Rent to Own

I'm a truly blessed young man. There are plenty of reasons for me to be thankful, but one of the best is that I pay an incredibly low amount to rent an apartment in Astoria. I'm ever thankful that I have such a good friend who helped me out in this situation.
The thing is, I love renting, love being a renter, and I want to rent until I have children. I really don't understand why so many young people think that they should buy a home/condo while they're still in school and really have no idea whether or not they're going to stay in a certain place. I'm not against owning a home per se. I know that when I'm older I'll own a home; I want to have a family and the woman I eventually marry will almost certainly want us to have a place of our own. While, for planet Earth's sake I think apartment living is better- I don't think I'll be able to convince what ever girl wants to marry me of that.

What I hate is when people tell me that renting (right now!) is not good because I am just throwing my money away. I hate hearing that because it's something that bankers tell buyers to lock them into 30 years of interest and principal payments. Renting is definitely not throwing money away; it's paying for someone to provide a service, namely shelter. Last time I checked, shelter was pretty high up on the list of "things needed to survive." I give someone part of my check so that I have a place to lay my head down. And in addition, if I need something fixed or shoveled or fumigated, my landlord has to do it. I go downstairs to the super and he takes care of my problem. I don't see anything wrong with the arrangement. I have other things I want to do on the weekends besides fixing up my house, at least while I'm young. I live in New York for God sakes, but even if I lived in Mississippi I wouldn't even think about buying a house. I don't want to worry about keeping it up. You can call it lazy, and I wouldn't argue with you. But, in addition, I don't feel like going through all the transaction costs if I have to leave. I'm young, with no family, no career path set in stone. If I'm trying to up and leave if I get a nice offer somewhere else, I don't want to worry about having to sell. I'll just make my job pay for me breaking the lease.

"But, but, you're not building up equity!" Yes, when you rent instead of taking out a loan to eventually own one day, you are not building up equity in the property. But who says that I'm looking for my shelter to turn into an investment? There were plenty of causes to the current financial crisis that we're in right now, but one of them is the mindset that turns houses into a short-term investment, a quick opportunity to make a buck, instead of shelter.

Let me explain. Looking at your house as an investment instead of a form of shelter drives up the price of housing, particularly when it is seen as a short-term investment. How come? Because you/other buyers will be willing to pay more for the house if you think that you can sell it for a nice return in a few short years. When this becomes standard practice, you get the unprecedented run-up in housing prices that preceded our countries current predicament. You get people flipping their house or multiple houses to make a quick dollar. You also get people buying homes that they cannot afford (with the guidance of mortgage broker with incredible teaser rates and no money down) because they just know that even if they cannot keep up with the mortgage payments, they'll be able to sell the house for more than what they paid for it, pay off the banker, and keep a nice tidy sum for themselves.

The title "subprime mortgage crisis" makes people believe that it was just a bunch of broke ass Black and Hispanic folks with no jobs, stumbling into a bank on their way to the liquor store, and walking out with an 8,000 square foot McMansion in Arizona. Subprime just means that the rate you pay is above the prime rate; the rate that people with pristine credit receive when they want to take out a loan. You can make $500,000 a year and get a subprime mortgage- it all depends on your credit history AND the type of house you buy. A person making $500,000 who buys a 50 million dollar home.. well, if they got past the broker/loan officer (which in that environment, who knows), would be paying an obscene rate on their purchase. Which is why you saw the greatest defaults in wealthy areas and why the default rates overall for income categories were the same. The symbol of the subprime mess wasn't so much a poor person trying to buy their first home as it was a middle-class/upper middle-class professional trying to buy their second. With an assist from the mortagage broker, who told that person that they were getting a risk-free return when they purchase the house. But as we all know, the higher the return the higher its associated risk- and it was a risk that the financial institutions concealed or just did not pay attention to. For some more reading on this subject go here and here.

That's not to say that everyone or even most people who purchase houses straight out of college shouldn't. I'm just saying, what other reason would I purchase a house other than to try and get a good return when I inevitably sell it. I don't need a house right now, I don't have any kids and the chance that I will be living in New York when I finally settle down is pretty slim. (again leaving out the fact that on my salary I couldn't afford to by a house in NY). My principles dictate that I treat shelter as shelter and when it comes to investing, I'll put my money in a nice index fund.