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Agreed. re: "It always seems to me that the author is simply trying to justify the fact that they rent." - this always seems to be the case. The few renters wh

by tpz 16y ago

Agreed. re: "It always seems to me that the author is simply trying to justify the fact that they rent." - this always seems to be the case. The few renters who seem to do well financially would also do well financially as homeowners but for some reason have convinced themselves that the numbers work out better for renting. Maybe it does for those people, maybe it doesn't. I'll come back to that point in the next paragraph. In the meantime, however, the vast majority of renters one might speak to are just pissing away money, are no further in terms of savings than those with mortgages, and have none of the equity built up that those with mortgages have, even those who are pretty new to their mortgages. Now, back to whether or not those "smart" renters are any better off. First off, I'll readily admit that my single data point is just that, but it bears consideration nonetheless. I bought property in 2005. In a neighbourhood with some growth potential, in an overall market with generally upward movement. Nothing bullish, just generally upward movement. In fact, that movement had been slowing a bit at that point, and continued to slow somewhat more afterwards. We all know what happened next. I sold early this year. I wonder how many smart renters could have done this _well_, even given the shitty few years I happened to own before selling: I paid $500 more per month than what I would have paid to rent the same space (in other words, put me up against a smart renter with $500 to invest each month), for a total of $30,000 "invested" progressively over those five years. I sold for a net profit of $125,000 after all fees, commissions, etc. In a hesitant market still recovering from the nasty troubles we all know too well. Find me a renter with that kind of ROI on their investments over the last 5 years and I'll congratulate them over a nice lunch which I'll be happy to buy for them. (crickets) Yeah, I thought so.

earl 16y ago
The fact that you got lucky and timed the market doesn't mean other people should attempt to do the same, or that they will have any success doing so.
- tpz 16y ago
  If I were lucky or if I had made any effort whatsoever to time the market, you might be right. On the other hand, I know of lots of data points like mine, even with the crapfest of the last couple of years. (Sensationalist news articles and statistics about idiots lending too much money to other idiots really shouldn't hold much water to the HN audience, if you think about it.) Regardless, find me that renter and I'll buy them a nice lunch. If I could have made $125,000 during those years then by their own arguments all of these "smart" renters should have been able to do the same through some alternate portfolio of their choice. As an aside, am I the only person to notice that every time a renter posts these kinds of articles they always talk about how down the road they'll have enough money to buy a mortgage-payer's home but they never actually bother to mention how their investments have been doing for them in the meantime? I suspect there's an obvious reason for the omission.
  - mechanical_fish 16y ago
    they never actually bother to mention how their investments have been doing for them in the meantime So, you're unhappy because other people don't use the same sort of anecdotal evidence that you are so fond of using yourself? Who needs anecdotes when you have data? Here's a typical chart of median home prices since 1971, adjusted for inflation: http://www.newfinancialwisdom.com/median-home-prices-inflation-adjusted/ http://www.newfinancialwisdom.com/median-home-prices-inflati... And here's a chart of the inflation-adjusted S&P500 since 1950 (skip down a few charts): http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to... What we see here is that, aside from some interesting but minor fluctuations and a scary but temporary blip representing last decade's bubble, housing prices are almost flat in real terms: The increase in median house price is almost equal to the inflation rate. Meanwhile, stock market investment values fluctuate a lot -- the last decade was not especially kind to investors -- but over the 1950-2008 time period the market averaged nearly 7% over inflation if you reinvest all dividends. Now, you can get lucky. Or you can leverage insider knowledge: If you figure out that land in a certain area is systematically underpriced relative to future demand, you can make a killing without relying solely on luck. But the averages show that for every person who makes a killing in residential real estate, there's someone else who takes the equivalent bath. And note that the argument that "land in NYC/Northern California/Desirable Area X will keep growing in value because everyone wants to live there" presumes that the rest of the market hasn't already figured out that such land is more desirable and set prices accordingly.
    - tpz 16y ago
      For the record, I'm not unhappy at all, and if you'll look back at my original reply I was very up front about being just one data point. You can get lucky. Or you can leverage insider knowledge. Or you can do some personal learning and invest wisely. All of these are equally applicable to investing in real estate or to investing in other things while being a renter. For some reason, however, those who profit from real estate are chalked up as lucky and those who profit from other things while renting seem to get to talk as if their success involved any less luck or any more informed investing. Why is this? In my case, I invested in a physical market in a particular region I had been watching for many years and which has generally steady indicators. I exited for entirely personal reasons (to live with my girlfriend, just to put it out there), not to "time" the market as claimed by one commenter who also claimed I got lucky. I was subsequently called out as unhappy by another - you. Again, why is this? Any argument that can be made for or against success by an owner can be made equally well for or against success by a renter investing elsewhere, yet luck only gets cast towards the former, wisdom only towards the latter, and all the while the latter never seem to publish any of their investment success numbers to match their claims of benefit down the road. Again, why the disparity? Whether in real estate or elsewhere, it's the same $500 per month during the same five years. Whether sourced from luck and/or expertise, why are one class of returns immediately disparaged while another goes entirely unstated yet entirely uncontested? I've never taken it as an offense personally, but do admit that it does seem to be a common pattern and not a particularly fair pattern, at that.
rue 16y ago
> I sold for a net profit of $125,000 after all fees, commissions, etc. Where does that "value" come from? The entire real estate market is built on the premise of property valuation continuously raising - causing and eventually surpassing inflation. This is without even accounting for the actual exploitation/gaming of the system. Everyone has already forgotten, or chosen not to think about it in favour of short-term gain.
zacharypinter 16y ago
"Find me a renter with that kind of ROI on their investments over the last 5 years" is asking the wrong question. While it's true that there are wins to be made in real estate (and I congratulate you on your successful outcome), there are also losses. Not only did you pay $500 more a month, you took a risk (the degree of which depends on your circumstances) that the home would rise in value. Had it not done so, you'd be stuck paying $500 more a month in addition to other potentially large losses. Renting is (generally) lower cost, lower risk, lower potential ROI. Buying is (generally) higher cost, higher risk, higher potential ROI.

by tpz 16y ago

earl 16y ago

The fact that you got lucky and timed the market doesn't mean other people should attempt to do the same, or that they will have any success doing so.

tpz 16y ago
If I were lucky or if I had made any effort whatsoever to time the market, you might be right. On the other hand, I know of lots of data points like mine, even with the crapfest of the last couple of years. (Sensationalist news articles and statistics about idiots lending too much money to other idiots really shouldn't hold much water to the HN audience, if you think about it.) Regardless, find me that renter and I'll buy them a nice lunch. If I could have made $125,000 during those years then by their own arguments all of these "smart" renters should have been able to do the same through some alternate portfolio of their choice. As an aside, am I the only person to notice that every time a renter posts these kinds of articles they always talk about how down the road they'll have enough money to buy a mortgage-payer's home but they never actually bother to mention how their investments have been doing for them in the meantime? I suspect there's an obvious reason for the omission.
- mechanical_fish 16y ago
  they never actually bother to mention how their investments have been doing for them in the meantime So, you're unhappy because other people don't use the same sort of anecdotal evidence that you are so fond of using yourself? Who needs anecdotes when you have data? Here's a typical chart of median home prices since 1971, adjusted for inflation: http://www.newfinancialwisdom.com/median-home-prices-inflation-adjusted/ http://www.newfinancialwisdom.com/median-home-prices-inflati... And here's a chart of the inflation-adjusted S&P500 since 1950 (skip down a few charts): http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to... What we see here is that, aside from some interesting but minor fluctuations and a scary but temporary blip representing last decade's bubble, housing prices are almost flat in real terms: The increase in median house price is almost equal to the inflation rate. Meanwhile, stock market investment values fluctuate a lot -- the last decade was not especially kind to investors -- but over the 1950-2008 time period the market averaged nearly 7% over inflation if you reinvest all dividends. Now, you can get lucky. Or you can leverage insider knowledge: If you figure out that land in a certain area is systematically underpriced relative to future demand, you can make a killing without relying solely on luck. But the averages show that for every person who makes a killing in residential real estate, there's someone else who takes the equivalent bath. And note that the argument that "land in NYC/Northern California/Desirable Area X will keep growing in value because everyone wants to live there" presumes that the rest of the market hasn't already figured out that such land is more desirable and set prices accordingly.
  - tpz 16y ago
    For the record, I'm not unhappy at all, and if you'll look back at my original reply I was very up front about being just one data point. You can get lucky. Or you can leverage insider knowledge. Or you can do some personal learning and invest wisely. All of these are equally applicable to investing in real estate or to investing in other things while being a renter. For some reason, however, those who profit from real estate are chalked up as lucky and those who profit from other things while renting seem to get to talk as if their success involved any less luck or any more informed investing. Why is this? In my case, I invested in a physical market in a particular region I had been watching for many years and which has generally steady indicators. I exited for entirely personal reasons (to live with my girlfriend, just to put it out there), not to "time" the market as claimed by one commenter who also claimed I got lucky. I was subsequently called out as unhappy by another - you. Again, why is this? Any argument that can be made for or against success by an owner can be made equally well for or against success by a renter investing elsewhere, yet luck only gets cast towards the former, wisdom only towards the latter, and all the while the latter never seem to publish any of their investment success numbers to match their claims of benefit down the road. Again, why the disparity? Whether in real estate or elsewhere, it's the same $500 per month during the same five years. Whether sourced from luck and/or expertise, why are one class of returns immediately disparaged while another goes entirely unstated yet entirely uncontested? I've never taken it as an offense personally, but do admit that it does seem to be a common pattern and not a particularly fair pattern, at that.

rue 16y ago

> I sold for a net profit of $125,000 after all fees, commissions, etc. Where does that "value" come from? The entire real estate market is built on the premise of property valuation continuously raising - causing and eventually surpassing inflation. This is without even accounting for the actual exploitation/gaming of the system. Everyone has already forgotten, or chosen not to think about it in favour of short-term gain.

zacharypinter 16y ago

"Find me a renter with that kind of ROI on their investments over the last 5 years" is asking the wrong question. While it's true that there are wins to be made in real estate (and I congratulate you on your successful outcome), there are also losses. Not only did you pay $500 more a month, you took a risk (the degree of which depends on your circumstances) that the home would rise in value. Had it not done so, you'd be stuck paying $500 more a month in addition to other potentially large losses. Renting is (generally) lower cost, lower risk, lower potential ROI. Buying is (generally) higher cost, higher risk, higher potential ROI.