Dr. Know: Rental Rebuttals

Readers call foul on Dr. Know's mortgage vs rent calculations.

You made a huge miscalculation in your segment on home ownership [“Lies My Newspaper Told Me,” WW, March 14, 2012]: You assume that rents won’t rise for 30 years… 

—G.B.F.

…remember, rents rise with house value, while mortgage payments stay the same…

—Jim A.

Uh-oh, the homeowners are revolting. (And they're ugly, too! Ba-dum-BUM!) Here's what they're on about:

In last week's WW cover story, I took on (among other things) home ownership. I argued that the main reason buyers wind up with extra wealth (in the form of equity) is because they've been paying more all along.

I showed if you rented for 30 years and invested the difference between your rent and your neighbor's mortgage payment, you'd wind up with a portfolio worth about as much as his house.

In the course of demonstrating this, I did some rough calculations—probably a little too rough, since I didn't figure in rent inflation. Thus, I hereby issue a mea minima culpa.

There are three reasons that it's not a mea maxima culpa: (a) I'm kind of a dick; (b) I didn't figure inflation on the homeowner's side either; and (c) it doesn't make that much difference.

For example, I assumed monthly maintenance costs holding steady at $1,200 per year through 2042. That seems unlikely. Plus, since I was being so nice, my figures included an extremely attractive homeowner's insurance premium of $0 per year, a tough rate to get in real life.

When you figure in all this stuff on both sides, the numbers go from a $75K advantage for the renter to about a $10K deficit (out of a $1.4M total). That's not nothing, but it still doesn't put one strategy light years ahead of the other.

WWeek 2015

Marty Smith

Marty Smith is the brains (or lack thereof) behind Dr. Know and skirts the fine line between “cultural commentator” and “bum” on a daily basis. He may not have lived in Portland his whole life, but he’s lived in Portland your whole life, so don't get lippy. Send your questions to dr.know@wweek.com and find him on Twitter at @martysmithxxx.

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