7 ms·

The Renter’s Manifesto

52 points by limist 17y ago

earl 17y ago
My experience may be useful only for sf, but I live in the city in a nice (by my definition of nice: 100+ years old, solid wood floors, plaster walls, detailed woodwork, thick aged wooden doors, handmade ironwork) apartment. My landlord would like to sell the place to us, but our rent doesn't even cover the mortgage with a $100K downpayment. By the time you add HOA fees, insurance, taxes, and a 3-5% of value annual maintenance investment, my landlord pays me some $800-$1000/month to live in his apartment. Which is fine by me.
- nopassrecover 17y ago
  In Australia we have a concept called negative gearing which allows you to deduct that 800-1000/month off your income taxes.
  - jaybol 17y ago
    I assume you mean for the landlord to deduct his loss, correct?
    - pmccool 17y ago
      Insofar as negative gearing is a good thing, it's not a good thing for renters. Investors need to be losing money for negative gearing to do them any good, and it won't magically turn that investment into something profitable. It is helpful if they're speculating on a big capital gain. In fact that's one of the recurring criticisms of negative gearing - that it encourages speculation and inflates property prices, neither of which are good things for renters. People have, inevitably, used it to engage in various tax-reduction schemes, with varying degrees of succes (see the 2004 Australian High Court case of Hart v Commissioner of Taxation for an example of that _not_ working out). This is not a good thing for renters either.
      - nopassrecover 16y ago
        Yeah it's a terrible thing now that it's in place but removing it now would be even worse for renters.
- russell_h 17y ago
  Why doesn't your landlord raise the rent?
  - jackfoxy 17y ago
    Because it's in San Francisco. Rent control.
    - earl 17y ago
      For the record, my apartment is not rent controlled and as far as I know, most apartments in SF are not. The landlord is constrained by market rents.
      - thomaspaine 17y ago
        From your description, you qualify for rent control, which means your landlord can only raise you rent at the rate of inflation (with certain exceptions). From http://www.sftu.org/rentcontrol.html http://www.sftu.org/rentcontrol.html: San Francisco's rent control law covers most rental property in San Francisco. If you live in San Francisco, you are covered by rent control unless you fall into one of these major exceptions 1. You live in a building constructed after June of 1979. This "new construction exemption" is the biggest exemption in SF 2. You live in subsidized housing, such as HUD housing projects. 3. You live in a dormitory, monastery, nunnery, etc. 4. You live in a residential hotel and have less than 28 days of continuous tenancy.
- _delirium 17y ago
  It may be cheaper for your landlord to pay all that than it would be for you to do so, though, so he might not be losing that much. In particular, if he bought in a while ago, he probably pays much less than the official rate for property taxes, due to Prop 13 grandfathering in an anciently low valuation.
deleted 17y ago
[deleted]
- edj 17y ago
  > your landlord/agent has the right to enter your house for an inspection You should demand that your rental agreement stipulates that your landlord must give at least 24 hours notice before entering your home. This is pretty standard, but in cases where it's not yet in the contract make sure to have it added. > and they can sell or occupy it, requiring you to move Depends where you live. In California (at least in SF and LA; don't know about elsewhere), landlords can only do this if they or a family member will be moving in. In SF in particular tenant rights are strong and it's practically impossible to evict tenants. Though in my opinion they go too far there; non-paying tenants can linger for months, and creepy d-bags who sexually harass other tenants can't be kicked out even if the landlord and everyone in the building wants them gone (true story).
  - philwelch 17y ago
    "You should demand that your rental agreement stipulates that your landlord must give at least 24 hours notice before entering your home. This is pretty standard, but in cases where it's not yet in the contract make sure to have it added." Depending on what state you live in, that doesn't have to be part of the rental agreement--it's part of the law. I believe that's part of the right to "quiet enjoyment".
    - edj 17y ago
      I didn't know that... It's probably always a good idea to study up on your rights as a tenant in the state and city you live. That ought to be a factor in the buy vs. rent decision.
  - deleted 17y ago
    [deleted]
  - cperciva 17y ago
    non-paying tenants can linger for months Make that years, at least in San Francisco.
trjordan 17y ago
Big detail missing here: a standard mortgage is the only way for the average person to make an investment with 5x (or more) in leverage. For a 20% down payment, you effectively get to invest 5x your money into a real estate investment of your choice. The real estate market as a whole is certainly less value-producing than something like tech or chemicals, but Joe Salaried can't easily go out and ask his 401(k) plan to leverage him out at 5x his net worth. It's not for everyone, and it's certainly a risk (like all leveraged investments), but it does provide an opportunity that very few other common financial instruments provide.
- _delirium 17y ago
  It's becoming a bit easier for the retail investor to do other kinds of leveraged investments, since a lot are now packaged up into ETFs. For example, NYSE:ROM is a 2x-leveraged basket of technology stocks, and NYSE:TNA is a 3x-leveraged derivative of the Russell 2000 small-cap index. Of course, these are not necessarily a better idea than buying a house.
  - rjett 17y ago
    These ETFs you talk about are usually leveraged through some combination of options which means they have significant time-value decay, making them an unsuitable long-term investment.
  - dirtae 17y ago
    Leveraged ETFs seek to provide the expected return on a daily basis. They do not provide the returns that you might expect over periods longer than a day, and therefore are only useful for day traders. http://www.etfbase.com/leveraged-etf-decay/ http://www.etfbase.com/leveraged-etf-decay/
    - wheaties 17y ago
      +1 for correctly stating how those investment vehicles are structured. In fact, expect not to see them much later in the future as people didn't understand how or why they performed as they did.
mhb 17y ago
Felix Salmon on American home ownership attitudes: http://blogs.reuters.com/felix-salmon/2010/04/06/the-national-housing-survey-and-the-real-estate-bear-market/ http://blogs.reuters.com/felix-salmon/2010/04/06/the-nationa...
- hugh3 17y ago
  There is absolutely no reason to believe that countries with high levels of homeownership, like the U.S., have better economies than those with low levels of homeownership, like Germany. And yet the US has a higher per-capita GDP than Germany, right? Besides, homes have to be owned by somebody. If homes aren't tying up the wealth of Joe Workingclass they'll be tying up the wealth of John Richbastard instead. How much of the low rate of home ownership in Europe can be attributed to property title? If the only housing units available are blocks of apartments on a single deed then you'd expect a low rate of ownership, whereas if the entire country was split into individual-title houses then you'd expect a much higher rate. EDIT: Wait, I forgot to mention the screwiest thing about the long-term prospects of Germany: it has a birth rate of 1.4 per couple, way below replacement rate. I'm guessing that this could have a lot to do with the housing supply being concentrated towards small apartments and away from large houses.
  - earl 17y ago
    The US does have a higher per-capita gdp (probably; the numbers are subject to a lot of interpretation) but that is in no small part due to the fact that the rest of the industrialized word was mostly leveled in WWII. As of recently, I believe West Europe's gdp growth numbers are comparable to or exceed those of the US. But again, the devil is in the details in these things. As for birth rates, well... that's a pretty wild speculation. Demographers have a decent handle, as far as I know, on the causes of low birth rates. Do note that America has a declining population ex immigration, and that the birth rate for white people is below replacement rate and has been for 30 years.
hugh3 17y ago
Given a market that is in any way sensible, shouldn't buying wind up cheaper than renting over the long run? Landlords don't buy investment property out of the goodness of their heart, they buy investment property because they think that the money they make in rent, plus the capital gain on the property, minus the various maintenance costs etc, should be sufficient to compensate them for tying up hundreds of thousands of dollars in the asset.
- usaar333 17y ago
  Who says the market is sensible? There's a lot of noise out there. Someone buying property not only has to guess that an area will go up in value, but they also have to factor in: 1) inflation rates (higher inflation is much better) 2) tax changes (e.g. the passage of prop 13 in California helped investment property owners greatly)
  - hugh3 17y ago
    Well I'd never say the market was sensible at any given place and time, but I think it tends to fluctuate back and forth somewhere around the vicinity of "sensible". If you decide that renting is going to be cheaper than buying for the rest of your life then you're gambling on the assumption that the market stays on one particular side of "sensible" for decades.
    - Retric 17y ago
      You can always switch from renting to buying, it's much harder to go the other way.
      - hugh3 17y ago
        How's that? Sell house, sign lease, you're done. Only a problem if you're underwater and I'd strongly advise against buying for anyone in a position where winding up underwater is a strong possibility (ie anyone with less than, say, a 20% deposit).
sown 17y ago
What about when I pay a lot of my mortgage early? Say, within a few years?
- basman 17y ago
  In the limit, that's like buying the house with cash up front, which amounts to betting that the appreciation will exceed any investment income. For example, given person A who paid cash for a house a year ago and person B who put that money into an index fund, in most parts of the country B would be much better off right now.
- qeorge 17y ago
  I'm not a homeowner, but I believe most mortgages are "frontloaded", at least to some extent, so you're paying off the interest before you pay off the principle. Its not uncommmon to pay ~2x the principal in interest. So I couldn't say for sure, but I don't see it having a huge impact.
  - teuobk 17y ago
    Mortgage payments are usually calculated to be equal over time. Therefore, a greater proportion of the early payments goes to interest, but a greater proportion of the later payments goes to principal. Payments in excess of the set payment amount are generally applied to the principal. Thus, making payments in excess of the set payment amount early in the life of the loan will reduce the principal faster than expected, and the total interest paid for the loan will be reduced.
- earl 17y ago
  Then you're placing bets on inflation vs home price appreciation that are, at best, difficult to predict.
- philwelch 17y ago
  The mortgage is structured for a given term. If you pay off a 30 year mortgage in 2 years, you're still paying 30 years worth of interest. There's no gain, in fact, you lose because you lose the time value of money. Paying straight cash for a house, or buying a house on a small fixed interest and a short term already baked into the mortgage, can gain you something. Paying off an existing mortgage early gains you time and the psychological benefits of not worrying about making the mortgage next month. If you're about to die, it lets your descendants take their time selling the house if they can't afford to make the payments.
chime 17y ago
Every now and then I see articles like these. It always seems to me that the author is simply trying to justify the fact that they rent. Renting vs. buying is a very personal decision and has a lot more to do with lifestyle and personal choices than financial soundness. I bought my house in 2005 at almost the top of housing market in Florida. I paid $145k for my house and told everyone about how smart of a financial decision I was making. I've spent $15k in home improvements and my house is now worth $125k. Oops. However, my mortgage is still very low and I can easily afford it regardless of the current worth. Now the question is, if I could see the future back in 2005, would I still buy this house? If all I could see was the housing crash of 2008-2009, then of course not. But if I could see the great times I've had in this house which includes absolute peace and quiet, friendly neighbors who don't change every other month, and the feeling of a little place by the beach to call my own, I would indeed buy this house. Buying a house has a lot more to do with making it a home than just a shelter for cheap. Nobody knows the future. I could have rented this exact house and instead of benefiting in the long run, I could have ended up losing more money if rent prices skyrocketed. All I know is that for people who can afford to buy and afford to rent, money has very little to do with buying vs. renting.
- timcederman 17y ago
  I think renting does make more fiscal sense, but there are so many reasons to own your own place beyond finance.
- Retric 17y ago
  Renting vs. buying is a very personal decision and has a lot more to do with lifestyle and personal choices than financial soundness. Says someone that bought a home. I want to walk to work and there are no homes for sale in my area. So even if I make 500k / year home ownership would still bring significant negative for my lifestyle. When you consider commuting costs, home ownership is both risky and far more expensive for most young people.
  - hugh3 17y ago
    Sounds like a peculiar area if it doesn't have any homes for sale. Still, there must be just as many areas which don't have any homes for rent, right?
barmstrong 17y ago
I tend to agree with the article - especially in California it makes no sense to own a home at current prices, rent is a great deal and most landlords with a mortgage have negative cash flow. In some other markets, like Texas, it's possible to own rental real estate that cash flows. So this is the strange position I'm in where I own houses to rent but rent the place I live.
patrickk 17y ago
Here's a very useful tool from the NY Times that calculates whether you would be better off renting or buying a house (financially speaking): http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula... Takes into account variables such as monthly rent, house price, down payment, property taxes.... and it has a sweet graph that shows over time where you are financially better off renting or buying. Pretty cool. Great for anyone who is between two minds about what to do, or is considering investing into a depressed market.

52 points by limist 17y ago

earl 17y ago

My experience may be useful only for sf, but I live in the city in a nice (by my definition of nice: 100+ years old, solid wood floors, plaster walls, detailed woodwork, thick aged wooden doors, handmade ironwork) apartment. My landlord would like to sell the place to us, but our rent doesn't even cover the mortgage with a $100K downpayment. By the time you add HOA fees, insurance, taxes, and a 3-5% of value annual maintenance investment, my landlord pays me some $800-$1000/month to live in his apartment. Which is fine by me.

nopassrecover 17y ago
In Australia we have a concept called negative gearing which allows you to deduct that 800-1000/month off your income taxes.
- jaybol 17y ago
  I assume you mean for the landlord to deduct his loss, correct?
  - pmccool 17y ago
    Insofar as negative gearing is a good thing, it's not a good thing for renters. Investors need to be losing money for negative gearing to do them any good, and it won't magically turn that investment into something profitable. It is helpful if they're speculating on a big capital gain. In fact that's one of the recurring criticisms of negative gearing - that it encourages speculation and inflates property prices, neither of which are good things for renters. People have, inevitably, used it to engage in various tax-reduction schemes, with varying degrees of succes (see the 2004 Australian High Court case of Hart v Commissioner of Taxation for an example of that _not_ working out). This is not a good thing for renters either.
    - nopassrecover 16y ago
      Yeah it's a terrible thing now that it's in place but removing it now would be even worse for renters.
russell_h 17y ago
Why doesn't your landlord raise the rent?
- jackfoxy 17y ago
  Because it's in San Francisco. Rent control.
  - earl 17y ago
    For the record, my apartment is not rent controlled and as far as I know, most apartments in SF are not. The landlord is constrained by market rents.
    - thomaspaine 17y ago
      From your description, you qualify for rent control, which means your landlord can only raise you rent at the rate of inflation (with certain exceptions). From http://www.sftu.org/rentcontrol.html http://www.sftu.org/rentcontrol.html: San Francisco's rent control law covers most rental property in San Francisco. If you live in San Francisco, you are covered by rent control unless you fall into one of these major exceptions 1. You live in a building constructed after June of 1979. This "new construction exemption" is the biggest exemption in SF 2. You live in subsidized housing, such as HUD housing projects. 3. You live in a dormitory, monastery, nunnery, etc. 4. You live in a residential hotel and have less than 28 days of continuous tenancy.
_delirium 17y ago
It may be cheaper for your landlord to pay all that than it would be for you to do so, though, so he might not be losing that much. In particular, if he bought in a while ago, he probably pays much less than the official rate for property taxes, due to Prop 13 grandfathering in an anciently low valuation.

deleted 17y ago

[deleted]

edj 17y ago
> your landlord/agent has the right to enter your house for an inspection You should demand that your rental agreement stipulates that your landlord must give at least 24 hours notice before entering your home. This is pretty standard, but in cases where it's not yet in the contract make sure to have it added. > and they can sell or occupy it, requiring you to move Depends where you live. In California (at least in SF and LA; don't know about elsewhere), landlords can only do this if they or a family member will be moving in. In SF in particular tenant rights are strong and it's practically impossible to evict tenants. Though in my opinion they go too far there; non-paying tenants can linger for months, and creepy d-bags who sexually harass other tenants can't be kicked out even if the landlord and everyone in the building wants them gone (true story).
- philwelch 17y ago
  "You should demand that your rental agreement stipulates that your landlord must give at least 24 hours notice before entering your home. This is pretty standard, but in cases where it's not yet in the contract make sure to have it added." Depending on what state you live in, that doesn't have to be part of the rental agreement--it's part of the law. I believe that's part of the right to "quiet enjoyment".
  - edj 17y ago
    I didn't know that... It's probably always a good idea to study up on your rights as a tenant in the state and city you live. That ought to be a factor in the buy vs. rent decision.
- deleted 17y ago
  [deleted]
- cperciva 17y ago
  non-paying tenants can linger for months Make that years, at least in San Francisco.

trjordan 17y ago

Big detail missing here: a standard mortgage is the only way for the average person to make an investment with 5x (or more) in leverage. For a 20% down payment, you effectively get to invest 5x your money into a real estate investment of your choice. The real estate market as a whole is certainly less value-producing than something like tech or chemicals, but Joe Salaried can't easily go out and ask his 401(k) plan to leverage him out at 5x his net worth. It's not for everyone, and it's certainly a risk (like all leveraged investments), but it does provide an opportunity that very few other common financial instruments provide.

_delirium 17y ago
It's becoming a bit easier for the retail investor to do other kinds of leveraged investments, since a lot are now packaged up into ETFs. For example, NYSE:ROM is a 2x-leveraged basket of technology stocks, and NYSE:TNA is a 3x-leveraged derivative of the Russell 2000 small-cap index. Of course, these are not necessarily a better idea than buying a house.
- rjett 17y ago
  These ETFs you talk about are usually leveraged through some combination of options which means they have significant time-value decay, making them an unsuitable long-term investment.
- dirtae 17y ago
  Leveraged ETFs seek to provide the expected return on a daily basis. They do not provide the returns that you might expect over periods longer than a day, and therefore are only useful for day traders. http://www.etfbase.com/leveraged-etf-decay/ http://www.etfbase.com/leveraged-etf-decay/
  - wheaties 17y ago
    +1 for correctly stating how those investment vehicles are structured. In fact, expect not to see them much later in the future as people didn't understand how or why they performed as they did.

mhb 17y ago

Felix Salmon on American home ownership attitudes: http://blogs.reuters.com/felix-salmon/2010/04/06/the-national-housing-survey-and-the-real-estate-bear-market/ http://blogs.reuters.com/felix-salmon/2010/04/06/the-nationa...

hugh3 17y ago
There is absolutely no reason to believe that countries with high levels of homeownership, like the U.S., have better economies than those with low levels of homeownership, like Germany. And yet the US has a higher per-capita GDP than Germany, right? Besides, homes have to be owned by somebody. If homes aren't tying up the wealth of Joe Workingclass they'll be tying up the wealth of John Richbastard instead. How much of the low rate of home ownership in Europe can be attributed to property title? If the only housing units available are blocks of apartments on a single deed then you'd expect a low rate of ownership, whereas if the entire country was split into individual-title houses then you'd expect a much higher rate. EDIT: Wait, I forgot to mention the screwiest thing about the long-term prospects of Germany: it has a birth rate of 1.4 per couple, way below replacement rate. I'm guessing that this could have a lot to do with the housing supply being concentrated towards small apartments and away from large houses.
- earl 17y ago
  The US does have a higher per-capita gdp (probably; the numbers are subject to a lot of interpretation) but that is in no small part due to the fact that the rest of the industrialized word was mostly leveled in WWII. As of recently, I believe West Europe's gdp growth numbers are comparable to or exceed those of the US. But again, the devil is in the details in these things. As for birth rates, well... that's a pretty wild speculation. Demographers have a decent handle, as far as I know, on the causes of low birth rates. Do note that America has a declining population ex immigration, and that the birth rate for white people is below replacement rate and has been for 30 years.

hugh3 17y ago

Given a market that is in any way sensible, shouldn't buying wind up cheaper than renting over the long run? Landlords don't buy investment property out of the goodness of their heart, they buy investment property because they think that the money they make in rent, plus the capital gain on the property, minus the various maintenance costs etc, should be sufficient to compensate them for tying up hundreds of thousands of dollars in the asset.

usaar333 17y ago
Who says the market is sensible? There's a lot of noise out there. Someone buying property not only has to guess that an area will go up in value, but they also have to factor in: 1) inflation rates (higher inflation is much better) 2) tax changes (e.g. the passage of prop 13 in California helped investment property owners greatly)
- hugh3 17y ago
  Well I'd never say the market was sensible at any given place and time, but I think it tends to fluctuate back and forth somewhere around the vicinity of "sensible". If you decide that renting is going to be cheaper than buying for the rest of your life then you're gambling on the assumption that the market stays on one particular side of "sensible" for decades.
  - Retric 17y ago
    You can always switch from renting to buying, it's much harder to go the other way.
    - hugh3 17y ago
      How's that? Sell house, sign lease, you're done. Only a problem if you're underwater and I'd strongly advise against buying for anyone in a position where winding up underwater is a strong possibility (ie anyone with less than, say, a 20% deposit).

sown 17y ago

What about when I pay a lot of my mortgage early? Say, within a few years?

basman 17y ago
In the limit, that's like buying the house with cash up front, which amounts to betting that the appreciation will exceed any investment income. For example, given person A who paid cash for a house a year ago and person B who put that money into an index fund, in most parts of the country B would be much better off right now.
qeorge 17y ago
I'm not a homeowner, but I believe most mortgages are "frontloaded", at least to some extent, so you're paying off the interest before you pay off the principle. Its not uncommmon to pay ~2x the principal in interest. So I couldn't say for sure, but I don't see it having a huge impact.
- teuobk 17y ago
  Mortgage payments are usually calculated to be equal over time. Therefore, a greater proportion of the early payments goes to interest, but a greater proportion of the later payments goes to principal. Payments in excess of the set payment amount are generally applied to the principal. Thus, making payments in excess of the set payment amount early in the life of the loan will reduce the principal faster than expected, and the total interest paid for the loan will be reduced.
earl 17y ago
Then you're placing bets on inflation vs home price appreciation that are, at best, difficult to predict.
philwelch 17y ago
The mortgage is structured for a given term. If you pay off a 30 year mortgage in 2 years, you're still paying 30 years worth of interest. There's no gain, in fact, you lose because you lose the time value of money. Paying straight cash for a house, or buying a house on a small fixed interest and a short term already baked into the mortgage, can gain you something. Paying off an existing mortgage early gains you time and the psychological benefits of not worrying about making the mortgage next month. If you're about to die, it lets your descendants take their time selling the house if they can't afford to make the payments.

chime 17y ago

Every now and then I see articles like these. It always seems to me that the author is simply trying to justify the fact that they rent. Renting vs. buying is a very personal decision and has a lot more to do with lifestyle and personal choices than financial soundness. I bought my house in 2005 at almost the top of housing market in Florida. I paid $145k for my house and told everyone about how smart of a financial decision I was making. I've spent $15k in home improvements and my house is now worth $125k. Oops. However, my mortgage is still very low and I can easily afford it regardless of the current worth. Now the question is, if I could see the future back in 2005, would I still buy this house? If all I could see was the housing crash of 2008-2009, then of course not. But if I could see the great times I've had in this house which includes absolute peace and quiet, friendly neighbors who don't change every other month, and the feeling of a little place by the beach to call my own, I would indeed buy this house. Buying a house has a lot more to do with making it a home than just a shelter for cheap. Nobody knows the future. I could have rented this exact house and instead of benefiting in the long run, I could have ended up losing more money if rent prices skyrocketed. All I know is that for people who can afford to buy and afford to rent, money has very little to do with buying vs. renting.

timcederman 17y ago
I think renting does make more fiscal sense, but there are so many reasons to own your own place beyond finance.
Retric 17y ago
Renting vs. buying is a very personal decision and has a lot more to do with lifestyle and personal choices than financial soundness. Says someone that bought a home. I want to walk to work and there are no homes for sale in my area. So even if I make 500k / year home ownership would still bring significant negative for my lifestyle. When you consider commuting costs, home ownership is both risky and far more expensive for most young people.
- hugh3 17y ago
  Sounds like a peculiar area if it doesn't have any homes for sale. Still, there must be just as many areas which don't have any homes for rent, right?

barmstrong 17y ago

I tend to agree with the article - especially in California it makes no sense to own a home at current prices, rent is a great deal and most landlords with a mortgage have negative cash flow. In some other markets, like Texas, it's possible to own rental real estate that cash flows. So this is the strange position I'm in where I own houses to rent but rent the place I live.

patrickk 17y ago

Here's a very useful tool from the NY Times that calculates whether you would be better off renting or buying a house (financially speaking): http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula... Takes into account variables such as monthly rent, house price, down payment, property taxes.... and it has a sweet graph that shows over time where you are financially better off renting or buying. Pretty cool. Great for anyone who is between two minds about what to do, or is considering investing into a depressed market.