to everything and am within 30 minute train to NYC.

        Maintenance (which includes taxes) is well below what an equivalent rental would be. My cell phone costs are~ $40 a month and car insurance ~ $600 a year, old car, liability only, etc.. I don’t expect to make any profit on the sale of the coop, if I do it would be a bonus, but running costs are so low relative to house homeowners around me that I don’t really care. I don’t count the value as part of my net worth and would consider any proceeds as a rebate.

        I recently exited the market, albeit a tad premature, with every intention of returning as I believe that a healthy market will correct and an unhealthy one will crash. And my saving rate continues to far exceed any return I could get.

        I don’t take credit for making any wise decisions, more caution and fear of getting in over my head, saving, and playing with financial calculators. And of course this site.

  • Dividend Growth Investor July 27, 2015, 11:40 am

    Thank you for writing this post MMM. It gives me a lot to think about.

    Your article reminds me that price you pay for anything really matters. How you structure transactions matters as well. Your opportunity cost set matters as well.

    For example, if someone manages to rent out the place at the cost of the mortgage, and they manage to put something like 5% down (rather than 20%), the numbers would likely favor buying…

    On the other hand, if the stock market was overvalued ( think 1999 – 2000), expected returns would be lower, so that would change the calculation as well.

    Of course, if the price of the home was overvalued, then it make take a while for the price of the home to actually increase in price. Real Estate in Japan is lower in price today, than it was in 1989 (when the imperial palace in Tokyo was supposedly worth more than the entire state of California).

  • Richard Howes July 27, 2015, 11:41 am

    Completely agree! Great article and food for thought for many (I hope).

    I’m an economist by profession and I still fell into the “must buy a home because if you rent you’re paying someone else’s mortgage” trap. Your argument makes perfect sense when you explain it as eloquently as you do.

    But what about buying versus renting when the options are both right next door to where you work?

    Well assuming you’ve factored in maintenance, rates, and other costs of owning versus renting – and most people don’t – and the costs come out the same, then buying is a no-brainer right? Maybe not.

    There are other advantages of renting, and the biggie is flexibility. What if you lose your job and need to cut costs? What if your employer offers you a promotion in another city? What if the greedy bankers do something else incredibly stupid (its a matter of when, not if) and collapse the economy, again? What if you decide you would like to voluntarily downscale and use the extra disposable income to travel/start a business/pay for more education….?

    Renting has a lot going for it. After the 2008 collapse many Americans and others around the world found themselves insolvent. Entire industries virtually collapsed overnight and many people needed to move to find work in other parts of the country.

    I for one won’t be buying property again. I want the flexibility renting provides, and there are better ways to invest that in property.

    • Joe p July 29, 2015, 8:49 am

      You identified the key confusion in this analysis. The rent vs buy decision should be an isolated decision *all else equal*. So once you’ve decided where to live, then you decide whether to rent vs buy. Otherwise the analysis here is a bit like saying renting in downtown Omaha is better than buying in the Toronto suburbs.

  • Kyle July 27, 2015, 11:50 am

    I ran calculations on owning vs renting last week but the home values vs renting costs are not nearly as huge of a difference in my area. I think people need to be aware you really can commit financial suicide owning a home, especially in big cities. In these situations it should be a no brainer to rent and invest the extra $8000+ per month :). Ride that gravy train to a sweet early retirement.

    • Heath August 13, 2015, 5:48 pm

      Yea dude- even in much lower cost areas.. it still makes massive sense. I live in KY where housing is cheap, and I have a home.. but I could rent an APT for $600 less per month and shell that money into a fund. Even $600/month is massivly powerful when contributing to the under 40 retirement.

  • Bulldog249924 July 27, 2015, 11:55 am

    Awesome article.

    And I really believe you have given a great answer to the buy vs. rent debate. I’ll give the other perspective.

    I live in Allentown, Pennsylvania, which is about 90 miles west of New York City and about 50 miles north of Philadelphia. Within the last thirty years, we have had an influx of people from both of those cities and North Jersey come into Allentown and the surrounding cities and towns, better known as the Lehigh Valley. Here, I own a 3 bedroom, 1 bathroom town house in South Allentown that appraised for $97,000, and I pay 792 a month, principal, interest, taxes and insurance (3.125% fixed rate, 15 year mortgage). If you factor in heat (gas), water (about 20 a month), and electric, it costs about 950 in a bad month to pay for the expenses on my house. Market rate in the lehigh valley for renting a home similar in size and location is about 1050-1200 bucks. So I am definitely making out by saving on rent here in Eastern Pennsylvania.

    The drawback is that I have a good chunk of money tied up in equity. But it also means that this is a great place for investment properties. The Lehigh Valley has enough things to do around here, but is close to the Poconos, NYC and Philly to give options. So for me, ownership in the cities is a deal compared to rent, and living in the suburbs as a renter is pointless, given the need for a car to then get everywhere. How do some other places compare in the Buy vs. Rent debate?

    • Richard Howes July 27, 2015, 12:03 pm

      Not necessarily a good (or bad) choice to rent just because it works out more expensive, as it does in your area.

      One of the big drawbacks of buying is inflexibility. If you want to move (neighbourhood goes bad, want a different lifestyle, etc), or need to move (lose your job, offered a promotion in another location etc), then owning a home can be a huge anchor. More so if something outside your control has affected the value or saleability of your home, as happened to millions in 2008.

      I won’t be buying again in a hurry…

      • Marcia July 29, 2015, 7:30 pm

        That goes both ways though. Our rental market is very tight right now, and many rentals are matching mortgages. So a house that would result in a $3k mortgage would rent for the same. Many locals are very upset and radio against the greedy landlords. But many of the landlords are people who bought at a bad time and had to move.

        So I see a lot of people having to move frequently, or out if town. Hard if you have kids. But I bought in 2004. I like my house but it was not a good financial move. Several hundred thousand dollar mistake.

    • MarciaB July 28, 2015, 12:13 pm

      The missing piece here for the owner (you in this case) is that in addition to the monthly costs you mentioned, there are occasional costs to replace/repair things (appliances, paint, flooring, plumbing, electrical stuff, roofing) and there may be on-going costs for landscaping and outdoor maintenance.

      The renter down the street paying $200-$300 more per month will never incur those occasional costs (they’re already baked into the rent). And as you know, some of those costs are enormous (a new roof comes to mind) and can take a homeowner by surprise.

      As many other posters are pointing out, there are better and worse decision on the rent/buy issue depending on your stage of life, your finances, and the housing market you are choosing to live in. Sounds like you’ve made a good decision for yourself at this point (good on ‘ya!).

      • Aaron July 29, 2015, 6:49 am

        Another missing piece is that MMM is comparing living in the heart of the city (presumably next to work/play or at least public transport to those places) to living out in the suburbs. Bulldog is comparing renting out in the suburbs to living out in the suburbs. Both incur the transportation costs of living in the suburbs.

        So if you work in the burbs and live in the burbs then the comparison of rent vs buy holds. By the placement of Allentown I’m guessing people might work in New York or Philly and commute? If so then the comparison should be renting in NY or Philly to owning in Allentown.

        • Diana August 8, 2015, 8:51 pm

          Another important thing to note is that Allentown/Lehigh Valley is home to many, many college students who often rent to move off of campus.

  • Scott July 27, 2015, 11:57 am

    I agree. It’s amazing how many people have convinced themselves that owning a house is a necessity, even while they continue to rent their cars, clothes, and phones for just 294 low monthly payments. There was even a post in the “overheard at work” thread about a guy who leases all kinds of stupid shit, and “would lease housing if I could.” Um….

    Annoyingly, my job is right across the street from suburban hell, so that’s where I’m forced to live. But I still rent (just a single room) because a) I want to be mobile, b) I am young and don’t yet have enough saved for a downpayment, c) I want to invest more now, and d) I wouldn’t want to live here permanently anyways. It’s depressing walking down the treeless streets, staring at all the identical brand new 3 story townhouses with a yard small enough to cut with an x-acto knife, and SUVs scattered all over the narrow streets because the two-car garages are just too small, and to think people pay good money for this.

    • Nora July 27, 2015, 12:28 pm

      I think a large part of the genesis of this “owning is always better” philosophy comes from the fact that people suck at saving. I’ve heard a home referred to as a forced savings plan before, and that’s probably true for a large majority of people. That is why they are so desperate to own a home, because building home equity is basically the *only* equity they are building at all.

      • Joel July 27, 2015, 2:18 pm

        This is a great insight. Never thought about it this way before. All the more reason for me to take up saving seriously!

      • Richard Howes July 28, 2015, 12:23 am

        It might be forced saving, but you have to think that through. Many people point to the capital gains on their home as a great investment, but it’s only an investment if you can downscale at some point and realise the capital gains. For many people, that capital is tied up forever (or practically forever until it becomes part of your deceased estate).

        It could be ‘savings’ if you hit hard times and sell to realise the capital gains, but then you have to rent or downscale to make any of that capital available for the crisis. And again, in 2008 when bankers created hard times for millions, they collapsed the value of their ‘savings’ at the same time.

        • Scott July 28, 2015, 5:29 am

          Well, you can unlock the equity via a HELOC, so it isn’t always necessary to sell to access the “savings.” Of course, this is more of a “springy debt” than actual savings, since it’s not like you can retire on a line of credit, but for the “work until I die” crowd, that’s all they should really need. Of course of course, they’ll probably abuse it, and it’ll effectively become a low-interest title loan, but I like to pretend people are *good* and would *never* do something like that….

          • Joe p July 29, 2015, 8:54 am

            This is exactly right. I would add that those people who suck at saving also wouldn’t know what to do with those savings even if they had it. In the rent vs buy decision you also have to assume you are earning the opportunity cost of the downpayment with market returns.

        • Matt July 30, 2015, 12:05 pm

          I am not advocating one way or the other, but another factor to consider when buying is that you pay no taxes on capital gains of up to $500k (married couple) from a home sale.* Part of the ridiculous tax incentives (like the mortgage interest deduction) the US tax code has to incentivize owning. As Richard points out though you have to be able to sell and move somewhere else and that is by no means an easy process. Selling a stock is much easier!

          • Anonymous July 30, 2015, 7:53 pm

            It’s not so much to “incentivize owning” as to make sure you don’t find yourself in a particular unworkable situation: suppose you buy a home, and later you need to sell and buy a different home elsewhere. Even if the new home cost the same amount to buy as you made selling the old home, taxes would mean you couldn’t do that. (Not that taxes make more sense at any other time, but they would be especially problematic in that particular scenario.)

            Another alternative approach would be to treat it as the property equivalent of a wash sale, such that you don’t owe taxes on the amount you spend on the new house.

            • TomTX August 1, 2015, 6:07 am

              The mortgage tax deduction is incentivising owning. Realtors(tm) use that all the time to encourage buying.

  • Simple Is The New Green July 27, 2015, 12:01 pm

    I own 4 condos. All in walkable areas and the combined loans are only about $240k. I’d rather own real estate any day before owning a car again, but I won’t pay too much. I love the mobility… when we want to pick up and go, we just rent out my main residence and let the cash flow support us.

  • John Dough July 27, 2015, 12:01 pm

    Awesome post as usual, but I think the dog ownership estimate is high. Mine comes in at about 1/4 to 1/5 of $400 a month, and this is for a 85 lb Labrador.

    • Richard Howes July 27, 2015, 12:05 pm

      Your labrador clearly doesn’t eat like mine does! ;-)

      • Okara July 27, 2015, 1:21 pm

        Hoping your doggy never needs major medical care – diabetes, cancer or a host of other problems. These things can add thousands of dollars to your annual expenses.

        • Troy Rank July 27, 2015, 2:14 pm

          This is true, but in my own personal 5-dog-sample experience growing up there were only insane expenses like this once. One dog had a rx of $150/month for 3 years out of her life :O. This is insane and most people would not bother, but my parents didn’t mind. Average this in over the 14 year average lifespan of the pups in our family and they that might bring the average cost up to something like 700/year. A lot yes, but nowhere year $400/month.

        • Chris July 27, 2015, 2:25 pm

          Planning and lets go together. I have a 100 lb Lab, who is the only thing that greets me when I get home. As a good Mustachian I track my annual expenses ($900CDN vet/food) and set aside $50 a month for unforeseen medical. After 8-years I have just shy of $5k to help him through the tough years of life and no shock to my savings rate.

        • SenS July 27, 2015, 3:08 pm

          Luckily, not overfeeding your dog decreases the chances of it getting diabetes or cancer in the first place. Double whammy!
          That said, I do save up a bit extra now my dog is young to account for eventual medical care later on. Just not THAT much.

        • Laura July 28, 2015, 11:29 am

          Sorry to be insensitive here (blame it on my growing up in the Communist side of Europe), but the no-brainer answer to diabetes and cancer is to let the dog “go”. It unlike you doesn’t worry about the future and has much better skill at living in the moment. Throw the balls now, play and go for walks, and let the animal die quickly and painlessly when and if the time cones. Chances are with quality food and actual PLAY, your dog will die of old age, not disease.
          So stop worrying and take that pet outside!

          • Emily July 28, 2015, 8:09 pm

            I agree with you Laura! I read a touching article about a woman forgoing expensive surgeries and treatments for her dog (which would in reality maybe give the dog another year – and probably a miserable year at that) and I hoped that when I have to make that decision I can.

    • Troy Rank July 27, 2015, 2:06 pm

      I totally agree. I’m nowhere near that. My costs are closer to that per year, and it’s worth every penny in stress relief.

      My total costs for a 50 lb Lab/beagle mix:
      -$35 bag of food per 1.5 months – ~280 / yr (not the cheapest available, good quality)
      -Vet bills 2x per year ~80 per – 160/yr
      -treats and other essentially unnecessary stuff $100/yr

      So if I would wager that $500/yr would be a healthy estimate. If you have to board your dog ever, you’re doing it wrong. Like anything you can overspend if you’re ridiculous, but the time we enjoy with the dog is well worth $500/yr and it forces me to get out and run.

      Is it unnecessary? Yes. But it’s also as crazy as some make it. It certainly makes my life worth living, but everyone is different.

      • KiwiKaz July 27, 2015, 5:39 pm

        I have 3 chihuahuas – they cost $10 a month each to feed. Vet bills would be a couple of hundred a year – with a rare and occasional large bill (only one so far in 7 years). They do live for about 18 years though – so you get to depreciate the costs over a long period of time. Just avoid the large dogs that have a life span of 8-10 years and you’ll be right :-)

    • Grant July 27, 2015, 3:43 pm

      Just wait until he/she gets sick. I have two Boxers, whom I love dearly, but they are a huge financial drain. My female was diagnosed with cancer several months ago. Between diagnosis, treatment, recovery, follow-up, etc., it was over $6,000 in under two months. Add in regular vet visits (shots, check-ups), treats, shampoos and grooming (even if you do it yourself, there is expense), and everything that goes along with a dog and you’ll probably find it’s more expensive than you initially thought. Not to mention that I wouldn’t need a fenced back yard if I didn’t have a dog.

      I love my dogs, but getting a pet is a terrible financial choice. If I could do it over again, I would do it differently.

      • lbmustache July 27, 2015, 7:34 pm

        Large dogs generally cost more than small dogs (on average, since food, vet bills, etc. are done by weight). Also don’t need a yard for a small dog.

        $6000, depending on your income, may be a large or small amount. I am one of those people who equate my dog to a child: so if I had a kid and something catastrophic happened, I am sure the bills would pile up very quickly. From a MMM point of view, I am sure a child adds up to more expenses than a dog – it all depends on what people value and are willing to put money towards. Am I okay with a potentially “$1.5 mil” cost if my dog lives 20 years? I sure am!

        Anyway. I don’t think a pet is a “terrible financial choice” if all you care about is money and nothing else… the happiness and companionship is worth it. Same as having a kid, I assume.

        • Heather July 29, 2015, 1:37 pm

          This article really resonated with me up until the dog part. I mean, c’mon, MMM. You made your choice to bring an exorbitantly expensive kid into the world. We animal lovers make (exorbitantly less) expensive choices to save, love, and gain immeasurable levels of unique companionship from our pets. If you’re going to make a purely bottom line fiscal argument, you have to take dependents out of the equation. Human and non-human. But it’s about priorities, and I love my dog just as much as I love the people in my life. Some days more!

          • Kiwikaz July 29, 2015, 4:42 pm

            Most days more :-)

    • casserole55 July 27, 2015, 6:29 pm

      My dog’s best friend is my best friend’s dog. Got it? They are both only dogs, so when we go out of town, my dog enjoys a vacation at my friend’s house, and visa versa. No kenneling fees.

      • Kiwikaz July 28, 2015, 4:33 pm

        Thats how I do it too. I use Meetup to join small dog or breed groups, so I make friends with dog owners with the same type of dogs, so they know how to look after them, and they dont usually mind an extra two or three around (especially since the quid pro quo is taking their two or three dogs too – small dog owners tend to have packs LOL).

    • lily July 28, 2015, 4:54 pm

      Yeah, that number seemed high to me as well. Our dog budget (food, treats, toys, regular vet visits, other consumables, and a self-insurance amount into the vet fund) is $120/month. No boarding costs, because we trade dog-sitting with our neighbors. Having a dog is a luxury, sure, but not on the order of $400 a month! And unlike some of the stupid luxuries I’ve spent money on in the past, the dog brings me as much joy today as the day I got him.

      That being said, people are too quick to assume that a dog HAS to have a yard. Some dogs do, but certainly not all- our 75 lb pooch is perfectly happy in a small apartment. He gets 3 or 4 walks a day, usually 1-2 hours daily, because without a yard, every bathroom break means a walk. Just like kids, the happiest dogs are the ones that get the most quality time with their people, not the ones with the biggest house, the most toys, or the prettiest haircut.

      • Kiwikaz July 28, 2015, 5:18 pm

        If you are home to walk them during the day there is no problem with them being in an apartment. It is a problem if you work full time and have to leave your dog inside all day. Mine cant hold their bladder for very long, so its outside for them during the day if I am out for any length of time.

    • Janel August 1, 2015, 9:05 pm

      Regardless, an extra $400/month on top of the proposed rent mentioned in the article is still much lower than the proposed $5,000/month spent purchasing a large suburban home + commuting.

      Dogs and renting (or just urban living) are not mutually exclusive. Kinda like having kids and urban living are not mutually exclusive. Yes, dogs/pets are an additional expense/responsibility, but if either don’t necessarily require suburban living.

      At least, that’s the one flaw/correction in MMM’s article. (I mean, you could make the same argument that kids cost money, too, but clearly his hypothetical example includes enough space in an apartment for a kid to join him).

      • Eve August 4, 2015, 9:50 am

        I live in a major metropolitan area. When I met my boyfriend he had a 90lb golden retriever. When we started talking about moving in together 90%-95% of rentals won’t take dogs above 50lbs, and a large group won’t take dogs period. The dog is part of our family and has been a major help with my depression and anxiety. Does he NEED a yard, no, but renting a place and then dealing with the hassle of elevators etc also drains time. We might be able to rent something slightly cheaper than what we bought, but the joy of sitting in backyard with the dog (or not having to trek to walk the dog in the dead of winter) is huge.

  • Mr. Modern Millennial July 27, 2015, 12:07 pm


    Thanks for this write up.
    I agree with DM/DGI that there is not a ‘one-size fits all’ approach. Just like most things in life, I suppose.

    I earn about 14k/year (I am a graduate student). More than half of my income goes towards renting. I’ll never recoup that money. But I am getting a great location (central to my university and city) and affordable housing (1 bedroom/1 bath/living room and dining room.

    I can walk/bike to work. The grocery store is a 15 minute stroll down the street. The gym is <5 minutes away. And I don't have to worry about home repairs.

    In many ways, because of my low income and circumstances, I am ‘forced’ to rent. I have to get crafty with what's left over after paying off the rent, but I like crafts. :)

    A lot of my peers are entering the "omg, you still rent? you are flushing dollars down the toilet" phase of life.
    But they are also the same peers that got a 0% interest loan from mom and dad. Such is life.


  • Patrick July 27, 2015, 12:08 pm

    Happy renter in Ottawa here. I want to add one thing for US readers. MMM mentions “temporary” interest rates. Note that this is extremely important for Canada. No on in Canada has a 30 year mortgage locked at 3%. Mortgages in Canada are usually fixed over 5 year terms, which means your 3% rate is only locked in for 5 years after which you are forced to refinance at the rates of the future.

    Many Canadians today can barely afford their mortgage payments at 3%. If in 5 years rates rise we could be in serious trouble when all those people are refinancing.

    As for renting, yes, on my living expenses I could save almost 50% of my income working minimum wage (assuming 50 weeks a year, 40 hours a week).

    • David July 27, 2015, 2:33 pm

      I’m also waiting for the hike with baited breath. I personally know a number of people who only just barely qualified for their mortgages at 2.6%, some of whom are already robbing Peter to pay Paul before getting a loan from Paul to pay Peter. I don’t understand how they can fail to look five years ahead, when they’ve paid down that massive lump sum by a pittance, and wonder what’s going to happen when mortgage rates spike back up to where they should be. Like, say, the historical average of 7%.

      The average payment among those I know is floating around $1350 a month. At 7% that payment jumps to $2150. An $800 per month spike in their monthly expenses. And I can throw down guarantee that not one of them will have adjusted their spending to cover it.

    • Kacie July 28, 2015, 2:09 pm

      Oh my word, that is terrifying. You can’t get a fixed-rate mortgage in Canada?! A lot of people who had ARMs in the US got burned when rates reset at higher values.

      How many Canadians own their homes outright, no mortgage? It seems that with loans like that, it would be very difficult to ever pay off, depending on how the interest repayment is structured. Are you building equity, or does any possible payoff only come when you sell? SCARY STUFF

      • Matt July 28, 2015, 3:53 pm

        What David is describing is a fixed-rate mortgage, just one that you’re forced to refinance (at then-current rates) every 5-7 years. Refinancing in this manner is low/no fee, which is why mortgages aren’t really any harder to pay off in Canada than the USA. We also have ARMs that work the same way, with the same relatively short terms.

        I’m another happy renter in Ottawa. Buying is out of the question, because a unit equivalent to the one I rent (2BR/1BA, ~850sqft) for <$2K/month utilities included would cost ~$600K to buy, plus a nearly four-figure monthly condo fee. The break-even point on that is approximately never. At $400K, the break-even doesn't come until after the mortgage is paid off and I'm retired. At $300K buying actually starts to make sense in a time horizon less than 20 years, so I'm hoping that rate increases in 3-5 years lead to condo-pocalypse.

        • Anonymous July 30, 2015, 7:55 pm

          > What David is describing is a fixed-rate mortgage, just one that you’re forced to refinance (at then-current rates) every 5-7 years.

          That’s still just as ridiculous as an ARM; it still means you can’t treat it as a long-term fixed cost.

          • Patrick August 4, 2015, 6:19 am

            Interestingly, because the “fixed” mortgages in Canada are only “fixed” for 5 years (on average, you can get 10 and 25 year fixed rate mortgages but the rates are high – today a 25 year fixed mortgage will be roughly 9%), there have been many studies done comparing the price premium of fixed vs. ARM in Canada, and historically taking an ARM would have gotten you ahead about 80% of the time.

            If I ever do get a mortgage (in Canada) I’m taking an ARM because that way I’ll have data on my side. When you’re forced to refinance every ~5 years for a fixed mortgage, an ARM has very little drawback.

      • Anthony in Melbourne July 28, 2015, 10:10 pm

        We don’t have 30 year fixed rate mortgages in Australia, either. Indeed, any fixed rate period is an optional extra, with a maximum of five years (and fees apply). Mortgages are, by default, variable rate. That is, the rate can change at ANY time.

        It does make Australian banks a little more conservative and borrowers more mindful of the consequences of borrowing too much, but doesn’t prevent people making dumb choices. In the late 1980’s, mortgage rates went as high as 17%pa, causing a lot of grief. It also means, the monthly cash rate decision but the Reserve Bank of Australia is big news here.

        I presume mortgage payments in Canada are structured similarly to here. Variable rate mortgages have a minimum monthly payment that ensures that the principle will be paid off within a fixed term, generally 25 years. If the rate goes up, your minimum monthly payment goes up to maintain the original pay off deadline. When rates go down, most people leave their payments at the higher amount to pay the loan off quicker.

        • Pat July 30, 2015, 4:34 am

          Canada’s highest rate (Bank of Canada) was 21.75% in September 1981. So even then Australia’s rates were relatively low.
          Right now you can get a longer than 5 year fixed mortgage in Canada. But you pay. One bank has posted rates of 4.74% interest for 5 year fixed and 6.1% for 10 year fixed, for 25 year mortgages.

      • Laura82 July 29, 2015, 7:55 am

        I wonder if more Canadians rent. I know that in a lot of Europe, home ownership rates are much lower than in the US.

        • marietka July 30, 2015, 5:38 pm

          Nah, most Canadians drank the same Kool-Aid as Americans. Buying is still considered The Best Decision.

        • Brian July 31, 2015, 1:14 pm

          71% home ownership rate in Canada. Highest it’s ever been and just higher than the U.S. Before the collapse. Doesn’t bode well. Canada is basically where the U.S. Was circa 2006.

      • Kiwikaz July 29, 2015, 4:40 pm

        They are not fixed in Australia or New Zealand – home owners can get a temporary fixed mortgage (1-3) years but after that it goes back to variable rate. There are no tax deductions for interest on your home mortgage either. As Canada and Australia (and Auckland, NZ) are currently in the midst of one of the biggest property bubbles ever, on the back of the commodities boom (now dying) and foreign buyers (mainly Chinese money) – it will be interesting to see the fall out down the track. Renting may be a safer option – but then we’ve been saying that for years now, and all that’s happened is that property has become even more unaffordable and harder to get on the ladder. Both countries might end up with a nation of renters not through choice or fiscal responsibility, but simply because locals can no longer afford to compete with foreign buyers.

  • Paula July 27, 2015, 12:14 pm

    You should see the rent cost in Montreal then, it’s really really cheap.
    Great post!

  • Neil July 27, 2015, 12:14 pm

    Great points. Thanks for dispelling some myths about rent vs. buy. People seem to think home ownership is a great investment whereas renting is completely wasting money. But with all the extra expenses of interest, property taxes, home owner’s insurance, repairs and maintenance (even DIY), and other incidentals, there is a lot of money that doesn’t go into equity. If you’re looking to invest, the stock market or rental properties are a better bet than the home you live in. Ken Rockwell has a great calculation on how he only made 1% over 20 years on a condo he sold for four times what he paid: http://www.kenrockwell.com/tech/how-to-afford-anything.htm.

    • Heidi Kneale (Her Grace) July 30, 2015, 10:04 pm

      Now I am thinking:

      How do the costs of home maintenance (property taxes/rates, repairs, etc) on a completely-paid-off house compare to rent in my area? This would be valuable info for me. A house like mine goes for about $600/week on the rental market.

      We are homeowners for several reasons: we got into the market at a Very Good Time (our current home value is three times what we paid (capital AND interest) for it) and we were able to custom-build a house to our specific needs (as no house we looked at suited our specific purposes). Also, as it is our primary residence, when we upgraded from our first home to this one, we didn’t have to pay capital gains tax (whew!).

  • Dividend Wisp July 27, 2015, 12:19 pm

    The rent vs buy question for me has always come down to what you can afford vs what you really want from where you live. Whether you want to save money through renting, or do you really need that front and backyard on land that you own.

    Funnily enough the article is about Toronto where I live (currently renting) and I am currently a Barista at Starbucks making a bit about the minimum wage. (its $11 now after last years increase). And while owning a house might be nice, it is certainly far out of my reach, however renting is quite viable if you know how to budget and spend wisely. Although so far I have only managed an average savings rate of 30%.

    Even working on low income in an expensive city like Toronto, if you prioritize right and curtail your spending you probably could retire by 37, it all just depends on your expectations on your standard of living and what you need to be happy.

    • Formerly from TO July 27, 2015, 5:56 pm

      I agree! I grew up in Ottawa, and just retired from TO. (Now live a 40 min drive from). It really is about choices in how you choose to live with what you have. I have my undergrad from an Ottawa university, went to TO and did post grad, shared a cheap one bedroom apartment with my best friend, worked fulltime all the way through, and retired at the tender age of 43. Looking back, I wish I had been a bit more frugal, but I can’t complain. Having my son later in life means that I can call myself a “retired” stay at home mom and not worry about the costs.

    • Free to Pursue July 28, 2015, 7:32 am

      Wow! 30% savings rate on $11/hr! You put 99.9% of the rest of us to shame. You’re got quite the moustache on you. Well done!

  • dave July 27, 2015, 12:22 pm

    I think getting the heck out of Toronto beats renting or buying there

  • Jennifer July 27, 2015, 12:23 pm

    I won’t argue rent vs. buy in general- because it is highly dependent on the area you are wanting to live in.

    And Granted, I have no interest in living somewhere with such a high-cost of living as Toronto, so this is all moot.

    But the scenario you described, I’d have to go with buy. Living in a high rise apartment is my personal definition of hell. There are few things I can think of worse than having to be in a building with more than 5 stories on a regular basis. That’s why I live somewhere where “downtown’s” largest building is 12 stories high. I don’t live rural, I don’t live in the middle of nowhere, but I certainly don’t live in a ‘happening’ city and have no interest to. You are making a huge assumption that people would WANT that and consider it a positive.

    If it was between “city living” and a house in the suburbs that cost a fortune and had a hell of a commute, I’d take the house. The amount of money you outline, and the number of extra years of work it would take to deal with that would be worth it to not have to live in a high rise.

    But again, I would never live in a city like Toronto.

    • anonymouse July 27, 2015, 3:13 pm

      Nobody goes there anymore because it’s too crowded, eh?

      • Jennifer July 27, 2015, 3:30 pm

        City living is for plenty of people- but to me- sounds miserable.

        Clearly some people prefer the suburbs, or houses out there wouldn’t cost $700k. But plenty of people think it IS more desirable to pay too much, commute a long way than live in the city.

        • Matt July 28, 2015, 3:59 pm

          I suspect that a lot of people aren’t actually giving the matter much thought.

          I see a lot of, “Well, we’re expecting a kid, and you obviously can’t raise a kid in an apartment, so we’d better buy an overpriced factory house in the suburbs and add two hours a day to our commutes!” and “Now we’re expecting a second kid, and it’s obviously not possible to transport two children in a midsize sedan, so we’d better buy a minivan/full-size SUV that burns three times as much gas and doesn’t fit into regular parking spaces!”, both of which lack in critical thinking, and neither of which seem to be specific to my province or country (hemisphere, though…).

          Taking the time to challenge our preconceptions is hard, but it’s a worthwhile habit to get into, especially if the rate of return can be into seven digits over the course of a lifetime!

      • Diane C July 28, 2015, 11:02 am

        Ha Ha, I get it. Good one…

    • Anonymous July 27, 2015, 10:48 pm

      I can’t stand apartments either; I don’t want to share a wall or especially a ceiling with anyone I’m not related to, at least not until someone invents soundproof walls with about 80dB of attenuation. Not least of which because the neighbor upstairs might have the aforementioned kids and dog, or a neighbor sharing a wall might like music, and while I’m all for that it would tend to conflict with my own music. I actually don’t mind the urban environment otherwise; having everything close together seems great. And I don’t actually care about having a yard, either. But I don’t want to live in an apartment.

      So I’d never take a job in Toronto, because my choices would be an apartment or a mind-bogglingly ridiculous commute. Instead, I have a job in a lovely suburban city, a few blocks from work, which very sensibly also located itself in a lovely suburban city.

      And the thing that boggles my mind is that many of my co-workers live in the nearest big city instead, paying twice as much for a house or apartment as they would closer to work, and commute either 30-40 minutes by car or 60-80 minutes by public transit.

  • J July 27, 2015, 12:24 pm

    This is a great analysis. I was just curious, I know in places like Canada there can sometimes be two “rents” due, one to the owner of the building, and one to the owner of the land, and this can apply even to apartments. I think they call it renting in a land lease area. Does this analysis factor that in?

    • Mr. Money Mustache July 27, 2015, 12:48 pm

      That doesn’t apply in any Canadian spots I have encountered (including these examples), but it may exist elsewhere.

      That is more common on things like mobile/manufactured homes on rented lots, but even with the rent or purchase those can often be quite a steal in high-cost areas. I’d enjoy renovating a basic trailer into a pimp-daddy mini residence and laughing as I lived in Coastal California for a few hundred a month.

      • Scott July 27, 2015, 1:13 pm

        This is actually an option where I live, but the “ground rent” as it’s called is over $1k/mo. Combined with the mortgage itself, lower resale value of manufactured homes, and relatively cheap rent of the area, it’s just not worth it.

      • Free to Pursue July 28, 2015, 7:40 am

        Here here. I’ve been getting increasingly obsessed with the tiny homes concept. It feels like having your cake and eating it too: low cost of living, mobility if need be and the opportunity for a low-cost “paid for” pad. Plus: no elevators, apartment neighbours, and if you need to move to a new location, no packing ;).

        • Smartest Woman on the Internet July 28, 2015, 9:10 am

          Rather than a “tiny home,” why not just buy an RV?

        • Michael July 28, 2015, 10:41 am

          The problem is that tiny homes are such a niche market that you could end up have a difficult time selling it. If it’s not permanently affixed like a regular home then it’s likely it will be a depreciating asset like a mobile home, rather than an appreciating asset like a traditional house.

          • Free to Pursue August 1, 2015, 7:15 pm

            Given the cost when built yourself, I don’t consider resale an issue.

      • The Professor July 29, 2015, 10:26 am

        Thought about a manufactured home at one time since I do live in coastal CA. The rent can vary but it is expensive here in Orange County. My friend just bought one. The rent is $1,800 a month and can rise 4% a year. That’s the same price as my mortgage.

      • Elizabeth August 13, 2015, 7:00 pm

        Living small is good for the environment, and good for your pocketbook.
        I just bought a mini penthouse in an artsy central neighborhood of Athens for a song. It will be one of our two tiny home bases in retirement. Liabilities on small spaces are tiny, too: just 70E/year taxes and building fees; 11% tax on any rental income. Made the nerve-wracking experience of carrying all the cash on the trip to Greece worthwhile.

  • Nora July 27, 2015, 12:25 pm

    Yes!! This is a huge point of contention between me and my boyfriend. When we moved in together, he wanted to buy, but I wasn’t comfortable with that for a variety of reasons. We live in San Diego. Buying a house here is insanely expensive! Renting gives us the opportunity to be in a great location for cheaper. Not to mention the flexibility, which is a *must* as he is active duty Navy and we’ll be moving every couple years. But he sees it as throwing away money, full stop. He said that he has regretted it every single day since we moved in together (which was 2 years ago). Anyway, I would love to own a home someday, but owning is not *always* better than renting, especially for people who have the ability to still save and build their equity outside of a home.

    • Anonymous July 27, 2015, 10:50 pm

      Active-duty military is a textbook case for “rent, never buy”. Buy when he retires and you pick a permanent location to live.

      • Nora July 28, 2015, 10:38 pm

        Yep, I agree. He just says “we can rent it out when we move”–without taking into account the time and money that will take. And since I am not in the Navy anymore, guess who is going to have to deal with all that shit when he is out to sea? Nope, no thanks!

        • JT August 1, 2015, 9:45 am

          Active duty military is a textbook case for “use the VA loan (the absolute best lending vehicle available in the US) to buy a multifamily, live in one unit while you’re stationed there, and then rinse and repeat as you get moved around”.

          But that’s only if you want to never work again once you’re out of the military.

          And to respond to your complaints about your area, I know a successful ex-Navy guy in San Diego who’s done exactly this.

          • Nora August 1, 2015, 9:10 pm

            Sure, that’s possible, but you’re basically hiring yourself as a property manager in order to make it work. I am not interested in that. Nor am I complaining about my area. It’s expensive because it’s awesome and lots of people want to live here. I’ll take advantage of reasonable rents vs. high mortgages and invest my money elsewhere.

            • S.G. August 19, 2016, 11:47 am

              Have you looked in to hiring a property manager? They typically take 10 to 12% of the rent, but if the numbers work out you get the benefit of the investment without the headache of being a landlord.

    • Ex-Sgt Pepper July 28, 2015, 2:27 pm

      Totally agree with you Nora, and I grew up in Coronado — (sure wish my parents had not sold the house there for $38k in 1974!). The bf needs to actually own a home to fully understand the full cost of owning! My wife and I recently learned the hard way…sold our Santa Cruz home after 7 years, because we retired and were thrilled about all the other places in the world to experience. Anyway, after adding up all the costs of owning that house, which was really a great house (not a Money Pit), we learned that we could have rented just as nice a house for a lesser price. It’s nice to own in many ways, but one thing it ain’t is CHEAP. You’re spending a ton of money either way. When you do find a place you love — and EXTREMELY IMPORTANT (as Anonymous says below), you need to be in place for many years for the owning side of the equation to make sense — use that NY Times calculator MMM linked to, it is AWESOME.

      • Nora July 28, 2015, 10:43 pm

        Oh, I love Coronado! I lived there for about 15 months. Had a nice little apartment (gods housing is expensive there–I can only imagine the cost to buy) and was able to bike to work (my carrier was based on North Island). This was before I’d ever heard of MMM, it was just so easy and nice to bike. Walkable everywhere. Only ever needed my car when I wanted to go over the bridge! Yeah, I am not thrilled about some of the aspects of home ownership (maintenance and upkeep), while others would be great (ability to customize and, when purchased wisely, equity and tax deductions). That helps me feel better about renting for now and knowing someday I’ll be in a different situation and more likely to buy. (All depending, of course. I want to be in San Diego post-Navy, bf wants Kentucky–that’s a whole other decision!)

    • Nora July 28, 2015, 10:50 pm

      I just double-checked on Zillow. 2bd/2ba townhouse on the next block is listed on the market for $539,500 (and that is a reduced price). Would probably end up being $2000+ each month *just* for the mortgage–another couple hundred monthly for tax and insurance. It is probably a bit bigger sq footage wise with nicer finishes, but opposed to our 2bd/2ba apartment which we rent for $1695, that’s a big difference. And given that there are two of us (we maintain finances separately), that is a reasonable monthly expense with very little associated headaches. The other day the shower broke and the water wouldn’t turn off, and I called my property manager and then went to work and she had to come deal with it.

    • Dan July 29, 2015, 5:03 pm

      Not to be rude but sounds like he hasn’t done much research into this. Guess where property tax /interest/buying fee go when you get a house? Out the window :)

  • CJOttawa July 27, 2015, 12:32 pm

    Case study: 2-bedroom apartment in the ByWard Market. $999/mo, parking, water, heat included. Electricity typically $50/mo.

    Suck it, condo owners.

  • Mike July 27, 2015, 12:35 pm

    This Toronto example seems outlandish. It there some other reason/factor more folks aren’t renting more in Toronto to drive rents higher or home prices lower? i.e. huge tax deductions, rent restrictions/laws, etc?

    In the Bay Area, it’s better to rent for the most part, but the disparity between renting and buying isn’t this huge. If the above example were SF vs. Bay Area suburbs, the SF 2/2 would be $4,000/mo+ not ~$2,000.

    • NobodySpecial July 27, 2015, 1:25 pm

      Same here in Vancouver.
      PadMapper shows a townhouse a block from my office 2bed/2ba = 4500/month. Would probably be around $1M to buy. A 600sf studio in a downtown tower would be $1500 .

      • Clay July 27, 2015, 7:11 pm

        My rent for an older 800 sq-ft 1 bedroom apartment in Vancouver is $1050/month including heat and water. I’ve looked at buying nearby but an equivalent place sells for around $450,000. If you include the condo fees, taxes, heat and water I’d be paying well over $2000/month; probably closer to $2300.

        Every other day on /r/personalfinancecanada I see someone who can barely save anything wanting to get into huge debt to own a condo. Recently there was someone who wanted to rent out their own condo (at a loss) and buy another, larger one for them to live in thinking it was a sound financial decision.

        • Maxim Ч. August 9, 2015, 9:10 pm

          But aren’t they a great source of amusement at times? :-P

          Love PFC! :D

      • Mark July 29, 2015, 6:16 am

        Renting a $1M house for $4,500 month is a great deal: 7% opportunity cost on a $200,000 downpayment = $14,000, 3% on an $800,000 mortgage = $24,000, 2% maintenance/taxes/insurance = $20,000, for a total of $58,000 a year. Plus there are the one time round trip transaction costs of buying and selling the place which can be over 8% of the value of the property. Also, interest rates could go up. Also, there are not only opportunity costs of the down payment, but opportunity costs for subsequent months, since the monthly payment for the purchased property would be vastly higher than $4,500 each month and the renter can invest the difference.

        All of that is money not contributing to equity and is directly comparable to rent, which would be $54,000 a year for the same property. Why would you ever want to buy a property where the carrying costs alone are greater than rent?

        • Anonymous August 5, 2015, 4:49 pm

          At least in the U.S., though, you’d have to take into account the mortgage interest deduction, which is significant for higher wage earners. Also, the monthly payment on a 3% fixed rate 30-year mortgage of $800,000 is about $3,400 per month – significantly less than $4,500.

          Ultimately, it depends on how long you plan to live in the house. Using your assumptions (and even assuming the house appreciates at a rate no greater than inflation), the New York Times rent vs. buy calculator referenced in the article says that buying is better if you plan to stay in the house for 6 years or more.

          • Mr. Money Mustache August 6, 2015, 3:51 pm

            Yeah, but that $3,400 ignores some of the biggest costs: property tax and maintenance. Also, on average you will see below-inflation-rate appreciation on already-inflated houses (i.e. cities where price/rent and price/income are out of whack) because you are more likely to see a crash.

            To reconcile with NYT buy vs rent, just plug in appreciation at 1% or lower.

            • Anonymous August 7, 2015, 4:22 pm

              Yes, agreed; that must be taken into account, of course. The $3,400 point was just in rebuttal to the earlier poster’s comment that there was some additional, monthly opportunity cost to the buyer because “the monthly payment for the purchased property would be vastly higher than $4,500 each month and the renter can invest the difference.”

              In any case, even with (1%) below-inflation-rate price appreciation, the NYT times calculator indicates buying is cheaper if the buyer stays for 7-8 years, although the numbers change significantly with even small adjustments.

            • Mark August 8, 2015, 8:02 am

              I probably should not have said “vastly” for this particular example, but my point still stands, since incorporating the 2% for taxes/maintenance/insurance would bring the monthly payment for the buyer to $5000 and so the renter has the $500 a month difference to invest.

          • Mark August 7, 2015, 12:04 am

            To ad to MMM’s points, the benefits of the mortgage interest deduction are highly over-rated and widely misunderstood:


            • Anonymous August 7, 2015, 4:15 pm

              That article discusses a situation where the mortgage interest deduction barely exceeds the standard deduction (the example used is $12,000). We were discussing the purchase of a million dollar house. In that situation, the mortgage interest deduction is likely to be significant to a high wage earner, given that the interest paid on the loan we were discussing is approximately $24,000 in the first year. I’d also note that property tax is also deductible from your federal tax return.

            • Anonymous August 7, 2015, 6:47 pm

              And, of course, your state income tax is deductible, and a borrower able to qualify for an $800,000 mortgage likely is already itemizing, given the amount of state income paid (at least in places like California), so the borrower would be receiving the full benefit of the mortgage interest and property tax deduction. So we’re talking savings of approximately 35% of the $24,000 paid in mortgage interest and $10,000-$11,000 in property tax. That’s about $12,000 or a savings of about $1,000 per month. Nothing to sneeze at.

            • Mark August 8, 2015, 9:50 am

              Even in your generous scenario, with a high income earner and assuming that they will always itemize deductions, this example still leans overwhelmingly in favour of renting.

              Lets assume this high income earner gets that $12,000 in savings from mortgage interest and property tax deductions. Now, the annual “money burned” for the buyer is $46,000, while the annual burn for the renter is $54,000. The money burned for the renter is now higher, but still, this is a fantastic deal for the renter:

              – The numbers for the buyer do not incorporate transaction costs. As you mentioned, this would have less impact depending on how long they own the property, but we’re talking about a very large sum here – $70,000-$100,000 or about 1-2 years of rent just for the privilege of buying and selling the place.

              – The renter does not have nearly the same emotional and time costs for maintaining the place and worrying about issues that may come up. For a high income earner, time is particularly valuable.

              – From a financial portfolio perspective, buying a $1M house is probably a bad move, depending on your net worth and investments in other areas. Most likely, a person buying this property is throwing a very large proportion of their wealth into a single asset – as a result they have no diversification in their investments and are taking on lots of risk. Also, a house is extremely illiquid, making it less desirable than stocks/bonds, all else equal. If you really want to invest in real estate, why not just buy a REIT?

              – Lets not forget the mobility advantage the renter has, as MMM mentioned in the article. Suppose a new job opportunity comes up, you unexpectedly lose your job, you want to move closer to reduce commuting costs, or something else happens that requires a move? The renter can just pick up and leave. The owner has a house to sell.

              Put another way, imagine you are a landlord of this property renting it out for $4,500 a month. Your money burned from owning the property would be 85% of the rent you receive from your tenants. I wouldn’t want to be this landlord!

            • Anonymous August 8, 2015, 10:35 am

              My scenario isn’t particularly “generous” – only a high wage earner would qualify for an $800,000 mortgage, and the interest paid on that mortgage, as well as the property tax, significantly exceeds the standard deduction, as does the state income tax likely paid by that wage earner (as an example, I pay tens of thousands of dollars in state income tax in California — all deductible from my federal tax return). If anything, the example of a $1 million house being available for $4,500 monthly rent — with housing price appreciation below the rate of inflation — is unrealistic (or at least uncommon) and “generous” to your position.

              Your transaction costs are also overstated, at least on the high end. Even assuming a 6% commission, the transfer tax in my county is $1.10 for every $1,000 of sales price — so even $70,000 is a reach on a $1 million home.

              In any case, even assuming an 8% transaction cost, the NYT calculator says that buying is more favorable than renting after 7-8 years.

              The renter obviously has more mobility, but that concept is captured in the calculator. If the buyer has to leave before 7-8 years, it would have been better to rent – if not, even with the mobility advantage, it’s better to buy.

              The “emotional” and “time” costs you identify obviously cut both ways. Many people get emotional satisfaction out of owning a home. Many people also do want to seek their landlord’s approval to make any modification to their home, and enjoy spending their time making those modifications/improvements (for example, the author of this blog).

            • Mark August 8, 2015, 12:19 pm

              “If anything, the example of a $1 million house being available for $4,500 monthly rent — with housing price appreciation below the rate of inflation — is unrealistic (or at least uncommon) and “generous” to your position.”

              The whole point of my original response was to point out that renting a $1M house for $4,500 a month is a great deal because someone mentioned that’s what they were seeing in their area. That obviously won’t hold for all regions. Also, I never assumed housing price appreciation below inflation – I’m assuming it matches inflation, which is not a big assumption at all – if you look at long-run data, this is about the rate of appreciation for real estate over the long run.

              And sorry if you don’t like the word “generous” but this is a red herring – the numbers strongly suggest that buying a $1m house when you could rent it for $4500 a month is a pretty crummy deal, using your own assumptions about tax deductions, whether they are generous assumptions or not

              “Your transaction costs are also overstated, at least on the high end. ”

              I used round trip transaction costs of buying and selling the property. You seem to only be considering the costs of buying. http://www.globalpropertyguide.com/North-America/United-States/roundtrip-cost

              “The renter obviously has more mobility, but that concept is captured in the calculator. If the buyer has to leave before 7-8 years, it would have been better to rent – if not, even with the mobility advantage, it’s better to buy.”

              It doesn’t take mobility into consideration at all. It’s just recognizing the benefits of staying in a single property for longer, but there is no entry in the calculator where you incorporate the fact that it’s much more difficult and time consuming to leave – It just lets you enter the dollar value of the transaction costs.

            • Jay August 8, 2015, 11:11 pm

              “– From a financial portfolio perspective, buying a $1M house is probably a bad move, depending on your net worth and investments in other areas. Most likely, a person buying this property is throwing a very large proportion of their wealth into a single asset – as a result they have no diversification in their investments and are taking on lots of risk. Also, a house is extremely illiquid, making it less desirable than stocks/bonds, all else equal. If you really want to invest in real estate, why not just buy a REIT?

              “– Lets not forget the mobility advantage the renter has, as MMM mentioned in the article. Suppose a new job opportunity comes up, you unexpectedly lose your job, you want to move closer to reduce commuting costs, or something else happens that requires a move? The renter can just pick up and leave. The owner has a house to sell.”

              The first point I’ve quoted is, for me, the deal-breaker and why I won’t even considering buying a residence until my net worth is much, much more than it is now.

              I sincerely and strongly believe it should be the deal-breaker for many if not most people that buy a residence instead of renting, but unfortunately as you likely know saying and writing it is like spitting into the wind.

              The second point, mobility, is important for me, but I do understand that many if not most people buying a residence fear the uncertainty regarding rental price increase and, at least in my country, being kicked out by the landlord.

              One minor clarification, though: Owners do not necessarily have to sell the house when they move. They could presumably rent it out – if they do not need the equity for a down payment buying another residence in the new location. This particular issue actually should mitigate much of the risk under most circumstances, I think.

              Nonetheless, I have decided for my single self that I don’t want to be landlord, especially not if I need the rent to pay my living expenses so I don’t have to dip into the ‘Stash (even if, as a budding Mustachian, those expenses are relatively low and a relatively small percentage of my current take-home pay).

            • Anonymous August 8, 2015, 11:59 pm

              (This is in response to Mark’s 12:19 post)

              “The whole point of my original response was to point out that renting a $1M house for $4,500 a month is a great deal because someone mentioned that’s what they were seeing in their area. That obviously won’t hold for all regions. Also, I never assumed housing price appreciation below inflation – I’m assuming it matches inflation, which is not a big assumption at all – if you look at long-run data, this is about the rate of appreciation for real estate over the long run.

              And sorry if you don’t like the word “generous” but this is a red herring – the numbers strongly suggest that buying a $1m house when you could rent it for $4500 a month is a pretty crummy deal, using your own assumptions about tax deductions, whether they are generous assumptions or not.”

              Again, my assumptions about tax deductions are not “generous” – see my prior post.

              But thank you for the clarification regarding the housing price appreciation rate you have assumed (the below-inflation rate was introduced by MMM in an earlier post in this chain). If you use a housing appreciation rate that is the same as inflation — and use even the 10% transaction cost percentage you discuss — buying becomes favorable than renting between years four and five, according to the NYT calculator. Hardly a “crummy deal.”

              “I used round trip transaction costs of buying and selling the property. You seem to only be considering the costs of buying. http://www.globalpropertyguide.com/North-America/United-States/roundtrip-cost

              Your link does not list the exact costs it is considering, but it does say it assumes the purchase of a $250,000 condominium. In the U.S., the transaction costs associated with the purchase and sale of a property are a 5-6% commission paid by the seller to the seller’s agent (and split with the buyer’s agent, if he has one). There is also a small transfer tax – approximately .1% in my county, as I previously noted. Then there are smaller costs, like for an appraisal and an inspection. Those last costs probably amount to a couple thousand dollars, which is obviously a higher percentage when we are talking about a quarter-million dollar condo than the example at issue here, which is a million dollar house, and may explain some of the discrepancy. In any case, even using the 10% figure, the calculator says that buying is superior to renting after four years. Not a “crummy deal.”

              “It doesn’t take mobility into consideration at all. It’s just recognizing the benefits of staying in a single property for longer, but there is no entry in the calculator where you incorporate the fact that it’s much more difficult and time consuming to leave – It just lets you enter the dollar value of the transaction costs.”

              You missed the point. After the four years have passed, it becomes more favorable to buy even taking into account the transaction costs associated with the sale of the property. So mobility is no longer an advantage for the renter – the buyer makes more money when he moves, even taking into account the substantial transaction costs associated with the move. Before those four years have passed, renting is more favorable, as we have already discussed — in large part because of those same transaction costs.

              Again, my point, as it has been from the beginning, is that this is a close call. Many individuals would consider four years a very reasonable time horizon for purchasing and staying in a home. The situation certainly is not one that is “overwhelmingly” in favor of renting or a “crummy deal” for the buyer. The calculator makes this abundantly clear.

            • Jay August 7, 2015, 8:55 pm

              A real interesting article, Mark. I’m a dedicated renter in Israel, so I’ve had no reason to research the US mortgage interest deduction. Nonetheless, when I see others writing about it and the myths regarding it, I can call bullshit.

              However, I’m not sure about the following section toward the end:

              “Of course, there’s always the argument that you could make more money by paying the interest and investing the rest of your money in the stock market. It seems like a great strategy when the market is going up, but prognosticators giving that advice are nowhere to be seen when the stock market drops 40%, home values fall 40%, and their investment advice leaves homeowners owing more on their mortgages than the home is worth.”

              If you accept the likelihood of that scenario – simultaneous 40% drops in both the stock market and home values – nobody would ever buy property or stocks, ever.

            • Anonymous August 7, 2015, 10:46 pm

              In debunking supposed “myths,” the article simply points out that (i) the mortgage interest deduction is a deduction, not a tax credit; and (ii) the mortgage interest deduction provides no benefit to the extent the mortgage interest deducted does not exceed the amount of the standard deduction (or the homeowner already itemizes).

              The difference between a deduction and a credit is perhaps the most rudimentary and widely-understood distinction in the tax code. The standard deduction point is slightly more nuanced, but also extremely basic and easily understood by anyone who has ever prepared their own taxes.

              The mortgage interest deduction is indeed controversial from a policy perspective, but what is not controversial is that it is very valuable for many homeowners – especially the homeowner discussed above who is paying $24,000 in property tax and $10-$11,000 in property tax. That borrower will save $1,000 a month as a result of the deduction. That’s real money – no myth.

    • Pat July 27, 2015, 9:54 pm

      It’s actually not outlandish. I live dt Toronto where both my Fiance and I rent a 1 plus den condo with all utilities included (all wooden floors and granite counter tops plus a parking spot and storage locker) for 1650 a month. This also includes access to a super club as well which would be suited for a basketball team at the least. The condo fees alone are $550 a month of which of course we pay nothing of. All this and we are a spitting distance from work with countless bike trials and beaches for the weekend.

      If we were to buy this condo that’s easily a $400,000 mortgage plus the 550 condo fees, insurance, and property tax.

      I think we’re living a dream to live this cheap.. its unreal, yet we’re considered foolish for renting according to our families

      • Dan August 26, 2015, 11:13 pm

        This demonstrates that there is a massive bubble in Canadian real estate. There will be pain when it pops.

    • Potato July 28, 2015, 10:52 am

      Rents are a bit high in Toronto (relative to other Ontario cities) but are overall fairly reasonable, and falling relative to inflation these past few years.

      Purchase prices, however, are insanely high. Prices in Toronto are in the midst of a generational bubble that would make many American cities blush.

      It’s partly driven by a lack of analysis — I’ve informally surveyed first-time buyers, and none of them even looked at rental options before buying. They just paid whatever the price was because it’s “what you do when you’re a grown-up.” We have CMHC (akin to Fannie/Freddie) which allows people to buy with as little as 5% down, so prices running away from savings doesn’t really become a barrier — and when it does, family often steps in to provide a downpayment (I have to check, but I believe the last survey had it at nearly 40% of first-time buyers receiving downpayment assistance from family).

      It’s also driven by a big boom in buying condos for investments. You should see the ads the developers put out, promising 18-20% returns.

      • Mr. Money Mustache July 28, 2015, 2:28 pm

        Yes! And many of these amazing deals on modern apartments I found were indeed being offered by owners, some of whom might be speculators.

        It’s simple economics to me: if someone else will buy something at a ridiculous price that bears no relation to its underlying value (hoping an even greater fool will someday come and buy it from them), and meanwhile rent it to you for cheap, you should enjoy renting it.

        Imagine if I wanted a Tesla Model S, which costs about $100,000 these days. Speculators start buying them from the factory up on the hope they will be worth $1,000,000 in the future, and still more speculators keep doing so until the price has risen to $300,000.

        Meanwhile everyone starts renting them out for $100 per month. You can bet I’d be one happy, electric-car-renting mofo. Speculators can play their games, but I’ll invest in global low-fee index funds, which will always beat real estate bubbles in the long run.

        • Matt July 28, 2015, 9:58 pm

          Lol, not sure if you intended this or not. ‘Greater fool’. I am Canadian and also read the greater fool blog Garth writes. He appears to have a very dry sense of humor but he has been preaching for years about run away house prices in Canada. I’m thinking perhaps you read the blog on occasion. He writes 6 times a week…. :)

          • totoro July 29, 2015, 3:17 pm

            Yes, and Garth has been consistently, dramatically and laughably wrong for at least 10 years. He has sold a lot of financial investing advice and books with his self-promotion techniques though.

            The example in the article is interesting and true if you are comparing a commute plus buying an expensive SFH to a much smaller rental apartment, but those are not the only choices out there although I agree many are making this odd choice.

            We own a multi-family property in Victoria BC and effectively live for free (after tax) in our primary residence while accounting for the LOC for the money we put in. Prices are pretty high here too. Average homes are well over $500,000 in the core areas.

            Our mortgage is being paid by other peoples money and we will benefit from the appreciation on the entire leveraged amount. Effectively a pension plan. Prior to buying this place we had two primary residences that the were successively converted to rentals which are cash flow positive.

            This means we can retire knowing that we have 2 million in appreciating RE assets that will be paid off over time by other peoples money, a paid off place to live, and an income stream we can live on separate and apart from any other investments. Pretty much any middle class family could do this too provided they make smart buying choices. The mortgage terms attached to primary residences are fantastic compared with any other type of financing.

            IMO, the rent vs. buy scenario needs to account for two other important variables, rental suite income and appreciation, before concluding that renting is always better if your home cost is more than $300,000. It is not just the renters that can use a calculator: homeowners can do the math too and make alternate choices.

            In our case we come out far ahead of the renting alternative. So do the folks who have benefited from double-digit appreciation in Toronto and Vancouver. I admit I would not be banking on that going forward, but the historical rate of appreciation over time is 4% at least where I live.

            And finally, the dog scenario. We have one too and she is well worth it and really enjoys the back yard a lot – as do we – we spend a significant amount of our day there. I work from home and definitely prefer our south-facing patio next to the gardens to any public space.

            Also, we dog-share because we travel a lot. Both families make her food and, at nine, she has had no major vet expenses (knock on wood), although we have always paid for vet insurance (shared cost). Looking back, investing the $80 a month as our own insurance would probably have worked out better, but who knows what the next few years will bring as she ages.

            • Doug July 29, 2015, 7:04 pm

              Garth was laughably wrong? What about his predictions about the recovering US economy, and his advice to sell Canada and buy USA because the Canadian Dollar will drop? How about his predictions for gold? What about his idea that 2013 was a good time to buy REITs when they were on sale? If you think Garth is wrong then go ahead, get heavily mortgaged buying a house you can’t afford because house prices keep going up forever and ever. You Americans here know that beyond the shadow of a doubt, don’t you?

            • totoro July 29, 2015, 11:22 pm

              Yep, he wrote about the imminent RE crash in his 2008 book and maintained his position. Seven years of wrong is really wrong. Real estate is cyclical and he has made it through an entire cycle being wrong.

              What he is most known for is recommending that you sell your home, invest the proceeds and wait for a crash while renting – which he predicted would happen many years ago. It might work out that way one day, but it hasn’t for the last 10 years.

              He also recommended Nortel if I remember correctly.

            • Doug July 30, 2015, 6:53 pm

              Yes, if you sold your house before the crash and invested the money in a diversified portfolio, which included selling fixed income assets and buying equities in early 2009 when they were DIRT CHEAP, you would be a lot farther ahead financially than if you kept the house, and would have mobility also. That’s an asset in a volatile employment market, just ask people in Calgary who recently got their layoff notices and may have to move to find another job. You remember wrongly, Garth NEVER recommended Nortel, but recommends ETFs instead. Have you ever actually read his blog?

            • totoro July 31, 2015, 4:24 pm

              Yes, I’ve read his blog. I’ve also read some of his books.

              In a Canoe “Money” chat room back on Sept. 27, 2000, Turner assured participants that “Nortel [then trading at $96.60] is a wonderful company and, given the recent decline, I think it is a strong ‘buy.'” That day, the TSE closed at 10,250.
              Barely two months later his enthusiasm refused to wane, despite a TSE index of 8,945 and a price for Nortel stock of $56.35. “Will the Nasdaq again reach 5,000 and the TSE attain 11,000?” Turner asked. “Will it be warmer again in April? How about clipping this column and taping it to the fridge?”

              Those who did would have noticed that, as of March 26, 2001, the TSE had slipped to 7,686 and Nortel, at $25.60, had begun its slide to penny-stock status. Turner remained confident: “By the time the flowers bloom in Saskatoon, the back of the bear market will have been broken. We will see sustained gains in Toronto and New York, and those who fled from stocks and equity funds into cash and money-market funds, taking a loss in the process, will be sorry indeed.”


              Um, and what real estate crash are you referring to? There wasn’t one in Canada in 2008. I’m Canadian. He’s Canadian. His advice was directed at Canadians.

              What assumptions are you basing your scenario of cashing out and investing on? Someone who has 10% equity or 100% equity? What is your expected rate of return? Are you in Vancouver or St. John’s? Are you factoring in rent paid during your home ownerless mobility phase? Are you factoring in the fact that capital gains are tax exempt on a primary residence and they accrue at a higher rate due to the use of leverage where a property appreciates?

              Between 2008 and today house prices in Canada have appreciated, on average, about 20%. Some markets more and others less – way more if you were in TO or Vancouver for example.

              If you put $50,000 down on a $500,000 home in 2008 lets you made $100,000 on your $50,000 invested tax free less LOC, selling costs and any costs paid over what renting would have cost.

              In addition, you paid down about $53,000 of principal.

              I certainly have done much better with my real estate in my markets given my equity than I could have done with stocks since 2008. Add rental income to the picture and the math works out even more in favour of owning than renting and investing any difference in the stock market at this point anyway.

            • Doug in London July 31, 2015, 8:51 pm

              The real estate “crash” of 2008 was a pullback, rescued by extremely low interest rates. The boom has been kept going by these historically low rates, demographics (the Millenials), and the classic buy now or be priced out forever mentality. Have you ever seen that disclaimer for mutual funds that says: past performance isn’t necessarily indicative of future performance? That describes the market in many Canadian markets, especially Toronto and Vancouver. If you made a good capital gain with real estate then great, good for you, but don’t expect the same going forward. Personally I don’t see the need for a house, I live alone and don’t need the extra room or the hassle. I can pick up and leave to work out of town or travel (really enjoyed those 2 months in Southeast Asia earlier this year). As for rental properties my REITs, ETFs, and stocks (all of which I bought on sale) just hum along paying out dividends and don’t call me late at night because of an overflowing toilet, and the management of my REITs deal with any bad tenants and save me the hassle.

            • Financial Planner Dude August 9, 2015, 3:01 pm


              Huh are we twlking about the same Garth here???? He said sell Canada buy the US when the dollar was 1.05 or so it’s now approaching 70 cents, if you had bougt a non hedged ETF you would have made a killing. Secondly regarding REITS I remember that clearly as I was sitting in cash at the time, got all my REITS at a 30% discount, very happy.

              I’m a regular reader and I agree some of his old advice was a but off but in the last few years he’s come into his own. He is one of the smartest most atute investors I know. My only complaint is he writes as a newspaper columnist not a blogger so his posts are a real pain to search. I slowly went over all his posts (7years worth) and found the best dozen or so. When his advice is good it’s really good. I referred to those posts many times when talking to clients.

          • totoro August 2, 2015, 10:04 pm

            A “rescued crash”? That is an interesting way to present the fact that there was no crash. Period. By any accepted definition. Prices have gone up – double digit up in most markets.

            I’m not sure what your views on the current and continuing RE market conditions have to do with the issue under debate: that Mr. Turner has been wrong about the RE market and has been for many many years. He himself admitted it. In addition, he has given dodgy advice such as recommending Nortel.

            If you don’t want to be a landlord there is nothing forcing you to. And renting and investing is a perfectly good and profitable choice for many people. Certainly it gives you some mobility unless, like me, you just rent your place out when you are not there.

            I suppose the only debate would be whether the ROI is higher in one scenario than the other as you have asserted that everyone should have sold in 2008 and invested their money otherwise and they’d be much further ahead financially: which is factually not supportable and untrue for a very large percent of homeowners in Canada.

    • leostrauss August 5, 2015, 6:41 am

      What is happening in Canada right now is best described in that seminal works “Popular Delusions and the Madness of the Crowds”. There are no tax breaks for investing in real estate in Canada. Rent income is taxed at the regular income rate (highest) the prices are so high that many properties no longer have positive cash flow and owners are just hoping for capital gains when they sell and laws are very tenant friendly. Canadians have really lost their marbles when it comes RE. Most people here have no retirement savings to speak of but half claim to be ‘millionaires’ through their RE ‘investments’.

    • Karen August 12, 2015, 12:49 pm

      My rent for an older but very nice 1,200 sq-ft 2 bdrm main floor apt with garage and backyard in Toronto, which is more like a house, and located right across the road from High Park, is $1725/month which includes all utilities. Frankly, this is a much nicer area to live than in the downtown core. Landlord has only increased my rent once in the 4 years I have been here by $25/month. Houses in this neighborhood sell for $1.2 – 1.5M (nutty bidding wars) and you can rent an entire 3-4 bdrm house for under $4K/month.

      So, the Toronto example is not outlandish at all. The reason people aren’t renting is because they truly believe that if they don’t buy now they’ll be priced out forever, dirt cheap interest rates and their HGTV obsession. Most don’t remember (or choose not to) the Toronto housing crash back in the late 80s/early 90s.

      Was talking with friends the other night who bought homes in the surrounding area around 13 years ago and they said that they would never be able to afford buying their house today.

    • Ann August 13, 2015, 12:24 am

      Same in Seattle. A rental like MMM described would currently be $4000+, slightly more than what the mortgage would be on a similar place. .

      When we moved to Seattle 2 years ago, we did the rent/buy calculation and decided we were slightly better off buying, so we found a place we liked close to work, bought, and locked in housing expenses that were slightly less than what rental expenses would have been. In the two years since, rents have gone crazy, but our mortgage has stayed the same, and we’re far ahead of where we would have been if we rented.

      The same happened with our house in San Diego. When we bought, we were paying slightly more than we would have paid to rent. After five years we were paying slightly less. After fifteen years, we could have rented a room out for more than what the mortgage payment was on our four bedroom house. We still have it, are renting it out for a significant profit, and it will be paid off next year.

      As long as prices aren’t totally out of whack, I’ll stick to buying.

  • Freedom35 July 27, 2015, 12:36 pm

    My (old) hometown, nice to hear things are still nice and real estate is still frothy and ridiculous there. Whenever I mention to people that I grew up in Toronto, they always seem to say “Oh I always see that city on HGTV house flipping show”.. that can’t be a good sign for anyone involved.

    I was a happy renter there before literally leaving for warmer climes. I was one of those people renting a luxury (to me) condo that you gave examples of. Talking to my landlord, it was obvious she wasn’t really making money off the rent. I on the other hand thought it was great paying a small amount of money each month to live in the center of everything, walk to work, walk back home at lunch if I wanted and enjoy a swim in the heated pool. It was a tough life, but somebody has to do it :)

    Not to mention, from what I remember, Toronto has very strong rent control laws.. you don’t even have to worry about your rent rising astronomically each year.

    • Meghan July 27, 2015, 12:48 pm

      The rent prices make a bit more sense if there are strong rent control laws. My family and I will be moving back to a surrounding area of Princeton, NJ in March (we’re currently on a one year stint in Germany). I can rent a house for 2500$/month or buy one for 300-350K$. For our lives buying would make more sense, we both have serious hobbies/side gigs that will require garage and workshop space so an apartment just doesn’t make sense.

  • Debt Hater July 27, 2015, 12:41 pm

    The Toronto market sounds crazy, it looks like you can even rent a 1 bedroom, 1 bathroom downtown for only $1200-$1400 and most of the ones I clicked on looked really nice. Where I’m at in the Northeast US the rent/buy market is not nearly that skewed. Prices are around $1100 for a 1bed/1bath and that’s not too close to a city. The closer you get to a city (and higher paying jobs) – the more the rent increases. You are able to get some good deals on 2 bed/2bath as sometimes the price only increases to around $1500-1600 for that extra space. Good deal if you have a roommate to split with!

    Most “regular” homes can get you a mortgage for slightly under that rate with a 20% down payment, a $700k home would get you a lot better than an 80 minute commute . I wish the renting market was like that here! If anything rent keeps increasing compared to buying here.

  • pmm July 27, 2015, 1:01 pm

    you made my day mmm!! ive been waiting for a good article to send people about how renting is often better. if you’ve got some well phrased way of punching people in the face for thinking that home ownership is a virtue in life, i’d love to hear it!!

  • LeisureFreak Tommy July 27, 2015, 1:08 pm

    Great article and as always good details for anyone to chew on when having to make a rent vs buy decision. The other factor is if you plan on staying in the same area a long time for job or family reasons if the numbers are close between the buy vs rental evaluation is to consider inflation. When we first bought our home in 1995 with an 8% mortgage interest rate renting would have slightly won the cost debate and I certainly looked at that but only a few years later rents climbed well above what my mortgage plus other costs were. Now the joint is paid off and I am happy not making rent or mortgage payments in early retirement. All of this of course if the math is close. Toronto from what you have detailed would take decades if ever before the numbers came close and the walkable location for those rental examples seals the decision.

  • Jill Pruett July 27, 2015, 1:39 pm

    I am currently an owner of a paid-for house in Cheyenne, WY. My decision to buy the house was based on wanting to have my monthly expenses easily covered by my social security. I do not consider a home as an investment, rather I describe it as Prepaid Rent. Also, in the event I should have to deal with any means testing issues, my paid for home is generally not considered an asset. It is something to consider.

    And, BTW Cheyenne is reasonably bike friendly.

    • Joy Walton July 28, 2015, 11:25 am

      Did you move to Cheyenne as a single woman? To be near family? I would love to move somewhere and have a paid-for house but it feels more challenging to choose a location as a single woman.

    • Greg December 7, 2016, 3:38 pm

      You only can’t consider your house an “investment” if everyone who rents doesn’t call the first $XXX needed to cover their rent an “investment”. Where I’m from (Brisbane, Australia), where weekly rents run at about $400 for an average place, assuming a 4% safe withdrawal rate, that would mean your first $500,000 in Vanguard or whatever doesn’t count as an “investment” as all it’s doing is paying your rent.

  • Fun in the Sun July 27, 2015, 1:46 pm

    In any A class neighborhood, especially A+, it never makes sense to own. There is too much money out there that people stash in real estate as a safe investment. The money floods into “nice” areas, creating low rents. They are all gambling on capital growth. If you are happy living in a B class neighborhood, or even a C class, the numbers get a lot tighter.

    I have been renting all my life (but own a couple of million in real estate where it can cash flow). Everytime I move, I do the sums, right now I rent a $500,000 condo for $3,000 per month ($36k per year). Property taxes are high here, so $7k a year, HOA are another $7k per year. $22k net cost on $500k investment. Good luck even finding 4.4% interest rate, let alone maintenance issues, lack of mobility, etc.

  • Leslie July 27, 2015, 1:46 pm

    The other reason renting can be better is if you want to move for your career. Selling a house to move is a much bigger endeavor than just giving notice to a landlord. If you are young, and just out of college, and don’t want to be stuck in one job market it is often better to rent. Mobility is an asset.

  • ResMan July 27, 2015, 1:47 pm

    Two things to consider

    1. Fixed Costs
    When buying you have fixed costs, when renting you do not.

    2. Your children
    You might not enjoy the full benefits of owning a house, but your children will. This depends on inheritance taxes.

    3. It is assumed that the stock market returns will be higher than the interest mortgage.
    This has not always the case. (Some investments have negative returns)

    • A July 27, 2015, 10:53 pm

      > When buying you have fixed costs, when renting you do not.

      So you never repair your house when it breaks? Fun and exciting unexpected costs. Not to mention ever-increasing property taxes, especially if you live somewhere that doesn’t cap their growth.

      > You might not enjoy the full benefits of owning a house, but your children will. This depends on inheritance taxes.

      They’ll enjoy having you around more. So rent, save the oodles of extra money, retire early, spend more time with your kids, and if you really want to, buy a house for cash with all the leftover money you saved, somewhere that you don’t care about being close to work.

  • ClaireB July 27, 2015, 2:06 pm

    Great article, I would love to live in Toronto in that apartment. Right now we live in the Bay Area in a 2/1 apartment and pay $1600/month to be in walking distance of the bike trail, library, grocery store, and park, and biking distance to BART and work/school. However, we can’t sleep at night because of the shitty apartment (can hear every footstep above us), and with two little ones prefer to live on the first floor with no stairs and access to a small sandbox and garden and shed for bikes. No gym/pool/granite counter tops for us, but lots of cheap carpet, linoleum, and plywood. Our rent has gone up 15% every year with no end in sight.

    After 4 years of renting we decided to take the gamble and are buying a fixer-upper house with similar bike/walk access but adjacent to a park. But at $650,000 it’s not exactly a clear-cut decision. We have the minimum amount needed for retirement in 10 years in our retirement accounts and a rental house as our college education fund. We will spend the weekends over the next few years learning home repair/upgrade and gardening skills and can hopefully take a massive shortcut to retirement if we move out of the Bay Area.

    Really, we are looking for a new adventure. Already traveled the world for 2 years. Fixing up a place sounds kinda fun, I am excited to learn how to build an outdoor staircase and install a new toilet.

    • J July 27, 2015, 2:29 pm

      Wait….$1,600 for a 2/1 in the Bay Area? No way. The absolute sh*tiest 2/1s in SF currently start at $4k…

      • Mr. Money Mustache July 27, 2015, 3:37 pm

        It sounds like she got this place a while back. Still, there are at least a few under $3800 according to the map: http://tinyurl.com/pcyrhmp

        • Anonymous July 27, 2015, 10:55 pm

          And it’s still much cheaper than buying.

          Still, Silicon Valley is one of the few areas where it’s not at all obvious that there’s any sane place to live with both a reasonable cost and a reasonable commute, especially if you don’t want roommates.

          • Andrea July 28, 2015, 3:10 pm

            … and Los Angeles, for that matter. 2nd in “ridiculousness” only to the SF Bay.

        • ClaireB July 28, 2015, 12:52 pm

          We are renting/buying in Walnut Creek. A 3.5 mile bike for me to work all on trails, bike+bart+walk for my partner to SF is 50 minutes. Not ideal for him, but he hit the jackpot with his job- he loves it. Even if we were FIRE he’d be doing it, at least for a little while (crazy!). If you find us on the map, we are in walking distance of Neiman Marcus and Tiffany’s but that’s not the appeal, obviously! We are also in walking distance to a trailhead which leads, on all dirt trails, to the top of Mt Diablo and the surrounding 500 miles of trails. New house is right near a paved trail which leads to a different 6,000 acre park. Sure our city openly loathes bicyclists, has very little diversity, and is a little too close to refineries, but we’ve found a little sweet spot that will allow us to live in mustachian luxury while riding the Bay Area housing market upswing.

          • Steve July 28, 2015, 1:54 pm

            We bought in Pleasant Hill (just north of WC for those unfamiliar). I have the option of either biking to work, which is 8 miles each way, or taking a free shuttle from the BART station. Claire is right, there are plenty of trails and we could go car free for weeks at a time.

            Our house was 700k, which equals a PITI of 3200. If we rented a 3/2 in the area it would be roughly 3000/month. The NY Times calculator suggests that we made the right choice so long as we stay in the home for 4 years (using the conservative assumptions that MMM mentions). That being said, we are less mobile than we would be renting so there is some additional intangible risk.

          • Kristine-CA August 2, 2015, 4:33 pm

            I hadn’t yet read down to see you’re buying in WC. Congrats. The weirdness (wealth) that is WC is annoying. But it sounds like you have your priorities straight. Home improvements really can be fun. Enjoy!

      • Tim July 28, 2015, 8:21 am

        Nope. I’ve been shopping for 2/1’s in the Cupertino/Mountain View area and it’s been fairly reasonable to find $2600/month prices. They aren’t fancy, but they aren’t $4,000, either.

        • Eric R August 11, 2015, 12:49 pm

          I was paying $1540 a month in 2001 before I moved back East, in Cupertino and it wasn’t even that nice an apartment complex.

          My parents came out to visit and insisted I was vastly overpaying so we viewed some much nicer apartments [close to Apple headquarters] that were $2400 and they backed off their opinions a bit :)

      • Diane C July 28, 2015, 11:17 am

        The Bay Area and SF proper are two entirely different animals. She is not in The City in a 2+1 at that price.

        Note to ClaireB: hop on over and find me on the forum. DH and I are experienced Bay Area fixer uppers. Send me a PM if you wish. We’re not in real estate sales and we’re not looking for business, but we are willing to share experiences, one mustachian to another.

      • Kristine-CA August 2, 2015, 4:27 pm

        Bay Area is vague. She said her rent goes up 15% annually so she’s not under rent control….so she’s not in SF or Berkeley. That apt. could be in Hayward, a bad part of Oakland. Or Richmond. Purchasing a fixer at $650K is likely East Bay: Oakland or South Berkeley

  • Patrick July 27, 2015, 2:07 pm

    My wife and I purchased a home in November, 2014 in Denver. While our income is in the low 6 figures, we decided to buy only the house that met our needs, and nothing more, and paid 194,000. This works out to $815 a month in total Mortgage payment. Renting a comparable space would be almost double, around $1500. Sounds like a great deal, right?

    It turns out that I both greatly dislike yard work, and dislike maintaining the home only slightly less. In addition to the financials, I think every home buyer needs to look into the factor of: “if your schedule and temperament allow some time for a good several hours a week of maintenance work.” Often, a good several hours a week of maintenance work will only be the bare minimum required.

    • chacha1 July 27, 2015, 2:37 pm

      The maintenance issue is SO BIG. :-) We deliberately chose land in an area that we like in its wild state, and are planning our build using the lowest-maintenance materials possible – Galvalume siding and roofing, for example. By the time we build, who knows what new and fabulous low-maintenance, sustainable materials will be out.

      My parents, now 75 and 77, toil away at their Florida estate, beating the jungle back from the house, and collapse by 2:00 p.m. each day. It’s a beautiful house with a beautiful view, but they would be the first to say it is a bitch of a job keeping it under control.

    • A July 27, 2015, 10:57 pm

      > It turns out that I both greatly dislike yard work, and dislike maintaining the home only slightly less. In addition to the financials, I think every home buyer needs to look into the factor of: “if your schedule and temperament allow some time for a good several hours a week of maintenance work.” Often, a good several hours a week of maintenance work will only be the bare minimum required.

      Either that, or you end up paying an HOA or landscape service to do it for you, which is a waste. And if you have a particularly nosy HOA, they may prevent you from reducing the maintenance burden through xeriscaping or similar.

    • Garrett July 27, 2015, 11:34 pm

      I’m really happy that I had that self-awareness. Normally, I figure out that sort of thing after I’ve already bought in :-)

      In my case, my wife and I rented a room in a house for several years in a ski town. Every winter we shoveled endless amounts of snow and every summer we watched as our landlords spent their vacation weekends mowing the lawn, staining the deck, etc. The place had a beautiful location on the edge of town, 5 miles from the grocery store.

      After the market crashed, we decided we wanted to buy our own house. Right away, we knew that we wanted a condo/townhouse because we didn’t want to deal with the maintenance headaches. We also knew which neighborhoods we *didn’t* want to live in (the snow here can vary dramatically by neighborhood). And we knew that we wanted to be close enough to town to easily walk.

      With some good luck, we were able to find a great place at a pretty good price. We saved more by remodeling ourselves (I hate maintenance but I don’t mind remodeling). The HOA fees are a pain in the neck but I smile every time I don’t have to shovel 4ft of snow or seal the driveway.

      Hopefully you can find a neighbor kid to take over your lawn duties :-)

      • Scott July 28, 2015, 5:39 am

        I say just get rid of the lawn! Lawns are useless; a weed you pay good money to maintain. Rip it up and replace it with a garden if you’re into that, or nice river rocks or mulch if you’re not.

        • LHPower July 28, 2015, 12:47 pm

          I was waiting for someone to say that .. Lose The Lawn!! (Would be a great MMM blog post, BTW: “Why Lawns?”) I’m outside on suburban/rural roads on my bike all year, and pass countless lawns, all sterile and greenly boring, and no one is EVER EVER EVER using them. The only time the homeowner spends on the lawn is when s/he is mowing it (= driving around on a John Deere, no matter how small the grass patch is.) My house has a meadow full of wildflowers and “weeds,” and it’s beautiful and requires zero maintenance.

          • Patrick July 28, 2015, 10:27 pm

            Y’all will be happy to know that I just cleared my entire backyard with a bobcat and my lawn is going from 2500 Sq Ft to a freshly seeded and more manageable 500. We decided to keep a small grass area for the little one to play on. I agree, however that for the most part the utility of grass is ZERO. The rest will be xeriscaped with gravel, a fire pit, local flora, and some planter boxes for our vegetable garden. A lot of work up front, but I’m excited to reap the benefits of a low maintenance backyard.

          • Pat July 29, 2015, 7:50 am

            Is that lawn on a high/raised area? If yes, it is probably over the septic field, which means only plants with shallow roots can be planted there – no trees or deep-rooted bushes. And no root vegetables either, just in case of contamination. But something needs to be growing there, to soak up the water, which means lawn or equivalent, not hard-scaping.
            Urban dwellers tend to forget that services are fewer when the cost to install them is high, so rural living (and some suburbs) means no cable or cable internet, own septic, probably own well. So for home purchasers, there is also the consideration of what you want your municipality to do for you, and what you will have to do for yourself. Renting not so much, because there are relatively few houses to rent in in the countryside, at least in my area.

    • Alan July 28, 2015, 2:19 pm

      One of my goals in life is to never mow a lawn again.

      Unfortunately, there have been very few fee-simple townhouses built in the United States since 1920 or so. Which is a goddamn shame, since they are cheap, easy building blocks of walkable, bikeable, sustainable mixed-use neighborhoods.

      • Alan July 28, 2015, 2:21 pm

        (oops, forgot to bridge that comment— I like a townhouse because it has basically zero unnecessary yardwork, unless the owner wishes to have a garden in back)

        • M.B. July 29, 2015, 6:50 pm

          They are all over Seattle.

      • Leslie July 29, 2015, 2:55 pm

        Alan, plenty of townhouses being built in the MD/DC burbs (e.g., Rockville). I’m renting one right now ($660K to buy vs. $3200/mo to rent). Our whole planned development is probably 1/5 apartments, 1/5 sfh, 3/5 townhouses. Walk to Metro/bank/Safeway grocery/couple of restaurants. Big parks, pools, tennis courts, dog park, party facilities available for a very reasonable HOA fee. Have to drive to get anywhere else. We’d rather have bought, but DH can never decide whether his current job is worth staying at more than one year at a time, so we can’t plan ahead. Very frustrating in this expensive rental area.

  • andrew fox July 27, 2015, 2:13 pm

    I like this article, more common sense that flies in the face of the status quo.
    One thing MMM didnt mention and is often overlooked are the time commitments to home ownership. Many people fail to realize the amount of time that it takes to maintain a home or even just to shop for one and buy a home. Even if paying people to do all maintenance its a lot of work and no one accounts for their time. Time that you could spend on your job making yourself better than your co-workers and earning more money (guaranteed a better investment than working on your home if you’re a professional). Or time spent on a business venture, or on your passions or with your family. When you rent the landlord in effect is your employee, they work for you. Often times they;re working for minimum wage or much less at nites and on weekends after their day job.

    • A July 27, 2015, 11:00 pm

      MMM doesn’t mention that because he enjoys doing his own home and garden work, and considers it worth his time, either through enjoyment or as an act of demonstrating willpower.

      If you find such work un-fun and already have regular periodic ways of exercising your own willpower, you count it as an extra cost of home ownership, which does indeed put renting further ahead in many cases.

  • Asa July 27, 2015, 2:23 pm

    Great analysis and the NYT Rent vs. Buy tool is very useful. But, as others have pointed out, not all cities are as skewed with prices. I just checked for apartments within walking distance where I work (Cambridge, MA) and they’re $3000+ with some 2BR/2BA going for $6000 or more. That’s crazy to me! Who is paying that, I do not know. So, while I agree with your broader point, I don’t think it’s quite that easy to find a “cheap” rental in the downtown Cambridge or downtown Boston area.

    • victoria July 28, 2015, 8:45 am

      And some cities are skewed the other way — we recently bought a 3BR duplex in one of the nicest neighborhoods in Pittsburgh for just under 200K. That rent vs. buy calculator had the breakeven point for a rental at $769/month; generally, 3BR rentals in neighborhoods like ours close to the universities are in the $1200-$1500 range.

    • Sam August 12, 2015, 10:05 pm

      Yes, I’m in Cambridge too and thought the exact same thing. My wife and I make good money, live a fairly mustachian life, and have substantial savings for a downpayment, but it’s still hard to see how we will find a 3BR we can afford (for folks who don’t know the area, a decent 3BR condo in Cambridge is at least $700k, with the more desirable ones going up to $1M).

      In the meantime, we are very happy in our 2BR/1.5BA apartment for $2400/mo, which I think is a steal. The problem is that we want a place big enough for kids, and as you point out, the rental prices are crazy. A decent condition 3BR will be over $3000 for sure.

      We are fearing that to live in anything larger than 2BR, we might have to move out to the suburbs, and as mustachians who get everywhere by bike and don’t own a car, that is not where we want to end up! How are other folks in extremely high rental markets handling this? (e.g. DC, NY, SF)

      • Mr. Money Mustache August 19, 2015, 10:21 am

        Some of us are moving out to greener pastures! Make your money in Boston, then move out to freedom.

  • chacha1 July 27, 2015, 2:31 pm

    I also live in a big city where living IN the city makes it possible to actually enjoy the city. (Versus commuting from outside the city and never wanting to make the drive on the weekends.)

    We pay $2525 for an almost 1500-sf 2/2 apartment in Beverly Hills. This is the going rate for a 2/2 throughout the L.A. metro area, and is cheap for BH (we’ve been in it since 2003). It has few amenities beyond size and gated off-street parking. An almost identical apartment in a condo building across the street was up for sale several years ago for over $900,000. A 20% down payment on that, plus closing costs, would have been almost $200K.* We calculated the payments as upwards of $7000/mo.

    Those are conditions where it makes more sense to rent. Also of course to consider renting, you can’t be a person who just stomps their foot and says “I hate apartment buildings” or “I hate high rises” and is simply not willing to consider anything but a single-family house with a large yard. The latter is a personal choice which is, of course, entirely valid; however it must be said that in metropolitan areas, this choice nearly guarantees spending more of life inside your car than you do inside your home, at least during your working years.

    I personally consider anything more than a thirty-minute commute to be an abuse of my precious leisure time, and have taken jobs I really didn’t want so that I wouldn’t get trapped in a longer commute. As long as I must live in the big city, I want to be IN the city so that I have time for a life outside my job and outside my car. If this means renting till retirement, I’m perfectly okay with that.

    Renting has enabled us to save a decent retirement fund and buy property up a hill in the Sierra, where we can build a house that will cost so little to operate (and need so little maintenance) that it will be ideal for older adults on a fixed income.

    I suspect a lot of people buy suburban because they think they’ll enjoy living outside the city when they are old. My observation is the reverse: old people move back INTO the city because they feel too isolated, or they cannot manage the maintenance, or the fixed costs on the property exceed their housing allowance in old age.

    *200K is our entire budget for building our Sierra house.

  • Edifi July 27, 2015, 2:31 pm

    Nice. Funny how it always comes back to efficiency. Living awesome in a small space (even if in a very desirable location) still trumps consuming more further away.

    I guess there’s no where to hide from the math of consumption vs. badassity…

  • Neil July 27, 2015, 2:55 pm

    I’m a bit curious about how you ended up owning a home? It seems to me that the rent:purchase ratio hasn’t changed much (and with lower interest rates may have even improved with time). It does seem to me that your oft-touted $25k luxury budget is largely made possible through the implied dividend on your fully-paid-for home.

    I do worry that your calculation may inflate the cost of the buy option a bit, though.
    For one thing, opportunity cost isn’t the cost of stock market returns (for which 7% seems reasonable), but the cost of stock market returns less housing market returns (2% is conservative, since that covers inflation, but housing also increases in value with local population growth), so 5% seems decent.

    Even with 7%, I can’t get to $5k in direct costs without counting a generous maintenance allowance. At 2.5% interest I get the following costs:
    – Interest – $1,167 (2.5% x 80% of $700,000)
    – Opportunity Cost – $817 (7% x 20% of $700,000)
    – Property Taxes ($417…maybe this should be higher in Toronto…it’s about 50% more than what I pay on a $500k house in Edmonton)
    – Heat $125 (again about 25% more than my average heating bill on a 30-year-old house in Edmonton).

    Which comes out to just over half of your $5k, making your estimate overstated by $285,000 per decade.

    Commuting costs seem more reasonable in your estimate, and are far too often ignored.

    As always, I agree with the general point that renting should be seriously considered and may be a better option, but find that you sometimes exaggerate the costs of the more common choice.

    • Eric July 28, 2015, 6:44 am

      You can only count housing returns in the opportunity costs if you plan to one day sell the house and become a renter or downsize significantly. Assuming you sell the house and buy another house that appreciated at approximately the same rate, the housing market return is irrelevant because you’re never cashing it out. There are some people who would cash out housing returns by smartly downsizing, but the majority of people move to a similar house and never realize the return.

      • Neil July 28, 2015, 4:57 pm

        I’m not sure I agree with that assessment. If you don’t cash out, the alternative cost of renting still rises with time, so you’re still getting a return by locking in. Over the long haul, buy and rent should track each other, and the number I’m suggesting would have them both tracking CPI as well.

    • Hibryd July 28, 2015, 9:08 am

      Neil – I double-checked your numbers and everything looks right.

      Maybe MMM is also adding in (but not counting) the principal payment every month? Because otherwise owning is only a BIT more expensive than renting the $2300 apartment.

      • Mr. Money Mustache July 28, 2015, 2:58 pm

        Thanks Neil and Hibryd.. let me see if I can re-create what I typed into the calculator during the furious post writing session:

        – Interest – $1,167
        – Opportunity Cost – $817
        – Property Taxes $1,000 (ontario! but locals should correct me if I have this guess wrong)
        – Utilities: $300 above apartment cost (heat and occasional A/C with electricity in this area is 20+/kWh)
        – Insurance: $200
        – Maintenance: $583 (assuming 1% annually)

        Shit, you are right this adds to only $4,000 and that is with maintenance, which I had for some reason claimed was excluded in the first version. Fixing article now, thanks again.

        • Hibryd July 28, 2015, 3:44 pm

          Can’t speak for Ontario, but our escrow payment (which covers property taxes and insurance for a house of that value in Silicon Valley) is less than $850 a month total for both. Unless Ontario has way higher taxes there’s another $300 monthly.

          • Kiwikaz July 28, 2015, 4:51 pm

            I cant see how you would spend $7k a year on maintenance of a condo apartment. There is no roof, no garden, no fences, no exterior to paint, no guttering, no driveway, garage, no trees, etc. Occasionally repairing an odd appliance leak or breakdown, and repainting and recarpeting the interior every 10 years does not add up to $7,000 a year.

        • totoro July 29, 2015, 3:43 pm

          $583 a month is ludicrous for maintenance and the 1% rule is completely flawed.

          You can have the exact same home in the exact same condition in a cheap market worth $200,000 while it is $800,000 in Toronto.

          And that home in Toronto that doubled in value over 5 years does not suddenly cost twice as much to maintain. Similarly, the Phoenix home that lost half its value in the crash does not suddenly have half the maintenance costs.

          The average US homeowner spends $396 A YEAR on maintenance. http://www.money-zine.com/financial-planning/buying-a-home/owning-a-home/

          The logical way to calculate maintenance is to do an inventory of housing components assigning remaining useful life and determining a repair and maintenance schedule.

          Do it before you buy and calculate how long you expect to own. You might never have to replace that roof!

          Tangible capital asset programs are in place for municipalities for exactly this reason. No reason why homeowners should not do it too rather than rely on some magical formula that throws off rent:buy calculations.

        • totoro July 29, 2015, 5:30 pm

          Also, if you are using Canadian there is a MUCH better calculator for analyzing a buying decision here, it permits the addition of suite income if you have it and accounts for the specific tax scenarios for Canadians:


  • Chris July 27, 2015, 3:00 pm

    I’m emotionally ready for backlash. Let’s start with I am what you describe. High income, big commute (public transit), and fancy house.

    I own a $535k house 90-minutes from Toronto. If I financed this home 90%, allow for 2% annually for ownership costs, 1% annual Reno costs, $3,000 commuting costs (bus & train), and mtg interest costs based on a realistic 2.89%, then my one yeat home ownership totals $33k. So, $9k more than renting downtown Toronto.

    Consider that over the past 13 years my CAGR on the property clicks in at 4.35% (tax free) and I have $16,179 in home equity.

    So I’m $25k richer due to market appreciation and $16k in additional home equity and have improved my home.

    As for the commute. I read library books and the time flies. Plus I just made myself smarter.

    I’m not feeling like I’m making a mistake.


    • Mr. Money Mustache July 27, 2015, 3:27 pm

      Sounds like pretty reasonable math, Chris. The only point I’d make is that you’ve been lucky with the appreciation – housing in a market like the current one can also easily tick backwards or crash horribly then sit flat for a decade or two.

      If you really don’t mind sitting still and reading on transit, I can’t disagree with that part of your argument. But I also want to get more people aware of what it feels like to begin your day with a brisk walk and no sitting at all. The effects on your health, happiness, and work productivity are pretty big.

      • Richard Howes July 28, 2015, 12:44 am

        I’ve waxed on about this, but there is risk and inflexibility in owning. As MMM points out, markets can crash as they did in 2008 when the w/bankers brought the markets down.

        Over the long term home value appreciation is far outstripped by share equity. Below is a link to an article from my neck of the woods, but there are plenty if you google:


        • Michal July 28, 2015, 9:45 am

          A South African!

          Like equities property can’t keep growing forever? Maybe it can.

          I bought my flat at a time when property was lower (So that also has its dips). The people I bought from had tried that whole real estate game. They just couldn’t afford all those properties. I did the numbers myself. The rents that get charged in my building you’ed break even after 12 years.

          • Richard Howes July 29, 2015, 3:16 am

            Yes, from sunny South Africa ;-)

        • Jonathan July 28, 2015, 12:29 pm


          I agree completely with you on the risk and inflexibility of owning, but wanted to point out that the analysis you linked to seems to leave out the value of the implied rents you earn on your home.

          • Richard Howes July 29, 2015, 3:19 am

            It’s what I love about online conversations – the collective wisdom that seeks out the absolute truth by examining every angle. Thanks for the insight!

    • Døitashimashite July 28, 2015, 11:35 pm

      The only thing I’d add into the calculation is the value of your time wasted in commuting. 3 hours per work day is about 750 hrs per year. You are high income, let’s say that’s low six figures, or perhaps $50/hr. That’s $37,500 of lost income-making opportunity cost for your 750 hrs on the train….

      My wife is in the same boat, she gets about $75 per hour. We pay a lot of attention to not wasting her time.

    • SteveVancouver July 29, 2015, 9:14 am

      Hi Chris, thanks for sharing the numbers.

      Two costs you didn’t factor in to your gain are:

      1) Commission cost when selling your home. I’m not exactly sure of the costs in your area, but as an estimate, 4% of $535 000 is $21 400

      2) Lost opportunity cost of the difference between your housing costs and rental costs (the $9000 per year you mention). At a 5% return after 10 years, this would equal $113 200.

      Saying that, I realize there are other, non-financial reasons for owning vs. renting that come into play.


  • Ash July 27, 2015, 3:11 pm

    What if a mortgage matches your rental payments? I’m in this process at the moment. Rent on average is $330-$400 per week where I live, and I can get a mortgage for around this same price, or less. Depending on how much I choose to pay. You can get nice houses here from $260,000 – $300,000. However people not careful with their money can easily spend up to $500,000. But that’s not me. I already pay insurance for my contents, so costs would just be building insurance and land rates. Sometimes it is better financially to buy. At the end of it at least you have a sellable item, not like if your renting. However here home-ownership is the norm for almost everybody.

    • Mr. Money Mustache July 27, 2015, 3:21 pm

      Having the payments match isn’t always a good guideline: houses come with property tax (land rates?) that can be thousands per year, the insurance is fairly expensive, and maintenance that can be another several thousand per year (or more if you prefer to hire contractors to do the maintenance).

      Given those numbers in US terms ($1600/month vs. buying at $280k), I’d probably still buy in my own area, but partly because we have very low property tax and because I’m willing to pay more for the luxury of home ownership.

  • Hope July 27, 2015, 3:23 pm

    For the most part I agree with this article, but there’s one big thing that I don’t think was considered in this scenario. Which is that if you buy, you (more or less) are locking in your housing costs. Yes, you still have to worry about property taxes (and maybe HOA fluctuations, if you have ’em) but for the most part, your mortgage doesn’t change. (Unless you’re really really dumb and take money out of it, refi into a variable interest rate, or something similar.)

    For instance, I bought my place at exactly the wrong time–right before the housing crash. Watched its worth sink and sink and sink from the 120K I paid down to a measly 87K or so now. BUT–despite how hard I was kicking myself for buying when I did, I’m pretty grateful I have it now. Rents in the Seattle area have gone up 40% in the last five years, and the suburb cities are likely to follow suit. Right now I’m paying less than $1K for my place a month–that wouldn’t even get you a studio any more in Seattle. And my salary has NOT gone up 40% to match the rental rates–a lot of people who aren’t high-salaried software engineers, etc. are getting priced right out of the city.

    Could I have still saved a ton of money in the interim? Sure. Could I still move in to Seattle (and get rid of my ridiculous commute, even if it is by bus/bike/train), live in a tiny place with one or more roommates to split the rent, and still save quite a bit of money? Most likely, though I probably couldn’t manage the 50% it would take to be truly Mustachian. But I would still have to worry about my landlord hiking my rent every six months/year, until I’m priced out of that living situation too. So despite all the downsides of my current place, when it comes to saving money, right now it’s not looking too bad.

    • Katharine July 27, 2015, 7:24 pm

      Yup! We moved out of Seattle for this very reason. Seattle is insane, the influx of tech money has made it absurd. We got a basement rental in Magnolia for 1k in 2013 and that was considered dirt cheap at the time. Turns out having two windows in a basement apartment in seattle + poor insulation + an alcoholic and insomniac upstairs neighbor who was prone to irate stompings rantings at 2 am (and who the landlord refused to evict) is prett awful. Unfortunately by the time we felt we could afford to pay more in rent the prices had risen astronomically. We spent 6 months trying to find a place to live, we would show up to places we had responded to minutes after the ad had been posted and there would already be 20 people ahead of us. We looked at dozens of places and were never able to find a place. Renting can also be a risky business.

    • Potato July 28, 2015, 11:06 am

      Note that this is quite different for US vs Canada (and this specific example). In Toronto, places older than 1991 have rent control, and mortgages can only be locked in for 5 years — it’s actually the renter who has a better shot at locking in costs in Toronto.

    • Kay July 28, 2015, 8:57 pm

      This was a big reason why I bought as well. In NYC rents can fluctuate wildly. A friend’s 1 bedroom apartment went up by $400 a month in the middle of her 1 year lease. In the several years since I bought my place, rents have been going up by 20-30%. In the meantime my housing costs went down since I refinanced to take advantage of the low interest rates. I’m aware that rents can also go down while my mortgage is unlikely to go lower, but capping my housing costs gave me huge peace of mind.

      • Nick July 30, 2015, 2:38 pm

        We got lucky and bought at the very bottom near Seattle. Appreciation has gone up to crazy crazy (really crazy?) amounts. I would never buy into this current King County market now and would rent until it cools off (or maybe never). I was burned trying to unload the previous property and lost a good year or two of savings so it can go either way.

        They are saying Seattle and surrounding areas may just keep inflating for the next 10 years just like San Francisco especially since Amazon seems to be hiring everyone in the world at very nice salaries. It’s starting to get so bad that I think there will be a revolt by lower income folks in Seattle soon. Eventually I think it’s just time to cash out, retire, and downsize/move.

        I think buying for me (and locking in the price) is to avoid the fear of being priced out of the market and having to live in places I would hate just because it is affordable. I also hated moving every year chasing the rental “deals” as almost always they would jack the rent up after the first year in this area.

  • Bryan July 27, 2015, 3:27 pm

    I have been a home owner for most of my adult life moving around the country and living in several expensive areas. I completely bought into “renting is like throwing money down the drain” mantra so I bought. Many of our relocations were corporate paid moves, however most were not.

    In hindsight, if I would have not misplaced my calculator and actually used it, I should have been renting in several cities. I think the key is to plan on living in your home for at least 10 years and really making sure it prudent to purchase in a high cost are like Toronto, SF, or NYC. Looking at MMM’s numbers, it seems that it makes more financial sense to rent in Toronto today.

  • Naners July 27, 2015, 3:33 pm

    The specifics really matter here. My situation is one where the example MMM gives actually comes out in favor of buying. Here in Broolyn NY, a 2BR 1BA condo in a nice, walkable neighborhood with a short (30 min) transit commute of work runs $750K. A similar rental with a longer commute costs $2400/mo. According to the NYT calculator, unless you can rent a similar apartment for $1800 a month you’re better off buying (7% investment returns, 3% housing price growth; the break even on price growth for $2400/mo is 1.7%). With our work locations there are no $1800/mo apartments in areas that you would want to live in, and no we can’t change our work locations. End result: my husband and I are closing on a condo tomorrow, fingers crossed. Of course in NYC there is no car commuting cost; there is a bit of lost flexibility, but moving within NYC comes with its own costs (this horror called “broker’s fee” that you should thank your lucky stars you’ve never heard of).

    Yes, yes, NYC is a nightmare from an FI perspective but that’s a whole other kettle of horses – my dream job is here and nowhere else. MMM, drop us a line if you and the family ever come to NYC, you can experience the proud tradition of sleeping on an NYC couch in the living room :) For fun we can check out the local library, grocery store and farmer’s market before having a BBQ in the park and catching a free outdoor concert, all within a 5 min walk of us!

    • Roger July 28, 2015, 7:07 pm

      Yes indeed – NYC is a different animal than almost anywhere else on the planet, even Toronto. The apartment that MMM thought would go for 10K per month in Toronto (but that went for only 2300) would indeed go for just about that 10K – if not more – in a nice area of Manhattan walkable to your midtown/downtown corporate job.

      As long as you’re willing to live a car free lifestyle, though, I don’t think this city is as hostile to dreams of FI as people would think. The jobs here pay significantly more than in other parts of the country, meaning you can accumulate your stash faster. And once you pay off that condo you’ll be left with just the taxes and HOA fee as the fixed costs of ownership – exterior maintenance all included in the price. Transportation (post FI, if you’re not commuting to work) will come in at a nice big $0, unless you want to really splurge on the unlimited MetroCard for $116.50 a month. Otherwise all your errands, recreation etc. are in walking distance.

      I understand why you’d have a strong preference for buying over renting, too. The rent and purchase price appreciation around here – defying any shred of economic logic and reason – continues to appreciate by powers of ten with respect to inflation. When my wife and I bought our Queens coop 2 years ago we paid 475k and could have rented something similar for about 2600/mo. Today the same thing goes for 650k and rents for 3400/mo – that’s 25 percent annual inflation (no way we could afford it today!)

  • sue (uk) July 27, 2015, 3:56 pm

    Fascinating article and also the comments. I’m amazed though that no-one has discussed the precariousness of renting. It’s two months notice here if the landlord decides to sell and if this comes out of the blue, it’s a mad panic to try and find somewhere close to work that’s affordable.Heaven help you if you don’t drive and transport links are poor. Coupled with new buyers (or new landlords) wanting viewings in the evenings and weekends when you want to relax and/or socialise is a pain. Interfering landlords generally are a nuisance and they are inexperienced enough not to realise that a good tenant is worth their weight in gold. There’s a lot of encouragement here for people to invest spare money into property and become landlords. But they often realise, too late, it is not an easy option and want to offload.

    I could go into detail about one son living in property whereby the landlord had defaulted on the mortgage and boarded up the entrance…. or mice living in the kitchen….central heating packing up for days with ice on the windows….let’s just say it’s been a learning experience for him.

    In the UK the majority want to buy and we all know an Englishman’s home is his castle! I bought my first house at 19 and there is nothing to compare to the feeling of owning all I survey and not worrying about it being taken away from me.

    • Kiwikaz July 28, 2015, 4:58 pm

      As someone who works in animal rescue, I can also tell you that a large proportion of pets that end up in shelters and pounds do so because their owner got turfed out of their rental place and could not find another pet friendly rental. When you have to watch a grown man break down and sob his heart out as he surrenders his dog to a shelter, the downsides of renting become all to apparent.

      • Michelle July 31, 2015, 6:43 pm

        Having a passion in animal rescue, I have definitely heard of this, but never really understood. Apartments seem to, more often than not, allow pets, and it just seems overall not that difficult to find a place that would allow them. My problem is more that I have FOUR, and most places max out at two. But I really empathized with your story in your final sentence. Really sad =( My animals are my world… I just spent $600 in the last week between a midnight emergency vet run and a daytime vet visit a couple days later. But just like any parent would do that for their human child, I do it for my animal babies =)

  • Nick July 27, 2015, 4:21 pm

    Maybe Seattle just has crummy mass transit, but for me, taking the bus costs an extra hour a day over driving (4 miles = 15 minutes by car, 45 by bus on average). It’s the value I put on my time that has driven me to drive again. After 3 years wasting an hour a day sitting on a bus, just to save the 8 miles a day driving and small fee to park, I’ve come to regard driving as buying back some of my time.

    I was in agreement with the war on driving until I did the math. Those 5 extra hours a week make a pretty big dent in my happiness. The $9/hr to sit on the bus wasn’t worth it.

    • ecmcn July 27, 2015, 4:39 pm

      > Maybe Seattle just has crummy mass transit

      No “maybe” about it. Seattle has a decent fleet of buses, but most of them are stuck in traffic during rush hour alongside the cars. It seems like the dedicated lanes should help a lot, but it really does take forever to travel any distance.

      On the other hand I’ve been bike commuting for 20 years, and have never had more than a 20-30 min commute. I’ve chosen to live and work on the same side of town, though – it’s much harder if you have to get across the lake or through downtown.

      • Nick July 28, 2015, 9:35 am

        Ya, I probably should give bike commuting a shot, I just get intimidated riding in traffic. The 4 miles wouldn’t be horrible, no bridges, all easy surface streets, and if I really wanted I could probably work the Burke into part of it (though it’d bump up the distance significantly).

        • ecmcn July 28, 2015, 3:43 pm

          Back when I worked on Dexter and lived on Capital Hill I could take the short route up or down Denny and deal with a horrible hill and traffic, or the long route across the Fremont Bridge, the BG, the Montlake bridge then wind up Interlakken through the woods, which was 2-3 times farther. I chose the long route every day – a mostly car-less bike ride and nice scenery makes a big difference.

    • Brian July 27, 2015, 5:38 pm

      Agree that Seattle has some slow public transit, mostly because of the traffic. But it’s so expensive to park downtown. Personally, I enjoyed having time to read or listen to music on the bus, but there were bad traffic days when I realized that I may as well be off the bus walking, and that was pretty frustrating. The trick for me was to commute before 7:30 AM and after 6:00 PM, then the commute time was actually pretty efficient, even on the bus. For days when I just had to get out of the office before then, I’d just go to the bookstore and browse (so I could find books to put on hold at the library of course). Of course, I don’t (and didn’t) have kids to get home to.

      But now I ride bicycle to work, and it’s a far superior method than either driving or bus. I can’t believe I spent all of those years riding the bus in Seattle. Four miles is pretty short, and you have a lot more options than either bike/bus. For what it’s worth, there was a time when I used to jog home (my Seattle commute is also about 4 miles). I would take the bus to work, then jog home in the evening (and leave whenever I felt like it, rush hour is irrelevant once you get off the core downtown sidewalks). It’s actually not a bad way to go. Once you build up decent endurance, you can easily run 4 miles in the same amount of time it takes you to ride the bus. Plus, you don’t need to go to the gym and run on the treadmill. There were a lot more jogging commuters than you might think. That was a surprise, I thought I was doing something novel at first.

    • Free to Pursue July 28, 2015, 8:16 am

      Hmmm. There needs to be more to the calculation. How many hours of work (net of taxes) to you need to work per month to cover the difference in car cost or payment, insurance, maintenance, parking and gas? 4 miles is short. When I have that distance to deal with, I walk or bike. Ditching our second car in favour of an active commute saved us tons of time working for “convenience”.

      • Nick July 28, 2015, 9:49 am

        Ya I worked all that into it, parking + IRS mileage (which is more expensive than I think I actually average) vs. bus cost. Then figured out the dollars per hour I was “paying” myself to sit on the bus (woohoo less than minimum wage). The insurance cost is moot, I will not be foregoing the car (we only have one and enjoy the freedom it provides too much to drop it), so driving to work doesn’t cost me anymore than not driving.

        I value my time with my wife above most anything else (she works from home), so any time I can cut in commute is pretty valuable to me. We exercise together, so doing that separately would just further reduce the amount of time we get together.

        Biking though… I need to convince myself I won’t die biking on the streets and I think it would be a great option. Probably close to as quick as driving, and save me some money.

        • Kevin July 28, 2015, 10:57 am

          You definitely need to look into biking! I used to live in Seattle so I know parts are definitely hilly and or busy, but at 4 miles I’m guessing from door of your house to door of your office you get there faster with a bike than a car. I could always drive to the building faster but after finding a parking spot and walking from the parking lot it was faster to bike right up to the front door.

  • Mike July 27, 2015, 4:22 pm

    Apologies if this has already been mentioned, but house hacking is a good way to reduce costs. Got an extra bedroom? Rent it out. My PITI on my Colorado Springs home goes from $721/mo. to $421/mo. because I rent out a guest room for $300/mo. (ok ok I’m not factoring in the taxes on the extra income for simplicity sake). Sure, you can also do this when renting to a degree, but there is usually a lot more red tape or risk of getting caught. At the very least that extra $3600/year takes care of maintenance in the long run. I think it really is about where you’re buying/renting, not buying too much house, knowing what you’re getting into (inflexibility, maintenance), and not tying too much of your net worth up in house equity. Also don’t make the mistake of thinking your primary house is an investment!

    • Mr. Money Mustache July 28, 2015, 2:41 pm

      Definitely Mike! Houses start to look a lot better if you start to treat them as multi-unit dwellings or mini hotels which you can part out via AirBnb. Many Mustachians in San Francisco are able to make million-dollar houses become cost effective because you can rent a single small guest suite out there for $150+ per night.

  • ecmcn July 27, 2015, 4:25 pm

    What would that $2300/mo apartment in downtown Toronto cost to own? A $580k mortgage @ 2.5% for 30 years comes out to about $2300. Assume the rental price includes some profit, taxes, fees, money down, etc. – is that about a $600k apartment?

    • Canuck Game Guy July 29, 2015, 5:14 pm

      No such thing as a 30 year mortgage here my friend.

      Also, while you are not able to claim mortgage interest on your taxes in Canada, you can get money back on claiming rental costs…go figure.

  • Smartest Woman on the Internet July 27, 2015, 4:53 pm

    I happily rented from 1996 to 2011, when I bought a very nice, very low-priced single-family foreclosure in a great neighborhood one mile from my office. This all-cash deal literally fell into my lap, otherwise I would have continued renting. I’ve had to put $25K into it over the past 4 years. My monthly cost to own, including opportunity cost, has totaled $700 per month. An equivalent rental would be $1200. My home could easily sell for twice what I paid for it. My earlier 15 years of renting served me well, while I changed jobs and cities several times. My job is secure and I plan to remain with my current employer until retirement in about five years at age 55.

    Last week I bought my second foreclosure for all cash – a spectacular beachfront condo twenty miles from my current residence. I will have no problem renting it out for double my monthly carrying costs. I plan to retire to this condo in five years and sell or rent out my current single-family home.

    Absent the ’08 – ’12 real estate market crash, and the subsequent foreclosures and low prices, I would still be a happy renter.

  • Smartest Woman on the Internet July 27, 2015, 4:56 pm

    The NYT rent vs. buy calculator is good. This one is ten times better…


  • Nicole July 27, 2015, 5:39 pm

    I think lifestyle choice is a big factor here. When I was young and single I was happy to rent to live right downtown, have a social life and be able to get places easily, and not have the responsibility of home ownership. Now that I’m middle aged and married I compleltely love the beautiful house we bought in the country by the river. Our weekend hobby is landscaping and gardening and making the place our own which is so much fun! We don’t go downtown much and my current job is close by, and in a few months we’ll be mortgage free and then can focus more money on investing and will own a $500,000 house!

  • Oz Guy July 27, 2015, 5:40 pm

    After years of arguing the case for renting in certain situations, I have come to realise that despite the many arguments people will put up in favour of home ownership eg. capital gains, lifestyle, backyards, proximity to schools etc. all those arguments are essentially disingenuous. Even if you could theoretically shoot down each argument unequivocally, most proponents of home ownership will doggedly cling to their view because the real reason for their position (99% of the time) is the unspoken one; to parade your “wealth” and “success” while avoiding the social stigma of renting (usually associated with being in a lower socioeconomic group).

    So you can present your numbers and outline your case but like with most MMM concepts, you will find it hard to convert the thinking of those following conventional wisdom.

    • Jeff August 4, 2015, 12:44 pm

      Why do we even need to argue for or against homeownership? How about we argue for everyone making their own decision based on their location, financial situation, and personal goals and values? Madness, I know.

  • Jesse July 27, 2015, 6:36 pm

    “And we haven’t even mentioned one of the biggest joys of renting: unlimited mobility. On a whim you can jump to a new place anywhere in the world. Never be subject to the pain of fighting with buyers in a hot real estate market, or begging for sellers in an icy-cold one.”

    This is why we decided long ago we are renters, not buyers. Luckily it took us buying our first house to realize it within a few months, and we were able to sell after two years and have never looked back. Our lives are highly mobile and we’ve bounced around the world since then, grateful we don’t have to manage or pay someone else to manage a house back in the US.

  • Nate July 27, 2015, 6:56 pm

    Yes! Such a good post. Well stated and well-explained. 3 years ago we made the same decision when we moved to Atlanta.

    Instead of buying in the distant suburbs, we (me, wife, son) rented a 2/2 apartment 3 miles from my office for $1000/mo – insanely cheap given other potential costs and what we were able to save. We were within walking distance of 3 parks, dozens of restaurants and a subway station. And within 2 years, we were able to save up a legit down payment to buy a house in a nice intown neighborhood – also just 2 miles from work much to the vexation of my long distance commuting colleagues.

  • Uncle Cheese-it July 27, 2015, 7:24 pm

    Excellent article,
    I had the suspicion that Renting was a good option in great/expensive city, but never took the time to actually do the maths. Thanks for doing it for us. My wife and I lived in San Diego for years, we were renting, but the subject of buying would come up every once in while. We lived in an expensive area (pretty much like anywhere in San Diego). Our neighbor sold a modest 2bed/1bath with tiny backyard, for $650K. (+HOA, A/C cost, etc..) . In cases like this, absolutely, renting is a no brainer!


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