Rent or Own?
949.769.1599
Rent or Own?
This
point-in-time
analysis
of
the
relative
worth
of
a
house
does
leave
out
a
couple
of
important
financial
factors:
inflation
and
transaction
costs.
Inflation
is
the
erosion
of
purchase
power
of
money
over
time,
or
looked
at
another
way,
it
is
the
increase
in
the
price
of
some
set
of
goods
and
services
in
a
given
economy
over
a
period
of
time.
It
is
measured
as
the
percentage
rate
of
change
of
a
price
index.
The
effect
of
inflation
on
housing
costs
is
that
it
tends
to
increase
the
cost
of
renting
over
time,
and
theoretically,
it
will
increase
the
value
of
a
house
over
time
as
well.
If
the
cost
of
rent
is
increasing,
but
your
cost
of
ownership
is
fixed
(assuming
a
fixed-rate
mortgage,)
then
owning
a
home
becomes
less
expensive
over
time
and
serves
as
a
hedge
against
the
impact
of
inflation.
If
you
are
a
homeowner,
inflation
is
your
friend.
If
you
are
a
homeowner
with
a
lot
of
debt,
inflation
is
particularly
welcome.
There
is
one
big
cost
of
home
ownership
that
works
against
the
positive
impact
of
inflation:
transaction
costs.
When
people
buy
a
house,
they
pay
some
closing
costs,
but
many
of
these
get
rolled
into
your
loan
and
forgotten.
When
people
sell
a
house,
they
generally
go
to
a
realtor
to
help
them
market
the
property
and
complete
the
paperwork
necessary
for
the
transaction.
Real
estate
commissions
for
many
years
have
been
held
at
6%
in
the
United
States,
and
the
seller
is
the
one
who
pays
this
commission.
From
the
time
of
purchase
to
the
time
of
sale,
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949.769.1599
Page 3 of 41
Rent or Own?
inflation
(or
irrational
appreciation)
must
have
increased
the
value
of
the
house
enough
for
the
sales
price
to
cover
the
real
estate
commission
or
the
seller
will
lose
money.
This
is
why
it
is
often
recommended
for
people
who
are
not
going
to
live
in
a
given
area
for
more
than
2
or
3
years
to
rent
instead
of
own.
Renting
is
freedom
--
freedom
to
move
when
you
wish
(within
the
terms
of
your
lease.)
Homeowners
who
go
underwater
lose
this
freedom
of
movement.
This
advantage
of
renting
is
nullified
during
a
price
rally
as
owners
have
this
same
freedom
during
those
times,
but
this
forgotten
benefit
becomes
readily
apparent
once
prices
start
to
fall.
Some
people
spend
a
great
deal
of
effort
evaluating
the
costs
of
ownership
to
determine
if
is
a
correct
decision,
but
many
people
do
not.
Some
people
make
the
decision
to
purchase
the
most
expensive
asset
they
will
ever
own
with
no
analysis
at
all.
The
decision
to
buy
a
house
is
primarily
an
emotional
one.
Even
those
who
go
through
all
the
analysis
generally
only
do
so
to
provide
rationalizations
for
their
emotional
decision.
During
price
rallies,
greed
becomes
a
powerful
emotion
motivating
people
to
fudge
their
financial
analysis
in
order
to
justify
their
emotional
purchase.
Another
factor
often
called
the
"nesting
instinct"
causes
both
men
and
women
to
want
a
place
to
call
their
own,
particularly
when
there
are
children
in
the
family.
There
is
nothing
wrong
with
deciding
for
emotional
reasons.
Most
people
pick
a
spouse
this
way.
The
real
challenge
is
to
have
the
emotions
and
the
intellect
working
together
to
make
a
decision
that
is
both
fiscally
sound
and
emotionally
satisfying.
This
is
easier
said
than
done.
The
need
for
shelter
is
basic,
often
closely
followed
by
the
desire
for
community.
In
the
United
States,
this
often
translates
into
a
desire
to
take
on
a
very
large
mortgage
to
buy
real
estate.
These
basic
human
emotions
drive
much
of
the
activity
in
real
estate
markets.
Most
people
buy
because
it
is
the
right
time
for
them.
Their
career,
age,
family
circumstances
all
come
together
to
push
people
toward
ownership
at
different
times.
Some
are
fortunate
and
buy
at
the
bottom
of
the
real
estate
cycle.
Some
are
not
so
fortunate
and
buy
at
the
peak.
The
most
damaging
aspect
of
our
current
system
is
the
price
volatility.
It
capriciously
rewards
some
and
destroys
others.
Home
price
volatility
creates
a
culture
of
Ponzi
borrowing
and
dependency.
The
goal
of
government
policy
should
be
price
stability,
but
lately
it
seems
their
goal
is
price
maximization.
The
end
result
of
their
policies
is
an
endless
series
of
market
stimulus
and
manipulation
which
creates
even
more
volatility.
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949.769.1599
Page 4 of 41
Rent or Own?
Many
people
choose
to
rent
to
avoid
the
negatives
associated
with
home
ownership,
and
many
more
rent
because
they
can't
meet
the
down
payment
or
credit
requirements
to
qualify
for
home
ownership.
However,
most
people
who
hold
down
productive
jobs
have
a
choice.
Anyone
who
chooses
not
to
buy
is
making
a
choice
to
rent
by
default.
There
are
many
different
reasons
people
chose
to
buy
homes
to
live
in,
some
of
them
are
good
reasons,
and
some
of
them
are
not.
The
primary
reasons
to
buy
a
home
are
emotional,
not
financial.
At
the
top
of
the
list
is
the
desire
to
provide
a
safe
and
comfortable
home
to
raise
a
family.
It's
a
primal
urge.
Although
it
shouldn't
make
a
difference,
there
is
an
emotional
quality
to
home
ownership
that
is
not
replicated
by
renting.
Satisfying
one's
emotional
needs
is
an
instinctive
drive,
and
this
compels
many
people
to
buy
houses.
Unfortunately,
some
people
turn
this
emotional
satisfaction
from
home
ownership
into
a
reason
to
feel
superior
to
their
renting
brethren,
a
group
they
perceive
as
being
less
involved
with
family,
neighborhood
and
community.
As
people
grow
and
develop
during
their
life
cycle,
they
first
learn
to
take
care
of
themselves,
then
their
families,
then
their
neighborhood
and
community,
and
finally
the
whole
world.
Being
part
of
a
broader
community
one
can
work
to
build
and
improve
is
a
basic
human
need.
Most
people
see
this
as
a
natural
extension
of
buying
a
house.
They
dream
of
watching
the
children
play
with
the
others
in
the
neighborhood,
enjoying
block
parties,
and
participating
in
organized
events.
All
things
being
equal
with
the
house,
people
will
chose
to
locate
in
neighborhoods
with
others
of
their
same
demographic
with
whom
they
can
make
friends
and
socialize.
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949.769.1599
Page 5 of 41