7 ms·

It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn

It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. And then there needs to be some left over to cover vacancies, and some profit for the landlord. Clearly in some markets buying is legitimately a better deal. But most people do a fairly cursory and incomplete analysis before coming to that conclusion. 20% is actually not a very large margin. Depending on how much your house cost, and how much your rent was, it may have actually been cheaper to rent.

Jacqued 11y ago
That's a theory but in very dense markets it's sometimes the exact opposite, I suspect because people understand rent as "lost money" vs. loan repayments as "invested money". Where I live, in Paris, if you take a mortgage today for 20 years, your repayments are going to be around x2/x2.5 the monthly rent of the place. The returns on real estate are notoriously very low. That's because speculation and foreign investment drive prices up while rents can't really increase because the people who live in the flats are already spending 40-45% of their income on rent. I live in a one-bedroom for which the rent is 1200€, and it would cost around 480,000€ to acquire. With a good interest rate on 20 years, that's 2600€ monthly repayment.
iamthepieman 11y ago
I forgot to mention, it's 20% less with a 15 year mortgage. A 30yr mortgage would have made it closer to 40% less than renting.
nilkn 11y ago
Keep in mind that with a mortgage you're still renting -- you're just renting money instead of the house. I know this is a simplified view, but some of your points (e.g., profit for the landlord) have equivalents for a mortgage (profit for the bank, via interest). Also, you're going to be paying for maintenance in either case. In the case of owning it may not be literally baked into your mortgage payment, but that doesn't mean you're not going to be responsible for repairs on your own house. Also, keep in mind that a landlord isn't entitled to profit just because they're attempting to make a profit. It is entirely possible (and it does happen in reality) that a certain rental market is such that the landlord will not be able to turn a profit or may in fact even lose money. Being a landlord is just like any other business -- it can fail. Finally, rental markets are often just different. Here in Houston, I could not buy an apartment like the one I rent for the same price that I pay. There aren't many condo buildings for one thing, and the ones that do exist charge exorbitant monthly maintenance fees. These fees would bring the monthly cost of owning such a condo to about $500-$1000/month more than what I currently pay in rent. At the same time, any townhouse or SFH that I might buy which is larger than what I rent is naturally going to cost more -- often times significantly more. In other words, the rental market sometimes has options that don't exist in the for-sale market. (The opposite is of course true as well.)
- breischl 11y ago
  Fair enough, I did not sufficiently qualify my statement. But my main point is that looking at just mortgage vs rent is leaving a lot of costs out of the equation. If you can get rent for less than the monthly mortgage payment, then the landlord is basically subsidizing you to live there and it's a pretty great deal. Buying in those conditions is a sucker bet.
- pixl97 11y ago
  Before the housing crash being a landlord was a bad deal, practically anyone could go to the bank and get a new house. We are on the other side of the pendulum from the housing boom currently.
ryandrake 11y ago
I don't know if I'd agree with you. For as far back as I can remember, renting has been cheaper than buying when I did the math. Only very recently, with skyrocketing rents and nearly-zero interest rates, has buying become cheaper month-to-month.
marcosdumay 11y ago
But by buying you are, you know, buying the actual house, and paying interest. While by renting you are just paying to use the house, and maintenance. You are actually arguing that a house will fully depreciate in less time than it takes to pay for it. Well, it's not an extraordinary claim, but it's still not what I'd expect.
- breischl 11y ago
  No, I'm arguing that just comparing mortgage payments to rent payments leaves out a lot of the expenses involved in owning the property, such as maintenance.
  - marcosdumay 11y ago
    Maintenance is only cheaper than acquisition is the good will completely depreciate during the period you are maintaining it. As I said, it's not an extraordinary claim.
    - breischl 11y ago
      I can't even parse that sentence.
      - marcosdumay 11y ago
        Sorry, you shouldn't be. I meant: maintenance is only more expensive than the acquisition if the good will completely depreciate during the time you are maintaining it.
ild 11y ago
Not in Bay Area.
zardo 11y ago
It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. That is demonstrably not true if you just look at monetary costs. Buying often does not outperform renting and investing the remainder. Of course people value home ownership for reasons other than its financial value.

Jacqued 11y ago

That's a theory but in very dense markets it's sometimes the exact opposite, I suspect because people understand rent as "lost money" vs. loan repayments as "invested money". Where I live, in Paris, if you take a mortgage today for 20 years, your repayments are going to be around x2/x2.5 the monthly rent of the place. The returns on real estate are notoriously very low. That's because speculation and foreign investment drive prices up while rents can't really increase because the people who live in the flats are already spending 40-45% of their income on rent. I live in a one-bedroom for which the rent is 1200€, and it would cost around 480,000€ to acquire. With a good interest rate on 20 years, that's 2600€ monthly repayment.

iamthepieman 11y ago

I forgot to mention, it's 20% less with a 15 year mortgage. A 30yr mortgage would have made it closer to 40% less than renting.

nilkn 11y ago

Keep in mind that with a mortgage you're still renting -- you're just renting money instead of the house. I know this is a simplified view, but some of your points (e.g., profit for the landlord) have equivalents for a mortgage (profit for the bank, via interest). Also, you're going to be paying for maintenance in either case. In the case of owning it may not be literally baked into your mortgage payment, but that doesn't mean you're not going to be responsible for repairs on your own house. Also, keep in mind that a landlord isn't entitled to profit just because they're attempting to make a profit. It is entirely possible (and it does happen in reality) that a certain rental market is such that the landlord will not be able to turn a profit or may in fact even lose money. Being a landlord is just like any other business -- it can fail. Finally, rental markets are often just different. Here in Houston, I could not buy an apartment like the one I rent for the same price that I pay. There aren't many condo buildings for one thing, and the ones that do exist charge exorbitant monthly maintenance fees. These fees would bring the monthly cost of owning such a condo to about $500-$1000/month more than what I currently pay in rent. At the same time, any townhouse or SFH that I might buy which is larger than what I rent is naturally going to cost more -- often times significantly more. In other words, the rental market sometimes has options that don't exist in the for-sale market. (The opposite is of course true as well.)

breischl 11y ago
Fair enough, I did not sufficiently qualify my statement. But my main point is that looking at just mortgage vs rent is leaving a lot of costs out of the equation. If you can get rent for less than the monthly mortgage payment, then the landlord is basically subsidizing you to live there and it's a pretty great deal. Buying in those conditions is a sucker bet.
pixl97 11y ago
Before the housing crash being a landlord was a bad deal, practically anyone could go to the bank and get a new house. We are on the other side of the pendulum from the housing boom currently.

ryandrake 11y ago

I don't know if I'd agree with you. For as far back as I can remember, renting has been cheaper than buying when I did the math. Only very recently, with skyrocketing rents and nearly-zero interest rates, has buying become cheaper month-to-month.

marcosdumay 11y ago

But by buying you are, you know, buying the actual house, and paying interest. While by renting you are just paying to use the house, and maintenance. You are actually arguing that a house will fully depreciate in less time than it takes to pay for it. Well, it's not an extraordinary claim, but it's still not what I'd expect.

breischl 11y ago
No, I'm arguing that just comparing mortgage payments to rent payments leaves out a lot of the expenses involved in owning the property, such as maintenance.
- marcosdumay 11y ago
  Maintenance is only cheaper than acquisition is the good will completely depreciate during the period you are maintaining it. As I said, it's not an extraordinary claim.
  - breischl 11y ago
    I can't even parse that sentence.
    - marcosdumay 11y ago
      Sorry, you shouldn't be. I meant: maintenance is only more expensive than the acquisition if the good will completely depreciate during the time you are maintaining it.

ild 11y ago

Not in Bay Area.

zardo 11y ago

It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. That is demonstrably not true if you just look at monetary costs. Buying often does not outperform renting and investing the remainder. Of course people value home ownership for reasons other than its financial value.