7 ms·

Is It Better to Buy or Rent? (NYT tool)

70 points by MikeCapone 16y ago

dreeves 16y ago
I wrote about this a year ago: http://messymatters.com/buyrent http://messymatters.com/buyrent (I'm so proud of that article! I think it's literally the most popular thing I've ever written. It was even translated into Spanish.) Short version: Neither choice is a no-brainer. It comes down to all the auxiliary aspects of the decision like tax benefits and personal preferences.
petercooper 16y ago
Where "better" is defined entirely to mean cost efficiency. Targeted at those who believe a home is primarily a financial asset.
- sanswork 16y ago
  I would say in response to those that claim buying is always better than renting.
- yason 16y ago
  I noticed the same. Who looks only at the figures? I certainly don't and I suspect that most people just partially factor them in. For me, the biggest factor is that does the apartment or house feel like my home. If it does, then I will consider buying or renting, depending on whether it's on sale or to let.
STHayden 16y ago
I bought a house. According to this calc i may or may not have been a good idea based on how the house appreciates (I got it at the bottom of the market). But at the end of the day my house is like 4x bigger then my apartment. So worth it even if it does not end up being an over all savings or not.
- rokhayakebe 16y ago
  I don't get this calculator, because you are likely to make money or get back your payments when you sell the home. Rent is forever gone.
  - sanswork 16y ago
    You're ignoring mortgage interest and costs associated with actually owning a home that you don't encounter when renting. Those are also gone forever and given that most of your early mortgage payments will be primarily interest ones when you sell early even for the exact same amount as you bought you lose out on that money.
  - dreeves 16y ago
    I think I can make intuitive why the "rent is forever gone" argument is wrong. Another way to state that argument is "after I pay off the mortgage I own a house and live for free whereas if I'd rented the whole time then I'd own nothing and still have rent to pay". Quoting myself from the comments of http://messymatters.com/buyrent http://messymatters.com/buyrent ... Imagine yourself 30 years from now with a house you fully own, with no more payments to make. Now imagine your alternate renting self who, instead of steadily paying down the principal on the mortgage, has built up hundreds of thousands of dollars in equity in some other investment. You still have rent to pay each month but that's also about how much you're collecting in interest on your investments. So the renter now lives for free just like the home-buyer. Another way to say all this is that if you ignore price bubbles, taxes, personal preferences, and leverage then renting and buying are roughly financially equivalent. Not that you should ignore those things, just don't fall for the myths that it's a no-brainer decision.
    - orangecat 16y ago
      Another way to say all this is that if you ignore price bubbles, taxes, personal preferences, and leverage then renting and buying are roughly financially equivalent. And that shouldn't be surprising. In a world where buying really is clearly superior to renting, there would be lots of arbitrage opportunities to buy houses and rent them profitably. That would increase both the demand for houses and the supply of rentals, which would make buying more expensive and renting cheaper until they reach a point of equivalence.
kirubakaran 16y ago
A must-see : http://www.khanacademy.org/video?v=YL10H_EcB-E http://www.khanacademy.org/video?v=YL10H_EcB-E
asanwal 16y ago
If you are doing the startup thing, it may be worthwhile keeping your financial obligations/footprint to a minimum. You can always downsize a rental, but a mortgage is not so easy to exit. Plus, that mortgage downpayment might be better invested in yourself and your venture? There are factors besides the rent vs buy calcs worth considering esp for entrepeneurs.
barmstrong 16y ago
Interesting - on the few California properties I tried, it says it never makes sense to buy, no matter how long you live there. This could actually be true in some areas. Prices are still really high relative to rent. The Houston prices I put in made sense to own after a 2-3 years.
hartror 16y ago
Buying is as much a emotional decision as it is a financial one. You have to take into account not only the how much you can afford and how much you want/would like your money to grow but what kind of lifestyle you desire. If the lifestyle that owning one's home affords is more important than the increased returns then perhaps you should buy. On the other hand if you are happy to rent for a decade or two you will likely end up richer. I am currently of two minds, I love the idea of being able to do what I like to my own home. But at the same time real estate isn't necessarily the best investment, though where I am (Melbourne, Australia) we've had massive growth in housing prices (somewhere in the order of 20%+pa off the top of my head) though it is slowing down now. One of my favourite bloggers Ramit Sethi has some strong opinions on the issue http://www.iwillteachyoutoberich.com/buying-a-house/ http://www.iwillteachyoutoberich.com/buying-a-house/
- hartror 16y ago
  Oooh I forgot another factor! Banks are pretty happy to let you borrow against your house. They're not likely to do so as easily with other investments. Means you can try to have your cake and eat it too if you're clever . . and perhaps a bit lucky too.
- yummyfajitas 16y ago
  How does your lifestyle change due to owning a home? While I realize many people simultaneously buy and upgrade, why can't you upgrade to a rental?
  - duck 16y ago
    Two reasons - first, you may not have the right to do it depending on the lease and second, you will not recoupe any of the costs.
- duck 16y ago
  Another piece of the lifestyle choice is control. While renting you are at the mercy of the landlord. I found this out last year when our landlord decided she wanted to move back into her house. Even though we had a lease, and the law is suppose to protect you, it doesn't stop them from making your life miserable - and that cost isn't worth any amount of money to me.
po 16y ago
NY Times put out this exact same calculator in 2007. Is this one any different? Have they updated some data or how the calculations are done?
- DLWormwood 16y ago
  Concepts like compound interest and tax calculation based on a known rate are based on straight mathematics, not politics. The only thing different between now and then is the starting figures you enter in the calcuator.
po 16y ago
One common technique for lowering the cost of a mortgage is to make one additional payment per year and/or each month. This lowers the principal and makes subsequent interest payments lower. Although, not everyone can afford that it would be nice if this calculator would allow you to factor that in. I suppose you can fake it by altering the interest rate an appropriate amount but I'm not sure it follows the same curve.
- dreeves 16y ago
  I don't believe this is really a factor. Paying down the principal faster saves you the 5% (or whatever your mortgage rate is) interest on the amount of your pre-payment. It's tantamount to investing that money at a risk-free 5%. That might be the smartest thing to do with your savings but it doesn't change the calculus fundamentally. Buying a house with a suitcase full of cash or getting a zero-amortization (infinity-year, ie, interest-only) mortgage or anything in between is all roughly financially equivalent if you have alternative investments available. Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is.
  - po 16y ago
    I don't have a mortgage so I don't personally do this, but I can tell you it's a popular practice. > but it doesn't change the calculus fundamentally. It does change the calculation that this tool is showing. If you use the tool and assume you make 3% interest on savings, but then make periodic payments on your 6% interest loan, there is no way to model that with this tool. OK, so lets say this is a bad idea and you should instead not have any savings in that case, and make all of your savings into payments on your mortgage interest. You're saying we could model that by assuming you are making periodic risk-free 5% (or whatever) investment instead. > Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is. I get what you're saying but a tax deduction can never completely offset the interest payment right? Also, it depends on the difference between capital gains tax and the credit you would get on your tax rate for the interest.
grandalf 16y ago
This is a superb calculator, however it assumes a faster growth rate relative to inflation than is likely. Try it with a -1% appreciation rate (which is the historical average for residential real estate since ww2)
- modeless 16y ago
  Another thing to check is condo or homeowner's association fees. The default value in the calculator is 0, but for many condos the fees are 1/4 or more of what you'd pay in rent on a comparable apartment, which makes a huge difference long-term.
  - yardie 16y ago
    Every place I've, rented the association fees were in addition to the rent. It might be included in the rent but listed as a seperate item, or it could be the renter that pays directly. In any case, association fees weren't included in the deposit. In my case rent was 1500, deposit was 3000, but the check every month was 1700.
    - modeless 16y ago
      I've never seen HOA fees listed separately from rent for apartment buildings. I've rented in LA and Seattle; maybe it's different other places.
      - yardie 16y ago
        Apartment buildings normally don't have HOA fees. I can't imagine why they would since no one there is a homeowner. If you are renting a condo then the owner may or may not include the fee in the rent. In my case this charge includes heat and water, 2 things that change frequently.
barrkel 16y ago
It's interesting to see just how sensitive the scale is to initial assumptions. But more important to me is the inefficiency created by the drag on movement - when you're renting, it's much easier to move, even when you've got furnishing and the whole lot etc. When you've bought, and you want to move, you may be at the mercy of the current state of the property market as to whether you make a loss or a gain, or even need to stay for a few years more. I grew up in rented homes. Perhaps the most poignant thing is that the house I remember best (age 9 to 18 or so) has been renovated, sold etc. It's not somewhere I can ever go back to. But that may have been the case with a bought home anyhow.
- dreeves 16y ago
  I believe that it would necessarily be irrational to ever "need to stay for a few years more" because of the state of the housing market. (I do agree in general that you're more mobile as a renter, I just think think you've overstated it.) An extreme example: You buy a house and then the value plummets to a fraction of what you paid. Why might you need to stay in that house? Other house prices presumably fell along with yours so you can still sell yours and buy a similar one. I think people find it painful to sell at a loss because it makes a loss on paper become explicit. If you don't sell then you can tell yourself that you're speculating -- you really think your house is worth more than it will currently fetch so it's imprudent to sell. But probably you're not smarter than the market in that regard. In other words, there's no harm in turning a loss on paper into an explicit loss. Bottom line, if you want to move from house A to house B and the price difference (plus moving costs) is worth it, then do it, with no thought at all to the price you happened to have paid when you bought the first house. Of course, moving costs when realtors are involved are huge so the original point partially stands. You're never stuck in the sense the parent implied, moving is just more expensive when you buy vs rent.
  - bronson 16y ago
    > Other house prices presumably fell along with yours so you can still sell yours and buy a similar one. Not if the house lost more value than your down payment. If you're underwater (and a lot of people are), you need to either arrange a short sale or bring money to the close. Either way it's nowhere near as easy as you imply.
nradov 16y ago
The Bubblizer spreadsheet is a much better tool. It allows you to go in and tweak a bunch of different variables. http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req.html http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req...
stretchwithme 16y ago
Let's see. Housing is propped up by the policies of a government that is currently borrowing 43% of the largest budget in human history. Will it be able to continue doing either indefinitely? If you think so, by all means buy a house. But if you think everybody reaps what they sow, think twice.
- barrkel 16y ago
  FWIW: the dynamics of governments borrowing - particularly governments with control of their currency, and debts denominated in that currency - are in no way like personal borrowing. If the country we are talking about was at or close to its richest point, and it is in a bad recession, I would expect its budget to be very large with a significant portion of borrowing. To do otherwise would be irresponsible.
  - stretchwithme 16y ago
    No, I think its irresponsible, especially in light of all the nonsense being funded. Stimulus does not create recovery, any more than the stimulus of a massive housing bubble and two ways prevented the current economic trouble. In fact, government created this bubble and the inevitable with stimulus. A phony economy where building things that people would not ordinarily demand requires building an expensive infrastructure which becomes useless when the phony economy collapses. We can either let the economy return to normal, building things people are willing to pay for. Or we can try to create another phony government-directed economy with another recession to follow.
- Tichy 16y ago
  Not living in the US, but also worried about my government giving away all my money: isn't real estate one of the safer options? All my money and other investments, the government can simply take away (taxes) or devalue. Even gold is not safe - history shows that the government will try to get it, too. Now the government could of course also try to take my house, but I think the public outcry would be bigger than for other investments - so it seems even more of a last resort governments would choose than other forms of taxpayer exploitation. Am I wrong?
jasonkester 16y ago
Strange that they buried the most important factor way down at the bottom of the 3rd page of "Advanced" options. At its core, the whole rent vs buy economic decision boils down to comparing your expected returns investing in the housing market to your expected returns investing in the market in general. The rest of the factors in that calculator are just there to help you arrive at the conversion factor. Since it's pretty much impossible to determine what the stock market and housing markets are going to do, it's probably best to base your home buying decision on something more rational. Such as "Do I want to own a house?" For me, the answer to that question is quickly arrived at by asking a few of your homeowner friends what they did last weekend, and what they plan to do next weekend. The answer will invariably revolve around some form of maintenance on the house. Like it or not, buying a house gives you a new full-time hobby. Lots of people like that hobby, and that's why they have houses. If gardening and cleaning gutters don't sound like fun to you, there are plenty of other ways to invest your money that are less hands-on.
- yardie 16y ago
  Maintenance isn't so bad, and it doesn't require every hour of every weekend. But I've got a small apartment with a small patch of grass. It takes me 10 minutes to cut the grass and 20 to trim the hedges, once a month. Like any hobby, you get out what you put into it. I spent 2 weekends gutting and renovating the kitchen, put ethernet and coax in every room, and wired my garden for electricity and music. My last rental had 3 fireplaces, none of them worked because the owner, rather than paying someone to clean and maintain them decided to plug them up. Ethernet? forget about it. Cable in every room, not an option. The kitchen was nice and new, but designed to someone else's specification, not mine.
- netcan 16y ago
  If they had a rule of thumb, link between mortgage rate and investment return (eg. r-2 for savings accounts or r + 2 if you think you can beat the risk free rate consistently), would you be satisfied? Increasing the rate of return gives you some interesting curves.
- krschultz 16y ago
  Nobody says you have to buy a big house. The amount of maitenance is directly proportional to how many plumbing fixtures, windows, appliances, lights, cabinets, etc you have.
dgroves 16y ago
It is better to own your own home outright.
drp 16y ago
A simple way to quickly compare buying vs renting for entire areas is the "rent ratio", which is calculated by dividing an area's median house price by its annual rent. Obviously it just paints a geographical picture and each property should be evaluated individually before making any sort of specific buy vs. rent decision. We turned the rent ratios for the US into a heat map a few years ago (but keep it up to date): http://hotpads.com/search/rent-ratio-heat-maps http://hotpads.com/search/rent-ratio-heat-maps
deleted 16y ago
[deleted]

70 points by MikeCapone 16y ago

I wrote about this a year ago: http://messymatters.com/buyrent http://messymatters.com/buyrent (I'm so proud of that article! I think it's literally the most popular thing I've ever written. It was even translated into Spanish.) Short version: Neither choice is a no-brainer. It comes down to all the auxiliary aspects of the decision like tax benefits and personal preferences.

petercooper 16y ago

Where "better" is defined entirely to mean cost efficiency. Targeted at those who believe a home is primarily a financial asset.

sanswork 16y ago
I would say in response to those that claim buying is always better than renting.
yason 16y ago
I noticed the same. Who looks only at the figures? I certainly don't and I suspect that most people just partially factor them in. For me, the biggest factor is that does the apartment or house feel like my home. If it does, then I will consider buying or renting, depending on whether it's on sale or to let.

STHayden 16y ago

I bought a house. According to this calc i may or may not have been a good idea based on how the house appreciates (I got it at the bottom of the market). But at the end of the day my house is like 4x bigger then my apartment. So worth it even if it does not end up being an over all savings or not.

rokhayakebe 16y ago
I don't get this calculator, because you are likely to make money or get back your payments when you sell the home. Rent is forever gone.
- sanswork 16y ago
  You're ignoring mortgage interest and costs associated with actually owning a home that you don't encounter when renting. Those are also gone forever and given that most of your early mortgage payments will be primarily interest ones when you sell early even for the exact same amount as you bought you lose out on that money.
- dreeves 16y ago
  I think I can make intuitive why the "rent is forever gone" argument is wrong. Another way to state that argument is "after I pay off the mortgage I own a house and live for free whereas if I'd rented the whole time then I'd own nothing and still have rent to pay". Quoting myself from the comments of http://messymatters.com/buyrent http://messymatters.com/buyrent ... Imagine yourself 30 years from now with a house you fully own, with no more payments to make. Now imagine your alternate renting self who, instead of steadily paying down the principal on the mortgage, has built up hundreds of thousands of dollars in equity in some other investment. You still have rent to pay each month but that's also about how much you're collecting in interest on your investments. So the renter now lives for free just like the home-buyer. Another way to say all this is that if you ignore price bubbles, taxes, personal preferences, and leverage then renting and buying are roughly financially equivalent. Not that you should ignore those things, just don't fall for the myths that it's a no-brainer decision.
  - orangecat 16y ago
    Another way to say all this is that if you ignore price bubbles, taxes, personal preferences, and leverage then renting and buying are roughly financially equivalent. And that shouldn't be surprising. In a world where buying really is clearly superior to renting, there would be lots of arbitrage opportunities to buy houses and rent them profitably. That would increase both the demand for houses and the supply of rentals, which would make buying more expensive and renting cheaper until they reach a point of equivalence.

kirubakaran 16y ago

A must-see : http://www.khanacademy.org/video?v=YL10H_EcB-E http://www.khanacademy.org/video?v=YL10H_EcB-E

asanwal 16y ago

If you are doing the startup thing, it may be worthwhile keeping your financial obligations/footprint to a minimum. You can always downsize a rental, but a mortgage is not so easy to exit. Plus, that mortgage downpayment might be better invested in yourself and your venture? There are factors besides the rent vs buy calcs worth considering esp for entrepeneurs.

barmstrong 16y ago

Interesting - on the few California properties I tried, it says it never makes sense to buy, no matter how long you live there. This could actually be true in some areas. Prices are still really high relative to rent. The Houston prices I put in made sense to own after a 2-3 years.

hartror 16y ago

Buying is as much a emotional decision as it is a financial one. You have to take into account not only the how much you can afford and how much you want/would like your money to grow but what kind of lifestyle you desire. If the lifestyle that owning one's home affords is more important than the increased returns then perhaps you should buy. On the other hand if you are happy to rent for a decade or two you will likely end up richer. I am currently of two minds, I love the idea of being able to do what I like to my own home. But at the same time real estate isn't necessarily the best investment, though where I am (Melbourne, Australia) we've had massive growth in housing prices (somewhere in the order of 20%+pa off the top of my head) though it is slowing down now. One of my favourite bloggers Ramit Sethi has some strong opinions on the issue http://www.iwillteachyoutoberich.com/buying-a-house/ http://www.iwillteachyoutoberich.com/buying-a-house/

hartror 16y ago
Oooh I forgot another factor! Banks are pretty happy to let you borrow against your house. They're not likely to do so as easily with other investments. Means you can try to have your cake and eat it too if you're clever . . and perhaps a bit lucky too.
yummyfajitas 16y ago
How does your lifestyle change due to owning a home? While I realize many people simultaneously buy and upgrade, why can't you upgrade to a rental?
- duck 16y ago
  Two reasons - first, you may not have the right to do it depending on the lease and second, you will not recoupe any of the costs.
duck 16y ago
Another piece of the lifestyle choice is control. While renting you are at the mercy of the landlord. I found this out last year when our landlord decided she wanted to move back into her house. Even though we had a lease, and the law is suppose to protect you, it doesn't stop them from making your life miserable - and that cost isn't worth any amount of money to me.

po 16y ago

NY Times put out this exact same calculator in 2007. Is this one any different? Have they updated some data or how the calculations are done?

DLWormwood 16y ago
Concepts like compound interest and tax calculation based on a known rate are based on straight mathematics, not politics. The only thing different between now and then is the starting figures you enter in the calcuator.

po 16y ago

One common technique for lowering the cost of a mortgage is to make one additional payment per year and/or each month. This lowers the principal and makes subsequent interest payments lower. Although, not everyone can afford that it would be nice if this calculator would allow you to factor that in. I suppose you can fake it by altering the interest rate an appropriate amount but I'm not sure it follows the same curve.

dreeves 16y ago
I don't believe this is really a factor. Paying down the principal faster saves you the 5% (or whatever your mortgage rate is) interest on the amount of your pre-payment. It's tantamount to investing that money at a risk-free 5%. That might be the smartest thing to do with your savings but it doesn't change the calculus fundamentally. Buying a house with a suitcase full of cash or getting a zero-amortization (infinity-year, ie, interest-only) mortgage or anything in between is all roughly financially equivalent if you have alternative investments available. Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is.
- po 16y ago
  I don't have a mortgage so I don't personally do this, but I can tell you it's a popular practice. > but it doesn't change the calculus fundamentally. It does change the calculation that this tool is showing. If you use the tool and assume you make 3% interest on savings, but then make periodic payments on your 6% interest loan, there is no way to model that with this tool. OK, so lets say this is a bad idea and you should instead not have any savings in that case, and make all of your savings into payments on your mortgage interest. You're saying we could model that by assuming you are making periodic risk-free 5% (or whatever) investment instead. > Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is. I get what you're saying but a tax deduction can never completely offset the interest payment right? Also, it depends on the difference between capital gains tax and the credit you would get on your tax rate for the interest.

grandalf 16y ago

This is a superb calculator, however it assumes a faster growth rate relative to inflation than is likely. Try it with a -1% appreciation rate (which is the historical average for residential real estate since ww2)

modeless 16y ago
Another thing to check is condo or homeowner's association fees. The default value in the calculator is 0, but for many condos the fees are 1/4 or more of what you'd pay in rent on a comparable apartment, which makes a huge difference long-term.
- yardie 16y ago
  Every place I've, rented the association fees were in addition to the rent. It might be included in the rent but listed as a seperate item, or it could be the renter that pays directly. In any case, association fees weren't included in the deposit. In my case rent was 1500, deposit was 3000, but the check every month was 1700.
  - modeless 16y ago
    I've never seen HOA fees listed separately from rent for apartment buildings. I've rented in LA and Seattle; maybe it's different other places.
    - yardie 16y ago
      Apartment buildings normally don't have HOA fees. I can't imagine why they would since no one there is a homeowner. If you are renting a condo then the owner may or may not include the fee in the rent. In my case this charge includes heat and water, 2 things that change frequently.

barrkel 16y ago

It's interesting to see just how sensitive the scale is to initial assumptions. But more important to me is the inefficiency created by the drag on movement - when you're renting, it's much easier to move, even when you've got furnishing and the whole lot etc. When you've bought, and you want to move, you may be at the mercy of the current state of the property market as to whether you make a loss or a gain, or even need to stay for a few years more. I grew up in rented homes. Perhaps the most poignant thing is that the house I remember best (age 9 to 18 or so) has been renovated, sold etc. It's not somewhere I can ever go back to. But that may have been the case with a bought home anyhow.

dreeves 16y ago
I believe that it would necessarily be irrational to ever "need to stay for a few years more" because of the state of the housing market. (I do agree in general that you're more mobile as a renter, I just think think you've overstated it.) An extreme example: You buy a house and then the value plummets to a fraction of what you paid. Why might you need to stay in that house? Other house prices presumably fell along with yours so you can still sell yours and buy a similar one. I think people find it painful to sell at a loss because it makes a loss on paper become explicit. If you don't sell then you can tell yourself that you're speculating -- you really think your house is worth more than it will currently fetch so it's imprudent to sell. But probably you're not smarter than the market in that regard. In other words, there's no harm in turning a loss on paper into an explicit loss. Bottom line, if you want to move from house A to house B and the price difference (plus moving costs) is worth it, then do it, with no thought at all to the price you happened to have paid when you bought the first house. Of course, moving costs when realtors are involved are huge so the original point partially stands. You're never stuck in the sense the parent implied, moving is just more expensive when you buy vs rent.
- bronson 16y ago
  > Other house prices presumably fell along with yours so you can still sell yours and buy a similar one. Not if the house lost more value than your down payment. If you're underwater (and a lot of people are), you need to either arrange a short sale or bring money to the close. Either way it's nowhere near as easy as you imply.

nradov 16y ago

The Bubblizer spreadsheet is a much better tool. It allows you to go in and tweak a bunch of different variables. http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req.html http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req...

stretchwithme 16y ago

Let's see. Housing is propped up by the policies of a government that is currently borrowing 43% of the largest budget in human history. Will it be able to continue doing either indefinitely? If you think so, by all means buy a house. But if you think everybody reaps what they sow, think twice.

barrkel 16y ago
FWIW: the dynamics of governments borrowing - particularly governments with control of their currency, and debts denominated in that currency - are in no way like personal borrowing. If the country we are talking about was at or close to its richest point, and it is in a bad recession, I would expect its budget to be very large with a significant portion of borrowing. To do otherwise would be irresponsible.
- stretchwithme 16y ago
  No, I think its irresponsible, especially in light of all the nonsense being funded. Stimulus does not create recovery, any more than the stimulus of a massive housing bubble and two ways prevented the current economic trouble. In fact, government created this bubble and the inevitable with stimulus. A phony economy where building things that people would not ordinarily demand requires building an expensive infrastructure which becomes useless when the phony economy collapses. We can either let the economy return to normal, building things people are willing to pay for. Or we can try to create another phony government-directed economy with another recession to follow.
Tichy 16y ago
Not living in the US, but also worried about my government giving away all my money: isn't real estate one of the safer options? All my money and other investments, the government can simply take away (taxes) or devalue. Even gold is not safe - history shows that the government will try to get it, too. Now the government could of course also try to take my house, but I think the public outcry would be bigger than for other investments - so it seems even more of a last resort governments would choose than other forms of taxpayer exploitation. Am I wrong?

jasonkester 16y ago

Strange that they buried the most important factor way down at the bottom of the 3rd page of "Advanced" options. At its core, the whole rent vs buy economic decision boils down to comparing your expected returns investing in the housing market to your expected returns investing in the market in general. The rest of the factors in that calculator are just there to help you arrive at the conversion factor. Since it's pretty much impossible to determine what the stock market and housing markets are going to do, it's probably best to base your home buying decision on something more rational. Such as "Do I want to own a house?" For me, the answer to that question is quickly arrived at by asking a few of your homeowner friends what they did last weekend, and what they plan to do next weekend. The answer will invariably revolve around some form of maintenance on the house. Like it or not, buying a house gives you a new full-time hobby. Lots of people like that hobby, and that's why they have houses. If gardening and cleaning gutters don't sound like fun to you, there are plenty of other ways to invest your money that are less hands-on.

yardie 16y ago
Maintenance isn't so bad, and it doesn't require every hour of every weekend. But I've got a small apartment with a small patch of grass. It takes me 10 minutes to cut the grass and 20 to trim the hedges, once a month. Like any hobby, you get out what you put into it. I spent 2 weekends gutting and renovating the kitchen, put ethernet and coax in every room, and wired my garden for electricity and music. My last rental had 3 fireplaces, none of them worked because the owner, rather than paying someone to clean and maintain them decided to plug them up. Ethernet? forget about it. Cable in every room, not an option. The kitchen was nice and new, but designed to someone else's specification, not mine.
netcan 16y ago
If they had a rule of thumb, link between mortgage rate and investment return (eg. r-2 for savings accounts or r + 2 if you think you can beat the risk free rate consistently), would you be satisfied? Increasing the rate of return gives you some interesting curves.
krschultz 16y ago
Nobody says you have to buy a big house. The amount of maitenance is directly proportional to how many plumbing fixtures, windows, appliances, lights, cabinets, etc you have.

dgroves 16y ago

It is better to own your own home outright.

drp 16y ago

A simple way to quickly compare buying vs renting for entire areas is the "rent ratio", which is calculated by dividing an area's median house price by its annual rent. Obviously it just paints a geographical picture and each property should be evaluated individually before making any sort of specific buy vs. rent decision. We turned the rent ratios for the US into a heat map a few years ago (but keep it up to date): http://hotpads.com/search/rent-ratio-heat-maps http://hotpads.com/search/rent-ratio-heat-maps

deleted 16y ago

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