Buy a House or Rent an Apartment? That Depends On . . .
In the comments that followed, a reader drew the popular distinction between "good debt" and "bad debt," noting that with low interest rates and the mortgage interest deduction, you would be crazy to pay cash for a house or pay off a mortgage. Instead, you should invest that money "and create greater wealth over 30 years." Sitting in cash, the reader noted, is "bad" because "it gives you a negative return."
There's quite a bit there. It's all perfectly sane and logical, important and certainly up for debate. Quite a few people swear by that sentiment. In a series of articles this month on TheStreet, I unpack the reader's comment point-by-point, saving the notion of some debt is good debt for last.
Point No. 1: It's Better to Buy Than Rent
That's pretty much what the first part of the reader's point boils down to.To come to a conclusion, take location into account; however, the standard rent vs. buy studies do a poor job of this. For instance, earlier this year Trulia noted that it's less expensive to buy than rent, over the long run, in 98 of the country's 100 largest metropolitan areas. Because metro areas cover large swaths of population, almost always crossing county lines and sometimes state lines, you cannot count on the data this methodology produces. Key regional as well intra-county and/or city differences also exist. To Trulia's credit, it does point out that it's generally more costly to buy in the city vs. more suburban areas. It uses Manhattan and Brooklyn vs. Queens and parts of New Jersey and San Francisco against the suburbs east of the city as examples. But, even that doesn't go far enough. You need a finer-grain look at specific landscapes. Consider the City of San Francisco. Breaking it down by Trulia's neighborhood-level data, the median sale price of homes sold in the city between May-July 2012 ranged from almost $2,000,000 in the most expensive districts to the low-to-mid six figures in the least expensive.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts