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You're handwaving a lot more that that -- all maintenance and upkeep. Over 30 years you'll likely have to replace all appliances and the roof at least once, whi

You're handwaving a lot more that that -- all maintenance and upkeep. Over 30 years you'll likely have to replace all appliances and the roof at least once, which could easily be 100k on a 600k house. You've also got hundreds a month in day to day maintenance and upkeep, not to mention the taxes and insurance and hoa fees. Oh, and a point of PMI unless you've got 120k in your back pocket for a 20% down payment. Don't forget 6% commission, closing costs and other taxes on the sale. Buying doesn't pencil out against renting when the rent is lower than a 30 year mortgage payment.

bane 11y ago
> Over 30 years you'll likely have to replace all appliances and the roof at least once, which could easily be 100k on a 600k house. You seem to think that renters don't pay for that and owners operate a housing charity where they foot all the maintenance and other costs while renters just pay some kind of courtesy "I'm occupying your property" fee. In many 30 year models, given a $500k home up for rent or purchase, the owner comes out somewhere between $1mil-$2mil ahead of the renter in terms of total asset ownership. After which the owner has only maintenance and taxes to pay for living while the renter continues to burn their money at higher and higher rental rates. During the same 30 year period, the owner will have a diminishing cost of living while the renter will maintain around a steady cost (on average) meaning that not only will the owner come out wealthier than the renter, it will be easier for them to gain that wealth as per inflation.
- chrishynes 11y ago
  Renting for less than the mortgage is de facto operating a housing charity or speculating on house price increases. You must rent for a good deal more than the mortgage to cover all the expenses involved. Run the numbers on your scenario without handwaving and you'll show the homeowner taking a stark loss over the renter. 1% rule is a good place to start. That would estimate the rent would have to be 4400/mo minimum for that 600k property to cashflow. 2600/mo? no way.
  - bane 11y ago
    It's not even close, owning wins under most existing market scenarios by pretty large and unambiguous margins. There's online calculators available since the math appears to be beyond you.
    - chrishynes 11y ago
      Link? Best calculator I've found (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...), given standard values like a 4% mortgage with a 20% downpayment and a 5% investment return rate, shows your scenario break even at best over 30 years -- hardly "large and unambigouous margins".
      - bane 11y ago
        That's an okay one, it's broken in some ways (assumes you're selling your home after the mortgage is up, or that buying 100% of the home up-front doesn't make any long-term differences. It doesn't figure into standard of living deltas over time or time-value of money.) So now it's just your reasoning that's broken. Here's the tl;dr - You need to pay for housing no matter what. Do you buy and rent out your property to somebody who'll pay your mortgage and costs for you? Or do you pay those costs for somebody else? Assuming an equal start, the property owner comes out somewhere around $1-2mil ahead of the renter over 30 years, and has housing in the end. For those parameters, on a $500k property, you would need to find an equivalent property to rent for $1,491/mo for 30 years for renting to be "better". After which the renter has no housing and the owner has housing into perpetuity. Good luck finding equivalent housing under $1,491/mo for that kind of property. In most areas in the U.S. at least, an equivalent property rents out for far higher than $1.5k/mo. In the areas I spot checked it was more in the range of $2.5-$3k/mo. This assumes the owner only ever keeps this particular mortgage, never pays down the principal, never rents any of their rooms out or takes any other cost saving measures that aren't available to the renter. Meanwhile percentage of income required to live in that property will stay the same for the renter while going down (relatively) for the owner. If you fiddle with the down payment slider, you'll note that no matter what it's set to, it doesn't make all that much difference in the ratio. Set it to zero since you can finance 100% without too much fuss. Now this sets things as equal, there's no additional money to invest for the renter other than some imaginary delta they would save by renting at rates far below any available realistic market rental rate. The renter still has to find property to rent about a thousand dollars less than the going rental rate in the market he's in, then still has to find housing at the end of the 30 year period. If the owner decides to sell at some point along the way, they can convey the stored value of their property into their new property. The renter has simply burned all that money and will rent forever, at increasing nominal costs pegged to inflation or current market forces (whichever is greater). So that I don't have to repeat myself again, here's an excellent write-up on the topic. Assuming an equal start, the property owner comes out somewhere around $1-2mil a head of the renter over 30 years, and has housing. http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html
- deleted 11y ago
  [deleted]

bane 11y ago

> Over 30 years you'll likely have to replace all appliances and the roof at least once, which could easily be 100k on a 600k house. You seem to think that renters don't pay for that and owners operate a housing charity where they foot all the maintenance and other costs while renters just pay some kind of courtesy "I'm occupying your property" fee. In many 30 year models, given a $500k home up for rent or purchase, the owner comes out somewhere between $1mil-$2mil ahead of the renter in terms of total asset ownership. After which the owner has only maintenance and taxes to pay for living while the renter continues to burn their money at higher and higher rental rates. During the same 30 year period, the owner will have a diminishing cost of living while the renter will maintain around a steady cost (on average) meaning that not only will the owner come out wealthier than the renter, it will be easier for them to gain that wealth as per inflation.

chrishynes 11y ago
Renting for less than the mortgage is de facto operating a housing charity or speculating on house price increases. You must rent for a good deal more than the mortgage to cover all the expenses involved. Run the numbers on your scenario without handwaving and you'll show the homeowner taking a stark loss over the renter. 1% rule is a good place to start. That would estimate the rent would have to be 4400/mo minimum for that 600k property to cashflow. 2600/mo? no way.
- bane 11y ago
  It's not even close, owning wins under most existing market scenarios by pretty large and unambiguous margins. There's online calculators available since the math appears to be beyond you.
  - chrishynes 11y ago
    Link? Best calculator I've found (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...), given standard values like a 4% mortgage with a 20% downpayment and a 5% investment return rate, shows your scenario break even at best over 30 years -- hardly "large and unambigouous margins".
    - bane 11y ago
      That's an okay one, it's broken in some ways (assumes you're selling your home after the mortgage is up, or that buying 100% of the home up-front doesn't make any long-term differences. It doesn't figure into standard of living deltas over time or time-value of money.) So now it's just your reasoning that's broken. Here's the tl;dr - You need to pay for housing no matter what. Do you buy and rent out your property to somebody who'll pay your mortgage and costs for you? Or do you pay those costs for somebody else? Assuming an equal start, the property owner comes out somewhere around $1-2mil ahead of the renter over 30 years, and has housing in the end. For those parameters, on a $500k property, you would need to find an equivalent property to rent for $1,491/mo for 30 years for renting to be "better". After which the renter has no housing and the owner has housing into perpetuity. Good luck finding equivalent housing under $1,491/mo for that kind of property. In most areas in the U.S. at least, an equivalent property rents out for far higher than $1.5k/mo. In the areas I spot checked it was more in the range of $2.5-$3k/mo. This assumes the owner only ever keeps this particular mortgage, never pays down the principal, never rents any of their rooms out or takes any other cost saving measures that aren't available to the renter. Meanwhile percentage of income required to live in that property will stay the same for the renter while going down (relatively) for the owner. If you fiddle with the down payment slider, you'll note that no matter what it's set to, it doesn't make all that much difference in the ratio. Set it to zero since you can finance 100% without too much fuss. Now this sets things as equal, there's no additional money to invest for the renter other than some imaginary delta they would save by renting at rates far below any available realistic market rental rate. The renter still has to find property to rent about a thousand dollars less than the going rental rate in the market he's in, then still has to find housing at the end of the 30 year period. If the owner decides to sell at some point along the way, they can convey the stored value of their property into their new property. The renter has simply burned all that money and will rent forever, at increasing nominal costs pegged to inflation or current market forces (whichever is greater). So that I don't have to repeat myself again, here's an excellent write-up on the topic. Assuming an equal start, the property owner comes out somewhere around $1-2mil a head of the renter over 30 years, and has housing. http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html
deleted 11y ago
[deleted]