But at the end of the day my house is like 4x bigger then my apartment. So worth it even if it does not end up being an over all savings or not.
Quoting myself from the comments of http://messymatters.com/buyrent ...
Imagine yourself 30 years from now with a house you fully own, with no more payments to make. Now imagine your alternate renting self who, instead of steadily paying down the principal on the mortgage, has built up hundreds of thousands of dollars in equity in some other investment. You still have rent to pay each month but that's also about how much you're collecting in interest on your investments. So the renter now lives for free just like the home-buyer.
Another way to say all this is that if you ignore price bubbles, taxes, personal preferences, and leverage then renting and buying are roughly financially equivalent. Not that you should ignore those things, just don't fall for the myths that it's a no-brainer decision.
And that shouldn't be surprising. In a world where buying really is clearly superior to renting, there would be lots of arbitrage opportunities to buy houses and rent them profitably. That would increase both the demand for houses and the supply of rentals, which would make buying more expensive and renting cheaper until they reach a point of equivalence.
In fact, landlord profits are probably a very small part of the equation: on par with the cost of collecting your rent and arranging (not paying for) maintenance. We can check this by seeing how much property management companies charge. Casual web searching indicates it can range from 3% to 15% of rent. But that includes the cost of finding new tenants — the equivalent of which home-buyers pay in spades in realtor commissions (directly or indirectly). I think it's safe to say that at most a few percent or so of your rent is wasted in the sense of being profit for your landlord.
(Which is what you'd expect in a competitive market, as someone above pointed out.)
The strategic picture is this: if renting were so much better than buying fewer people would buy, and nobody would be dumb enough to buy and then rent the place. But obviously buying is better than renting because a lot of people choose to go and spend their money buying extra homes beyond the one they need and renting it.
I don't need to refer to google searches for my information, I have seen the landlord perspective 1st hand. I'm not surprised that most landlords see very little in the way of month to month cashflow profit. The renter pays in but you have to pay out a lot of other expenses (as mentioned).
But at the end you own the house and the renter doesn't. Basically if you have enough money to front for the down payment the house costs you little or nothing after that except time/hassle of dealing with your tenant. It probably doesn't actually put more money in your pocket each month, but neither would a bunch of stocks if you were reinvesting the returns.
So why tie yourself up in a single house instead of a bunch of stocks?
Leverage.If I have 40k and get a mortgage on a 200k and make a small return, at some point that is better than getting 40k of stocks and making hypothetically a bigger return.
Plus there are other intangiables. I can buy a shitty little house and spend a few weeks working on it and turn sweat equity into real equity, no matter how much you look at your stocks you haven't increased their value.
Of course there are negatives, the tenant can trash the place, you can go without tenants for a while, but overall it makes sense for a lot of people who have some free cash and a bit of extra time and want to have a side business.
Correct, which means that renting isn't clearly superior to buying either. (Except during insane housing bubbles). Again exactly what we should expect.
But obviously buying is better than renting because a lot of people choose to go and spend their money buying extra homes beyond the one they need and renting it.
And obviously growing your own food is better than buying it because lots of people grow extra food and sell it. The point is that the profits you can earn in either case aren't so great that it's foolish not to do it.
Rent ratios are actually often such that the above is even more extreme: buying a house cost more per month even if you pay only the interest on your mortgage (which is equivalent to renting: building no equity in the actual house).
Actually, the renter is better off from a purely financial point of view. Even if the house is owned free and clear, property taxes and maintenance will still need to be paid. The renter's rent covers all that.
The reality that I've seen is that people never actually do that, or at least not to the full degree, and treat the difference as extra disposable interest. And so the money gets frittered away and the calculations are wrong.
You can't do that with a mortgage: you have to pay it, and so therefore people have an enforced savings/investment discipline. And also the incentive to sock as much money into their house as quickly as possible, to pay down the debt.
So the money side is generally better, and you generally get a better house, when buying. But it's a bit of a commitment which some people will avoid on principle.
It'd be cool if there were some form of financial instrument for the weak-willed individuals you describe (which as you say probably represent 90% of the population), that acted exactly like a mortgage but simply left your money in a pile you could access later.
Sorta like an IRA that you could force yourself to commit to, with nasty letters arriving in red envelopes if you skipped a payment.
I'm totally fascinated by commitment devices like that. I've been compiling a list of them here: http://padm.us/akrasia
The "getting a mortgage to force yourself to save" was actually the first example I thought of, from when this topic came up a year ago.