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I was more-or-less with him up until the "Don't Rent" advice. By his own admission, purchasing a condo and riding it up to the very top of the largest real est

I was more-or-less with him up until the "Don't Rent" advice. By his own admission, purchasing a condo and riding it up to the very top of the largest real estate bubble in history netted him only a 1% return. Any other market at any other time would likely have netted him a loss on that purchase. In a non-bubble market, I wonder how much more he would have gained by renting that very same condo and investing the difference instead?

henrikschroder 16y ago
Agree, I would much rather rent my apartment if I could, but the way the market looks here it's not an option. Renting is just like insurance, you pay a premium so that others take the greater financial risk: You're not tied down, you can move anytime, and you don't have to care about the housing market or interest rates. For some people this is worth it, for some it's not. Your mileage may wary. The only other problem I have with his text is that he seems to suffer from analysis paralysis by not buying a computer for years since they drop off in value so fast. There's also a value in having a computer, or whatever other item, in that time. Yes, if you wait one year you'll get a faster computer than what you can buy now, but you'll also be stuck with your current computer for one more year. How much does that cost? Sometimes you just have to suck it up.
- billybob 16y ago
  Agreed. Better advice would be "stay behind the curve." Right now, if you want a Wii, it's expensive. If you're happy playing Playstation 2, it's cheap. A Wii will be cheap 5 years from now when something cooler is out. Same kind of thing applies to computers.
  - pixelbath 16y ago
    I use this method of saving on home electronics. Home electronics depreciate at a stunning rate, and by buying "behind the curve" you can find great deals on things you wanted a year ago. This is why I still enjoy, and buy games for, my (refurbished) PlayStation 2 (actually, I still play games on my SNES too). My workstation was dated, so I built a new machine with parts just below top-of-the-line (Core2Quad rather than i7, 600 GB instead of 1.5 TB hard drives, for example). The advice in the article about new cars is valid; new cars depreciate as soon as you drive them off the lot, because then they're "used." You might get a nice warranty package with it, but you can get extended warranties for used cars from certain dealerships.
    - vimalg2 16y ago
      I did the same thing around 6 months ago, except I refined it into 2-phases. I got a Core2Duo E7500 and overclocked it well with a CM Hyper212+ heatsink+fan, for my worskstation. Spent the money saved on high quality Power supply, case and motherboard. The next upgrade is a top-of-the-line Core2Quad when local distributors slash prices on those to dump their old stock. I'm aware there is a trade-off in Electricity consumption Edit: technical typo
  - icefox 16y ago
    I got a SNES for my birthday last year from my wife. It is awesome! More seriously I have a PS2 and a printout of the top 25 games for the PS2. Whenever I think of a new game system I can just look at that list, buy any one of those games for extremely cheap and have a ton of fun. (The good SNES games on ebay are a more expensive, but still $10-$20, Chrono Trigger was a bit more...)
ErrantX 16y ago
From a new-buyers perspective (i.e. my own) this is actually good advice. Right now an average sized house is about as much to rent as it is to buy with a mortgage (at least here in the UK anyway). There is no sane way anyone should be renting a whole house.
- charleso 16y ago
  If, on top of your mortgage interest, you add in property taxes, property maintenance (2-5% annually?), brokerage fees and the gains foregone in purchasing property rather than bonds, is it still good advice?
  - ErrantX 16y ago
    > You add in property taxes, property maintenance (2-5% annually?), brokerage fees and the gains foregone in purchasing property rather than bonds, is it still good advice? I should have mentioned; my calculations included most of those extras. To be honest, though, the only important thing is what you are paying out in total each month.
    - recoil 16y ago
      Also, if you're renting in the UK, you're the one paying the property tax (Council Tax in the UK), right?
      - ErrantX 16y ago
        Yep
muhammadatt 16y ago
Even if he suffered a loss (i.e. if the appreciation in the home value was not enough to offset his accumulated outflow of principal and interest) it probably would not be as much as he would have lost by renting. Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo. If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions.
- jemfinch 16y ago
  > Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying Of course he could. If your rent is paying your landlord's mortgage, you're overpaying. > and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo. Finding an asset with a better than 1% return is not difficult. > If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions. If you're wasting your money by paying your landlord's mortgage, you're going to be worse off than if you refuse to waste money and pay a reasonable rent. Renting is cheaper than home ownership; if it's not, you're doing it wrong.
  - GFischer 16y ago
    On the "If your rent is paying your landlord's mortgage, you're overpaying" point: sadly, not every market is equal. Over here (Uruguay), rents are way more expensive than an equivalent mortgage... simply put, people (myself included) don't have capital for the down payment (and the mortgage process is expensive in itself, at least U$D 1000 which is not a small sum here), so they don't have an option - it's renting, or the street/slums. And no, there are no "no capital down" mortgages.
    - jemfinch 16y ago
      Yes, my comment is very specific to the US.
ebiester 16y ago
Rent versus buy is a function of how long you plan to stay in the property. If you know you're going to live in San Francisco for the rest of your life, buy as soon as you can and rent out any rooms needed to make it possible. If you plan to follow opportunity where it leads, you'll never want to buy.

henrikschroder 16y ago

Agree, I would much rather rent my apartment if I could, but the way the market looks here it's not an option. Renting is just like insurance, you pay a premium so that others take the greater financial risk: You're not tied down, you can move anytime, and you don't have to care about the housing market or interest rates. For some people this is worth it, for some it's not. Your mileage may wary. The only other problem I have with his text is that he seems to suffer from analysis paralysis by not buying a computer for years since they drop off in value so fast. There's also a value in having a computer, or whatever other item, in that time. Yes, if you wait one year you'll get a faster computer than what you can buy now, but you'll also be stuck with your current computer for one more year. How much does that cost? Sometimes you just have to suck it up.

billybob 16y ago
Agreed. Better advice would be "stay behind the curve." Right now, if you want a Wii, it's expensive. If you're happy playing Playstation 2, it's cheap. A Wii will be cheap 5 years from now when something cooler is out. Same kind of thing applies to computers.
- pixelbath 16y ago
  I use this method of saving on home electronics. Home electronics depreciate at a stunning rate, and by buying "behind the curve" you can find great deals on things you wanted a year ago. This is why I still enjoy, and buy games for, my (refurbished) PlayStation 2 (actually, I still play games on my SNES too). My workstation was dated, so I built a new machine with parts just below top-of-the-line (Core2Quad rather than i7, 600 GB instead of 1.5 TB hard drives, for example). The advice in the article about new cars is valid; new cars depreciate as soon as you drive them off the lot, because then they're "used." You might get a nice warranty package with it, but you can get extended warranties for used cars from certain dealerships.
  - vimalg2 16y ago
    I did the same thing around 6 months ago, except I refined it into 2-phases. I got a Core2Duo E7500 and overclocked it well with a CM Hyper212+ heatsink+fan, for my worskstation. Spent the money saved on high quality Power supply, case and motherboard. The next upgrade is a top-of-the-line Core2Quad when local distributors slash prices on those to dump their old stock. I'm aware there is a trade-off in Electricity consumption Edit: technical typo
- icefox 16y ago
  I got a SNES for my birthday last year from my wife. It is awesome! More seriously I have a PS2 and a printout of the top 25 games for the PS2. Whenever I think of a new game system I can just look at that list, buy any one of those games for extremely cheap and have a ton of fun. (The good SNES games on ebay are a more expensive, but still $10-$20, Chrono Trigger was a bit more...)

ErrantX 16y ago

From a new-buyers perspective (i.e. my own) this is actually good advice. Right now an average sized house is about as much to rent as it is to buy with a mortgage (at least here in the UK anyway). There is no sane way anyone should be renting a whole house.

charleso 16y ago
If, on top of your mortgage interest, you add in property taxes, property maintenance (2-5% annually?), brokerage fees and the gains foregone in purchasing property rather than bonds, is it still good advice?
- ErrantX 16y ago
  > You add in property taxes, property maintenance (2-5% annually?), brokerage fees and the gains foregone in purchasing property rather than bonds, is it still good advice? I should have mentioned; my calculations included most of those extras. To be honest, though, the only important thing is what you are paying out in total each month.
  - recoil 16y ago
    Also, if you're renting in the UK, you're the one paying the property tax (Council Tax in the UK), right?
    - ErrantX 16y ago
      Yep

muhammadatt 16y ago

Even if he suffered a loss (i.e. if the appreciation in the home value was not enough to offset his accumulated outflow of principal and interest) it probably would not be as much as he would have lost by renting. Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo. If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions.

jemfinch 16y ago
> Your scenario assumes that (1) he could rent the same or an equivalent property for much less of cash outflow than buying Of course he could. If your rent is paying your landlord's mortgage, you're overpaying. > and (2) he could have invested the difference in some other asset that had a much higher return than appreciation of the condo. Finding an asset with a better than 1% return is not difficult. > If the amount the rental amount is about the same amount as the mortage payments then you are almost certainly going to be worse off renting than buying under average market conditions. If you're wasting your money by paying your landlord's mortgage, you're going to be worse off than if you refuse to waste money and pay a reasonable rent. Renting is cheaper than home ownership; if it's not, you're doing it wrong.
- GFischer 16y ago
  On the "If your rent is paying your landlord's mortgage, you're overpaying" point: sadly, not every market is equal. Over here (Uruguay), rents are way more expensive than an equivalent mortgage... simply put, people (myself included) don't have capital for the down payment (and the mortgage process is expensive in itself, at least U$D 1000 which is not a small sum here), so they don't have an option - it's renting, or the street/slums. And no, there are no "no capital down" mortgages.
  - jemfinch 16y ago
    Yes, my comment is very specific to the US.

ebiester 16y ago

Rent versus buy is a function of how long you plan to stay in the property. If you know you're going to live in San Francisco for the rest of your life, buy as soon as you can and rent out any rooms needed to make it possible. If you plan to follow opportunity where it leads, you'll never want to buy.