Comments on: Renting Is A Better Investment - If The Debt Collector Calls http://www.pfadvice.com/2007/04/19/renting-is-a-better-investment-if-the-debt-collector-calls/ Bridging the gap between saving money and investing Thu, 21 Aug 2008 19:23:51 +0000 http://wordpress.org/?v=2.3.2 By: CT http://www.pfadvice.com/2007/04/19/renting-is-a-better-investment-if-the-debt-collector-calls/#comment-37846 CT Thu, 19 Apr 2007 14:10:10 +0000 http://www.pfadvice.com/2007/04/19/renting-is-a-better-investment-if-the-debt-collector-calls/#comment-37846 The article about buying vs. renting misses a few big gotchas about renting and putting money in the stock market. First of all, it's fairly easy to get a 300k loan at 5-6% interest with 30k down for a mortgage loan, but in order to use that 300k to buy stocks instead, you would need to use margin. Margin accounts require 50% down (150k) and charge much higher interest (9%+). Even if you have 300k in cash, you have to tolerate a lot of risk to put it all in stocks and get that 7% average return. The article is counting on the stock interest offsetting the extra cost of renting every year. It just doesn't work like that. Some years you will actually post a loss on your stocks, which would mean you would either have to pull money out of your investment or pay the difference out of your pocket. Also, even in the best case scenario where you have enough earnings to pay your rent, you are losing out on the compounding effect normally associated with long term stock earnings because you are pulling money out of your investment to pay your rent. The article about buying vs. renting misses a few big gotchas about renting and putting money in the stock market. First of all, it’s fairly easy to get a 300k loan at 5-6% interest with 30k down for a mortgage loan, but in order to use that 300k to buy stocks instead, you would need to use margin. Margin accounts require 50% down (150k) and charge much higher interest (9%+).

Even if you have 300k in cash, you have to tolerate a lot of risk to put it all in stocks and get that 7% average return. The article is counting on the stock interest offsetting the extra cost of renting every year. It just doesn’t work like that. Some years you will actually post a loss on your stocks, which would mean you would either have to pull money out of your investment or pay the difference out of your pocket. Also, even in the best case scenario where you have enough earnings to pay your rent, you are losing out on the compounding effect normally associated with long term stock earnings because you are pulling money out of your investment to pay your rent.

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