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It doesn't work quite like that. Here are the economics in my area: - Buy $1.2M - Rent $1800 a month. By law rent can only be increased a limited amount ever

by YZF 11y ago

It doesn't work quite like that. Here are the economics in my area: - Buy $1.2M - Rent $1800 a month. By law rent can only be increased a limited amount every year (and it's never been increased for me). The landlord is getting 1.8% return on his money before his maintenance expenses, taxes, etc. The only scenario this makes any sense is interest rates remain at 0% for the next 30 years. Even in this case it's not clear that house prices can keep appreciating at the same rate. Unless we go negative rates. If I have 1.2M in cash why would I buy this house instead of renting? I'm taking a big risk with a lot of money. It's true that over the last 10-20 years people who have taken this bet came usually ahead (except in some parts of the US) but it's still a huge risk.

clock_tower 11y ago
Indeed! If you have $1.2 million in cash, investing it to produce a 5% dividend gets you an income of $60,000 a year before taxes -- while $1800 a month is $21,600 a year. (Hint: Chevron's stock has fallen so far that their dividend, which they haven't lowered, is 5% of their stock price. The chance won't last forever; when the price of oil goes back up, Chevron will go back up with it.) An income from investments of $60,000 a year isn't enough to live like a king, but it's certainly enough to live like a yeoman, even after taxes. If you buy an expensive house with that money, instead of buying an income stream with it, the best you can hope for is to live like a wage-slave.
learnstats2 11y ago
This is not the only post with dodgy numbers, but this one may be specific to London: - London yields 2-5% https://www.portico.com/yields https://www.portico.com/yields - No such rent capping law in London, it's generally expected that rents will increase every year and there's plenty of demand to cover it. Clearly, people are making the decision to buy the house.
kqr2 11y ago
Actually in SF, you can have your cake and eat it too. If you live in a rent controlled apartment but can afford to purchase a single family home, you should stay in your rent controlled apartment, buy the house and rent it out at market rate since single family homes are not subject to rent control.

by YZF 11y ago

clock_tower 11y ago

Indeed! If you have $1.2 million in cash, investing it to produce a 5% dividend gets you an income of $60,000 a year before taxes -- while $1800 a month is $21,600 a year. (Hint: Chevron's stock has fallen so far that their dividend, which they haven't lowered, is 5% of their stock price. The chance won't last forever; when the price of oil goes back up, Chevron will go back up with it.) An income from investments of $60,000 a year isn't enough to live like a king, but it's certainly enough to live like a yeoman, even after taxes. If you buy an expensive house with that money, instead of buying an income stream with it, the best you can hope for is to live like a wage-slave.

learnstats2 11y ago

This is not the only post with dodgy numbers, but this one may be specific to London: - London yields 2-5% https://www.portico.com/yields https://www.portico.com/yields - No such rent capping law in London, it's generally expected that rents will increase every year and there's plenty of demand to cover it. Clearly, people are making the decision to buy the house.

kqr2 11y ago

Actually in SF, you can have your cake and eat it too. If you live in a rent controlled apartment but can afford to purchase a single family home, you should stay in your rent controlled apartment, buy the house and rent it out at market rate since single family homes are not subject to rent control.