6 ms·

Because you still have to pay rent - if you could buy, your housing costs would be earning equity.

sanswork 10y ago
It's not uncommon for it to be better financially to always rent and just invest the difference between rent and mortgage+maintenance+taxes. With interest first mortgages as they are it is generally a long time before you earn any equity at all.
- aianus 10y ago
  This. I did the math when I rented an apartment in downtown Toronto and the rent was less than mortgage interest + condo fees + property tax + maintenance.
  - ec109685 10y ago
    Except if the value of the real estate goes up.
    - aianus 10y ago
      Ah but my equities-heavy roboadvisor portfolio has gone up way more than the landlord's apartment...
      - tehlike 10y ago
        is it so? Is that still the case when your landlord leverages 20/80?
    - nostrademons 10y ago
      Usually when mortgage interest + etc. > rent, it indicates that the property is overvalued and the value (over the long term) is more likely to fall than rise. Every other buyer - or almost every other buyer, except the ones that need to launder money - is making the same economic calculation, and if the cost of money to buy the property is more expensive than the rent you can earn from the property, they're not going to buy the property.
  - prklmn 10y ago
    So let's say you save 10¢ on every dollar by renting in your scenario. You'd have to have a hell of a return on that 10¢ you saved to beat the 90¢ you would have invested in the property but instead flushed down the drain in the form of rent....
    - sanswork 10y ago
      You seem to think that 90c is going straight to equity when for many years it will be going straight to interest payments. So for the first 5-10 years your $1 is going down the drain vs the renters 10c going into investments.
      - prklmn 10y ago
        At any point over those 5-10 you can turn around and sell the property and collect the full gain - it's entirely irrelevant to the mortgage payments being dedicated to interest. My $1 gets my name on the title, your 90¢ gets your name on the lease. Think about what your net investment is. So maybe my maintainance/tax/interest costs equate to 50¢. I'm still investing 50¢ compared to your 10¢. Also, I get incredible leverage. Let'say my property costs $1 million. I'm controlling a $1 million investment vehicle with a $4k/month mortgage payment + tax/maintenance. That's incredible. My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property.
        sanswork 10y ago
        It sounds like nothing I will say will sway your beliefs so good luck with your investment.
        tehlike 10y ago
        it's how long term wealth is built best. until the bubble pops up, like it did in 2008, but it comes back up so it's a rather temporary set back. Also, rents rarely come down, so most often the property value decline is temporary, or it is another opportunity to buy when things are in water - when there is blood in the streets, there is money to be made.
  - wiz21c 10y ago
    But once you have completely bought your house/apartment, you have that warm comforting feeling that it's yours. Nobody will get you out to puts in his children, nobody will raise the rent because, you know, he has no choice, etc. But in the case of a house, you'll have to repair it as times goes by and that can be quite expensive. But the one who rents it to you would have to do it as well, so, buying a house just makes sure you don't pay the little profit margin of the landlord (just the one of the bank :))
    - forgetsusername 10y ago
      >so, buying a house just makes sure you don't pay the little profit margin of the landlord Buying is not universally better than renting, period. There is no such thing as a free lunch; any profit received by owning the capital asset is compensation for the risk of holding that asset.
      - wiz21c 10y ago
        Yep you're right. I just wanted to explain that there is also a psychological argument at play. That warm comforting feeling...
        aianus 10y ago
        I would feel like there was a noose around my neck if I couldn't move without paying $30k in realtors fees (and possibly incurring capital loss depending on timing).
    - angry_octet 10y ago
      In Australia you are often treated poorly as a tenant. Rent increases every 6 months, 60 day eviction notice if the landlord wants to do anything (sell, paint the walls, let their cousin stay there, consider selling it...). You can't do any modifications or get longer than a 12 month lease. Also, there is a collective paranoia about missing out, of tumbling off the 'property ladder' and neither you or your children ever escaping wage slave poverty.
- prklmn 10y ago
  This is very rarely true. The only case where I can think of where you may be right is when real estate is purchased at the top of the market and sold at the bottom. When you go to sell real estate, it doesn't matter how much equity you have in the property, you will fully collect the gain or absorb the loss resulting from the sale. Equity is usually only relevant when looking at creditworthiness.
  - sanswork 10y ago
    It isn't that rare actually in major western cities. So you are betting on large increases in property value to offset the loss from front loaded interest payments to make your investment better? That's a gamble.
    - prklmn 10y ago
      The interest is part of the investment. It gives you control of the property and ability to collect all appreciation. It takes a very minor increase in value to turn a profit if your time horizon is short term. A renter doesn't have anything to show for his or her rent payment and cannot collect any appreciation.
      - forgetsusername 10y ago
        >It takes a very minor increase in value to turn a profit if your time horizon is short term. It's hard to believe that amateurs on this board actually believe house-flipping is a sure thing.
- semi-extrinsic 10y ago
  I guess it depends heavily on the location's property market and the regional tax rules. E.g. here in Norway, good tax breaks for owning property means we're currently paying $1k/month on mortgage+maintenance+taxes, but renting the same apartment costs 50% more. It also means you essentially can't rent anything bigger than a 2 bedroom apartment; bigger units make so much more financial sense to own (easily $1k/month cheaper even before you include the investment aspect) that there is no market for renting them.
  - angry_octet 10y ago
    In other economies that would severely punished poor people, but I'm guessing there is sufficient social housing. It still seems like it would lead to problems though.
- cmurf 10y ago
  Well that would be true if things were normal, like 10 years ago. But the rate of return on real estate is much higher than the rate of return of say the S&P 500.
  - sanswork 10y ago
    10 years ago things were very much not normal in housing prices and 8 years ago a lot of people lost everything because they counted on prices increasing at way above historic norms. Much like you're doing here.
    - petecox 10y ago
      pundits have been predicting the bubble bursting here since the GFC. But the 'economic miracle' of the housing boom keeps rolling on in Sydney and Melbourne. With Australian interest rates at record lows, property investors keep borrowing unperturbed.
      - stephen_g 10y ago
        That's extremely illogical thinking though. If the pundits have good reasons for thinking the market will crash (and I believe they do), and the fact that it hasn't yet doesn't make it less likely, or mean it won't happen. It just means that it's likely to happen sooner rather than later! It's not an economic miracle, it's a huge amount of asset speculation built on one of the largest levels of household debt in the world, just like in the US and many other countries before the GFC. All it will take is a rise in unemployment, or a shock from China, and it will go (of course interest rates won't rise, the RBA would have to be insane).
- a13xb 10y ago
  Keep in mind that as an individual you cannot have a near-million dollar leverage at a relatively low rate to buy other investments.
fratlas 10y ago
Especially when rent for young people is around one third to one half of their income (I would know, it's about 1/3 of mine). Would take me about 6-8 years to save for a deposit on an older apartment.
- sanswork 10y ago
  If your rent is 30-50% of your income you are living in too expensive of an area for your means or need more housemates.
  - shakna 10y ago
    I've found that 30-50% of income being used for rent is fairly normal, regardless of where you might be living.
  - Gargoyle 10y ago
    It's also the market rate in the affected cities. You begin to see the nature of the problem.
    - sanswork 10y ago
      I've lived in 2 of the affected cities. When I was making less I had housemates to bring the rental costs down(Sydney) or lived outside the city and commuted(Toronto). Both would work for either city and allow you to not have to spend 30-50% of your income on rent.
      - Gargoyle 10y ago
        The existence of ways to work around a problem doesn't mean there isn't an actual problem.
        sanswork 10y ago
        I don't consider high demand locations having high cost a problem personally. But if you want to live in a high demand area and you don't make enough money there are ways to do it without spending excessively on rent.

It's not uncommon for it to be better financially to always rent and just invest the difference between rent and mortgage+maintenance+taxes. With interest first mortgages as they are it is generally a long time before you earn any equity at all.

aianus 10y ago
This. I did the math when I rented an apartment in downtown Toronto and the rent was less than mortgage interest + condo fees + property tax + maintenance.
- ec109685 10y ago
  Except if the value of the real estate goes up.
  - aianus 10y ago
    Ah but my equities-heavy roboadvisor portfolio has gone up way more than the landlord's apartment...
    - tehlike 10y ago
      is it so? Is that still the case when your landlord leverages 20/80?
  - nostrademons 10y ago
    Usually when mortgage interest + etc. > rent, it indicates that the property is overvalued and the value (over the long term) is more likely to fall than rise. Every other buyer - or almost every other buyer, except the ones that need to launder money - is making the same economic calculation, and if the cost of money to buy the property is more expensive than the rent you can earn from the property, they're not going to buy the property.
- prklmn 10y ago
  So let's say you save 10¢ on every dollar by renting in your scenario. You'd have to have a hell of a return on that 10¢ you saved to beat the 90¢ you would have invested in the property but instead flushed down the drain in the form of rent....
  - sanswork 10y ago
    You seem to think that 90c is going straight to equity when for many years it will be going straight to interest payments. So for the first 5-10 years your $1 is going down the drain vs the renters 10c going into investments.
    - prklmn 10y ago
      At any point over those 5-10 you can turn around and sell the property and collect the full gain - it's entirely irrelevant to the mortgage payments being dedicated to interest. My $1 gets my name on the title, your 90¢ gets your name on the lease. Think about what your net investment is. So maybe my maintainance/tax/interest costs equate to 50¢. I'm still investing 50¢ compared to your 10¢. Also, I get incredible leverage. Let'say my property costs $1 million. I'm controlling a $1 million investment vehicle with a $4k/month mortgage payment + tax/maintenance. That's incredible. My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property.
      - sanswork 10y ago
        It sounds like nothing I will say will sway your beliefs so good luck with your investment.
      - tehlike 10y ago
        it's how long term wealth is built best. until the bubble pops up, like it did in 2008, but it comes back up so it's a rather temporary set back. Also, rents rarely come down, so most often the property value decline is temporary, or it is another opportunity to buy when things are in water - when there is blood in the streets, there is money to be made.
- wiz21c 10y ago
  But once you have completely bought your house/apartment, you have that warm comforting feeling that it's yours. Nobody will get you out to puts in his children, nobody will raise the rent because, you know, he has no choice, etc. But in the case of a house, you'll have to repair it as times goes by and that can be quite expensive. But the one who rents it to you would have to do it as well, so, buying a house just makes sure you don't pay the little profit margin of the landlord (just the one of the bank :))
  - forgetsusername 10y ago
    >so, buying a house just makes sure you don't pay the little profit margin of the landlord Buying is not universally better than renting, period. There is no such thing as a free lunch; any profit received by owning the capital asset is compensation for the risk of holding that asset.
    - wiz21c 10y ago
      Yep you're right. I just wanted to explain that there is also a psychological argument at play. That warm comforting feeling...
      - aianus 10y ago
        I would feel like there was a noose around my neck if I couldn't move without paying $30k in realtors fees (and possibly incurring capital loss depending on timing).
  - angry_octet 10y ago
    In Australia you are often treated poorly as a tenant. Rent increases every 6 months, 60 day eviction notice if the landlord wants to do anything (sell, paint the walls, let their cousin stay there, consider selling it...). You can't do any modifications or get longer than a 12 month lease. Also, there is a collective paranoia about missing out, of tumbling off the 'property ladder' and neither you or your children ever escaping wage slave poverty.
prklmn 10y ago
This is very rarely true. The only case where I can think of where you may be right is when real estate is purchased at the top of the market and sold at the bottom. When you go to sell real estate, it doesn't matter how much equity you have in the property, you will fully collect the gain or absorb the loss resulting from the sale. Equity is usually only relevant when looking at creditworthiness.
- sanswork 10y ago
  It isn't that rare actually in major western cities. So you are betting on large increases in property value to offset the loss from front loaded interest payments to make your investment better? That's a gamble.
  - prklmn 10y ago
    The interest is part of the investment. It gives you control of the property and ability to collect all appreciation. It takes a very minor increase in value to turn a profit if your time horizon is short term. A renter doesn't have anything to show for his or her rent payment and cannot collect any appreciation.
    - forgetsusername 10y ago
      >It takes a very minor increase in value to turn a profit if your time horizon is short term. It's hard to believe that amateurs on this board actually believe house-flipping is a sure thing.
semi-extrinsic 10y ago
I guess it depends heavily on the location's property market and the regional tax rules. E.g. here in Norway, good tax breaks for owning property means we're currently paying $1k/month on mortgage+maintenance+taxes, but renting the same apartment costs 50% more. It also means you essentially can't rent anything bigger than a 2 bedroom apartment; bigger units make so much more financial sense to own (easily $1k/month cheaper even before you include the investment aspect) that there is no market for renting them.
- angry_octet 10y ago
  In other economies that would severely punished poor people, but I'm guessing there is sufficient social housing. It still seems like it would lead to problems though.
cmurf 10y ago
Well that would be true if things were normal, like 10 years ago. But the rate of return on real estate is much higher than the rate of return of say the S&P 500.
- sanswork 10y ago
  10 years ago things were very much not normal in housing prices and 8 years ago a lot of people lost everything because they counted on prices increasing at way above historic norms. Much like you're doing here.
  - petecox 10y ago
    pundits have been predicting the bubble bursting here since the GFC. But the 'economic miracle' of the housing boom keeps rolling on in Sydney and Melbourne. With Australian interest rates at record lows, property investors keep borrowing unperturbed.
    - stephen_g 10y ago
      That's extremely illogical thinking though. If the pundits have good reasons for thinking the market will crash (and I believe they do), and the fact that it hasn't yet doesn't make it less likely, or mean it won't happen. It just means that it's likely to happen sooner rather than later! It's not an economic miracle, it's a huge amount of asset speculation built on one of the largest levels of household debt in the world, just like in the US and many other countries before the GFC. All it will take is a rise in unemployment, or a shock from China, and it will go (of course interest rates won't rise, the RBA would have to be insane).
a13xb 10y ago
Keep in mind that as an individual you cannot have a near-million dollar leverage at a relatively low rate to buy other investments.

fratlas 10y ago

Especially when rent for young people is around one third to one half of their income (I would know, it's about 1/3 of mine). Would take me about 6-8 years to save for a deposit on an older apartment.

sanswork 10y ago
If your rent is 30-50% of your income you are living in too expensive of an area for your means or need more housemates.
- shakna 10y ago
  I've found that 30-50% of income being used for rent is fairly normal, regardless of where you might be living.
- Gargoyle 10y ago
  It's also the market rate in the affected cities. You begin to see the nature of the problem.
  - sanswork 10y ago
    I've lived in 2 of the affected cities. When I was making less I had housemates to bring the rental costs down(Sydney) or lived outside the city and commuted(Toronto). Both would work for either city and allow you to not have to spend 30-50% of your income on rent.
    - Gargoyle 10y ago
      The existence of ways to work around a problem doesn't mean there isn't an actual problem.
      - sanswork 10y ago
        I don't consider high demand locations having high cost a problem personally. But if you want to live in a high demand area and you don't make enough money there are ways to do it without spending excessively on rent.