R U S E Money Hack' title='R U S E Money Hack' />Renting is Throwing Money Away. Right Ive heard a lot of ridiculous statements Im sure well find parking. Ill just check Facebook for five minutes. Ill skip dessert. But perhaps the most absurd is the adage If youre a renter, youre throwing money away. Bulls. Youve heard those statements, rightIm sick of throwing money away on rent. Buying is always better than renting. Your home is your biggest investment. Im going to explain why these clichs are ludicrous. Preposterous. Outlandish. Nonsensical. Somebody please take the thesaurus away from me. Lets chat about the should Irent or buy question using logic, math and reason, rather than ill informed clichs. Before we jump in, lets establish a few premises This article is about your primary residence the place where you sleep. Updated Trump is delaying decision on importing elephant trophies after outcry 551p Updated When do markets close for Thanksgiving 549p Updated U. S. nuclear. Uhhh. Opportunity cost What do you mean Okay, before we launch into this, heres one more fact that you need to know Home Values Keep Pace with Inflation. This is notan article about real estate investing. As with all articles on Afford Anything, these high level concepts can be applied anywhere. But specifics about laws, taxes, inflation, etc., are geared at a United States audience. With that said, lets begin. Renting is Throwing Money AwayHere are three popular arguments defending the renting is throwing money away myth. Rent is an expense. Mortgages build equity. Rent is forever. Download and Install 9Apps Now. No doubt that Play Store is one of the best portal to download and install best android apps and games. But lets be honest there are. To set the value of money as you want from the tendency according to the instructions at the bottom. This Program Hack your money with exclusive Speed Not as any. Whether youre looking to learn a new instrument or improve your photography skills, eHow Art will help you learn new abilities sans classroom. According to Michael Porter value is the chain of activities for a company that operates in a specific industry. For gaining the competitive advantages, Porter. On April 25, cybersecurity experts said Russian hackers targeted Emmanuel Macron, the proE. U., proNATO and antiRussia candidate in France. On top of. Mortgages end. Renters dont benefit from rising home values. Homeowners do. Lets dismantle these, one by one. Argument 1 Rent is an expense. Mortgages build equity. Heres the argument, broken down If you rent, 0 of your monthly payments build equity. CRk5JIoJ4/hqdefault.jpg' alt='R U S E Money Hack' title='R U S E Money Hack' />If you own, X of your monthly payments build equity. X 0. Equity is an asset. Assets are good. Therefore, owning is better than renting. Heres why this is flawed logic. What is Home EquityFirst, background information Home equity is measured as what you own, minus what you owe. Home value 3. 50,0. You owe 2. 00,0. Your equity 1. Heres the rub Only a small slice of your mortgage payment builds equity. Your mortgage consists of four parts Principal the equity building pieceInterest. Taxes. Insurance. These are collectively called PITI, which leads to the geeky joke, Mortgage What a pity. I probably shouldnt attempt a stand up comedy career The P is equity the ITI is an expense. In other words, the ITI is money that youre also throwing away. Native Instruments Vienna Concert Grand Piano. How much of your monthly payment is consumed by ITI Most of it, particularly during the first 1. Mortgages are amortized, which means the overwhelming majority of your initial payments are applied towards interest rather than principal. Lets look at an example of a 2. Lets image the following scenario You make a 5. You borrow 2. 00,0. You hold a 5 percent fixed rate 3. Property taxes cost 3,0. Homeowners insurance costs 1,5. No mortgage insurance. Your mortgage payment comes to 1,4. How do these payments break downThanks to my friend Todd Tresidder at the blog Financial Mentor for this awesome amortization calculator. Yes, I just used the word awesome to describe an amortization calculator. Im. Nerdy. And. IKnow. It During the first year, roughly 8. ITI in this example. Youre not building 1,4. Youre building 2. After 1. 3 payments, youll pay almost 1. And youll only hold an extra 2,9. Yeowch. The tipping point, when more money is applied to principal than interest, is based on your interest rate. During that first 1. ITI sandbox. Youll spend the final decade of your mortgage building far more equity than you did during the first two decades. What if I get a 1. Your first 7 years are going to suck. Key Takeaway Youre not building much equity, especially during the first decade and a half. Most of your mortgage payment gets thrown away on interest, taxes and insurance. Now that weve established this background, lets return to the original argument If you rent, 0 of your monthly payments build equity. If you own, X of your monthly payments build equity. X 0. Okay, that logic still seems solid, right Even if youre not building much equity, surely some equity is better than none rightRiiiighhht Not necessarily. Heres the real question you should ask Whats the next best alternative Is building equity the highest and best use of your money Or could you be doing something better with your limited resources Phrased another way Whats the opportunity cost of this equity buildingUhhh. Opportunity cost What do you meanOkay, before we launch into this, heres one more fact that you need to know Home Values Keep Pace with Inflation. Home values historically keep pace with inflation. Nothing more. When people say, my home increased in value, theyre really saying, yay, inflation roseDont take my word for it. Listen to Nobel Prize winning Yale economist Robert Shiller, who gained public notoriety for predicting the Great Recession. As early as 2. 00. Shiller started issuing warnings about an impending drop in real estate prices that could be as severe as 4. Did he have a crystal ball Is he magical How did he anticipate thisHis strategy is ridiculously simple, yet effective. Shiller simply looked at U. S. housing prices dating back to 1. He benchmarked the 1. Through this, Shiller made a few observations A house in 1. If you benchmark 1. U. S. housing prices have stayed within the 1. In 1. 95. 0, for example, the index stood at 1. Real estate didnt make any gains other than inflation during that 4. Starting in 1. 99. Every housing peak, or bubble, is followed by a tragic, painful, ugly fall. The New York Times ran this scary chart in 2. Shillers groundbreaking book Irrational Exuberance. Ive added red arrows for emphasis. Image credit The New York Times. As you can see, housing prices adjusted for inflation typically stay within a narrow range around 1. There have been only two notable exceptions. The first was triggered by the austerity of World War I, ending with post WWII prosperity. The second was the rampant housing boom that started in 1. And, well, we know how that story ends. But housing is booming nowSure, some people who bought at the bottom of the market in 2. French Riviera. Im kidding. Kinda. Home prices in many parts of the nation have doubled since the 2. But in that same time period, the total U. S. stock market has nearly tripled. In March 2. 00. 9, the Dow Jones a measure of the largest U. S. stocks was valued at 6,6. Today its worth 3x more. Key takeaway Housing keeps pace with inflation. And when it does produce real gains, it often underperforms the overall U. S. broad market. If we cherry pick dates, we can find a specific sliver of the population thats enjoyed runaway home values since 2. Housing underperformed the overall stock market during that same period. If we cherry pick locations, we can find specific towns or cities that enjoyed atypical growth, typically due to external influences like rapid job creation. This falls along a bell curve we can also find towns and cities with unprecedented levels of decline. Ahem, Detroit. When we stop cherry picking and zoom out into a multi decade macro view, were left with the uncomfortable truth that U. S. housing prices dont substantially increase in value. They merely keep pace with inflation, and they significantly underperform the overall U. S. stock market. Should I Rent or BuySo what Why are you comparing housing to stocks You have to live somewhere. You dont have to buy stocks. Were making this comparison because were asking the following question Are you better off Tying up your cash into a home.