26 ms·

Renting is Throwing Money Away, Right? (2015)

• onetimemanytime 9y ago
  what sucks is that any savings is taken by property taxes, especially in NJ, NY etc. And they go up every year. That alone is in many cases as much as rent (albeit on a smaller place, but still) http://www.nj.com/politics/index.ssf/2018/03/nj_towns_with_the_highest_property_tax_bills_2017.html http://www.nj.com/politics/index.ssf/2018/03/nj_towns_with_t... Hey, at least state officials will have nice pensions wen they retire.
  • chrisabrams 9y ago
    Your property taxes and mortgage insurance are deductible where rent is not. If you look hard enough in NJ/NY areas you can find places where the principal is near the rent price and you deduct the rest. In the long run that works out to your favor. Not everyone can afford such a situation and the new Trump tax changes don't help either. Just saying "I should rent" is irresponsible because you think you're bumping the state pension funds. When you rent you're helping an owner pay off their mortgage as well as the very taxes to pay that pension fund.
    • jwong_ 9y ago
      What do you use to find these areas? Is there any particular neighborhoods you're willing to share?
      • chrisabrams 9y ago
        Start with mashvisor.com to get a good feel for what areas with fit the stragetgy(ies) you have.
    • spicymaki 9y ago
      Rent is deductible for certain states. The new tax changes are going to be scary for some states, I would not buy until I have a comprehensive idea of what is coming.
• chrisabrams 9y ago
  As a technologist who is a part-time real estate investor, this article, like many others, fails to take into account the context of the situations that people can face. There are plenty of situations where buying is better than renting, and plenty where renting is better than buying. One major concept that breaks the traditional buy/rent arguments is that today we have the internet which creates a new type of opportunity: to work in a different city than where the company is physically located. This greatly changes the dynamic and enables new types of opportunities. Want to see the world? Then don't buy because you could live in 10 countries over 10 years for the same price (or maybe even cheaper depending on where you would have bought). Point being, there are times where buying is the responsible decision, but renting can also at times be the smart decision. Don't let articles like this influence your decision. Make a spreadsheet, really dig into what are the pros/cons. I've helped many friends do this, and sometimes buying was the right decision, and sometimes it wasn't. What are your life goals? What are your investment goals? There are so many variables at play. Do what's best for you. I rented for 12 years before I bought. If I had bought earlier, I would have been less likely to move...moving helped me advance my career more quickly but meant I rented longer. In the long run that was the right thing for me as I was able to buy a bigger place in a more expensive area (NYC vs Dallas). For others that might not have been important or necessary. Just because one person has a negative experience doesn't mean that you will to. The responsible thing to do is to understand what _you want_ and make sure you're making the right decisions to make that happen. Buy or rent based on that, not the other way around!!!
  • saosebastiao 9y ago
    > As a technologist who is a part-time real estate investor, this article, like many others, fails to take into account the context of the situations that people can face. There are plenty of situations where buying is better than renting, and plenty where renting is better than buying. I think the article very adequately explained exactly what you're talking about. Did you read it all the way through? It's pretty long, but she definitely covers how individual situations vary. Her whole point is that buying based off of a cliche is wrong, and every person owes it to themselves to analyze their own situation to make that decision.
• kaishiro 9y ago
  As a commitment averse 30-something perpetual renter I've always felt like I was "throwing money away" by renting - but having breakages, plumping, electricity, etc be someone else's problem was how I often justified it to myself. While I'm sure, like anything, the decision to rent or own is highly situational this article still gives me some hope that I haven't made every wrong decision when it comes to "build or buy".
  • hb3b 9y ago
    I'm your age living in the NYC metro area and had the same feelings. I opted for a renovated co-op which only cost a few hundred K and has a maintenance charge under $1000/mo. that includes all utilities. By getting a co-op or condo you limit your responsibility to what's within the walls. Sure you'll have the occasional plumbing/electrical issue but for that you can hire a maintenance guy or neighbor. No need to worry about the big issues.
    • GoatOfAplomb 9y ago
      I've experienced the downside of this. If there's a major issue related to your unit, but it's the association's responsibility, you're at their mercy, hoping they'll act quickly. I had a rental unit sit empty for 5 months because of a slow-moving assocation that was reluctant to admit that certain work needed to be done. (Admittedly, I think I could've gotten it resolved _somewhat_ faster if I had been living in the unit myself, or at least lived nearby.)
  • Bartweiss 9y ago
    At the moment, I'm renting a rather nice unit in a rather old building. I suspect it would probably be cheaper to buy the place and pay a mortgage, since rent is likely to rise aggressively. But it's an old enough place that repair issues aren't just inconvenient - there's a possibility of serious damage, made incredibly expensive to address by historical preservation laws. If the owners get unlucky, they might well be on the hook for repairs costing much of the value of the house. It's been on my mind a lot, and I really can't imagine buying a place of that age and expense. Either I'd be gambling on 100 year old fixtures, or the amount of money I'd need earmarked for repairs would more than wipe out the savings of renting.
• code4tee 9y ago
  The financial arguments assume one only pays the minimum mortgage payment amount. Many people add a bit extra each month which can quickly turn a 30 year mortgage into a 9-12 year mortgage. It also ignores many of the other benefits of owning, such as having a lot more say over what you do with the propert and not always having to worry about rent increases or what happens when the lease ends. The rent vs buy equation is never black and white but this article comes across as quite one sided.
  • dyarosla 9y ago
    "...and honestly sounds like someone trying to justify their decision to not own property." The author literally states that they are a homeowner themselves.
    • saosebastiao 9y ago
      Not just a homeowner but a real estate investor. https://affordanything.com/how-we-made-43211-67-in-passive-income-from-real-estate-in-2017/ https://affordanything.com/how-we-made-43211-67-in-passive-i...
      • gefh 9y ago
        Ah, so he's trying to reduce the competition :)
        • progre 9y ago
          Paula sounds like a womans name
      • deleted 9y ago
        [deleted]
  • flukus 9y ago
    > The financial arguments assume one only pays the minimum mortgage payment amount. They also tend to ignore that mortgage repayments remain static while rent goes up, that interest payments goes down if you pay in advance (offset accounts) and that once it's all payed off your rent is $0. A mortgage for a home within my means is one of the best financial decisions I've ever made.
• aphextron 9y ago
  Through complicated financial tools with all kinds of different tax implications, fees, and mental/time burden for management, yes a small subset of medium to high income people can attain similar returns on investment as a homeowner while renting in certain situations. But the very backbone of the American middle class has always been home ownership. It’s a simple, understandable investment which holds tangible value regardless of it’s current market price. The tax incentives in the US for the average wage earner are so heavily skewed toward home ownership that it is almost impossible to make it into the middle class any other way.
  • closeparen 9y ago
    I'm not sure what's simple or understandable about a basic staple of life whose real value is skyrocketing. It's not at all clear whether the next generation will actually be able to afford housing at anywhere near current valuations. Maybe future Americans can afford to allocate a greater share of their incomes to housing, but the economic effects of the disappearance of all non-housing consumer spending (as mortgages approach 100% of paychecks) might not be great for home values. Who knows? Anyway, not simple.
    • saosebastiao 9y ago
      Wholesale housing policy reform is what's going to happen. It might take a decade or so, but it's gonna happen.
      • closeparen 9y ago
        Not while the current cohort of homeowners is also the current cohort of voters.
• uptownfunk 9y ago
  He has a point. I learned this the hard way when I looked at the amortization tables when i bought my first house, it still stings when I think about it. That said, mortgage interest is tax deductible, which lead to a decent refund this year. So assuming you’re not withholding income at your effective tax rate (but the usual 25-30%) you’ll get a fair amount of it back, which I don’t believe you would if you rent. So yes, mortgages are throwing away money as well (less equity and reduction in tax liability)
• deleted 9y ago
  [deleted]
• ouid 9y ago
  Rent, in an arbitrage free economy, should be exactly equal to the interest on the mortgage plus wear and tear on the house.
  • KillerRabbitt 9y ago
    There is an old story about a financial economist and passionate defender of the efficient markets hypothesis (EMH) who was walking down the street with a friend. The friend stops and says, "Look, there is a $20 bill on the ground!" The economist turns and coolly replies, "Can't be. If there was a $20 bill on the ground, somebody would have already picked it up."
    • ouid 9y ago
      I realize I'm analyzing a joke, but dollars on the street aren't assumed to exist in an arbitrage free economy because there aren't enough actors. The joke isn't saying that the theory is wrong, it's saying that the economist is wrong for applying it. In the case of housing markets, if anyone can borrow money to buy a house for less than they can make on renting that house, then there are enough people alive that they will do that. Also, I should mention that this is the zero arbitrage principle and not the efficient market hypothesis. The efficient market hypothesis asserts that everything we know about the future value of a house is reflected in the current price of the house, which is also relevant to the discussion, but not what I was referring to.
  • sokoloff 9y ago
    Plus the property taxes, insurance, and cost of capital for the downpayment.
    • greglindahl 9y ago
      And the cost of risk, which is partly covered by insurance, which costs money.
  • dqpb 9y ago
    You would still have supply and demand dynamics in an arbitrage free economy. If there is too much supply, no one's going to care what your mortgage is.
• krallja 9y ago
  (2015)
• dkural 9y ago
  Mortgage interest tax deduction, especially for high-tax-bracket people, is often a major factor in calculating returns and should not be looked over for any 'opportunity cost' based arguments. It's also worth noting that most people, compared to a mortgage, don't have access to similar financing at similar interest rates for any other kind of investment/venture and have no hope of breaking out of a month-to-month living situation. 15 years may seem long, but eventually owning a home & not paying rent during retirement, having an asset to borrow against for a child's college or a health emergency, is a decent prospect for most people.
  • oillio 9y ago
    The article takes tax deduction into account in the calculations. It also discusses most of the other things you mention as well
• jimmy1 9y ago
  When the goal is to have a roof over your head, between renting or buying, the better option is to buy. If the goal is to invest wisely, of course buying a house is worse than say something like an index fund. But the problem is: I can't sleep in an index fund. A house isn't a depreciating asset. Renting is not an asset at all. Mortgages are fixed. Rent tends to frequently increase, skyrocketing at worse. This article takes the very common scenario: 30 yr mortgage at market interest rate to compare to renting. Even on these terms its still lopsided. What about the people who do 15 year mortgage? What about those with large down payments? What about those who pay a little extra to their mortgage each month? The overall home market keeps with inflation, but in markets where the land is trending towards scarcity, you are poised to make money as what happened in my first home. I like to think those who were lucky to purchase a house in the valley area before the extreme scarcity made a nice profit if they decided to sell. The author fails to find a third point: in many cases, owning is cheaper than renting, especially in my city and cities like it. Rent here is around 1300 for a 1 bedroom 500 - 900 sqft apartment, depending on where you live. If you want multiple bedrooms, well now you are in 1800-2000 territory for 1300 sqft. You can own a 1800 sqft house for about 850 a month. You can put away half of your savings from rent for unexpected expenses, and use the other half to pay the mortgage off sooner, or you can spend it, either way it's roughly half the cost.
  • chrisseaton 9y ago
    > owning is cheaper than renting This is the key thing! Obviously owning is cheaper than renting, as renters have to cover the costs of their landlord owning, and then some profit for them on top of that.
    • pwinnski 9y ago
      A house built today of a certain size can be purchased with a lower monthly payment than it can be rented, yes, for exactly the reason you describe. A house built ten years ago, or twenty years ago, or thirty years ago, can often be rented much more cheaply than a house built today can be purchased. An apartment of the same size as that hypothetical house might be higher or lower, since the economics of apartment buildings tend to be different. A 1-bedroom or 2-bedroom apartment can quite often be rented more cheaply than a 3-bedroom house. "owning is cheaper than renting" is exactly the sort of generalization that gets people into trouble. Every situation is slightly different.
• cVwEq 9y ago
  Reminds me of a Harvard Daily Stat from 2012, inspired by Zillow data, which comes to a different conclusion. The Zillow data was based on a larger sample size as compared to the article above, which I felt was too qualitative. The Daily Stat: After Just a Few Years, Home Ownership Beats Renting[1] In three-quarters of American towns and cities, it takes 3 years or less for a homebuyer to begin seeing savings over the cost of renting, according to a CNN report on data from Zillow[2]. Factoring in such costs as mortgages, rents, down payments, commissions, taxes, and maintenance, Zillow calculates that the "breakeven horizon" is as low as two years in some areas. But in New York City, which has some of the nation's highest rents, it still takes more than a decade before ownership makes more financial sense than renting. [1] Harvard Daily Stat, 9/12/2012 [2] http://money.cnn.com/gallery/real_estate/2012/09/06/buy-rent-cities/ http://money.cnn.com/gallery/real_estate/2012/09/06/buy-rent...
  • nostrademons 9y ago
    I'd be curious how that stat changes if weighted by population rather than municipality. The article acknowledges that the calculus is vastly different for major metropolitan areas like SF or NYC. Thing is - a good portion of the population lives in those major metropolitan areas. It doesn't do much good to know that buying beats renting in, say, Kansas or Tennessee if you happen to live in SF or NYC. Similarly, I wonder how they'd compare either strategy to the "Move to SF or NYC for 10 years, make bank, live cheaply, then buy 5 houses in Kansas or Tennessee, living in one and renting the rest out. Never work again."
  • somethingsimple 9y ago
    I resisted buying for years, but last year my wife convinced me we should buy a condo and I don’t regret it. We bought a unit with the same square footage as the place we rented, in a better location, and mortgage + property taxes + insurance is less than what we paid in rent, and that rent was only going to continue increasing every year. With a mortgage we fixed our biggest monthly expense.
  • tempuser24 9y ago
    I think the article did touch on that, and honestly it was a whole big deal just to say "it depends on your situation" and in the associated costs section included break even costs, which I don't think is a good measure.
• imbur 9y ago
  Home buyers often overlook the cost of selling their home when considering if renting is cheaper. That is 6% in realtors fees and another 2-3% in closing costs. Renting is a great deal if you are not going to live somewhere for 5+ years before moving
  • phamilton 9y ago
    > 6% in realtors fees and another 2-3% in closing costs It certainly varies by region, but in my area most realtors have been pressured down to 5% by Redfin and other competition. Closing costs (which aren't really percentage based) were between a quarter and half a percent on a $700k home.
  • monkmartinez 9y ago
    Not only that, but by the time you are ready to sell, you will have some expenses toward the "freshening up" of the place. Paint, minor drywall repair, cleaning, curb appeal shit... etc. It all costs $$$$...
  • stevekemp 9y ago
    This is very country-specific. I sold a flat in Scotland at the end of last year. I think I paid a flat-fee of about £2000 for a solicator to create the home-report/brochure, handle the necessary paperwork, post advert(s) online & arrange viewings, etc. I'm sure the fee was probably calculated based on the sale price, but the idea of paying 6% of the sale-price is very alien to the UK at least, and I suspect Europe too (though in Finland I've just bought a couple of places, never sold one.)
    • icc97 9y ago
      The costs of buying a house in Belgium is ridiculous. It's 10% tax, lawyers cost about 5x more. If you put an offer down you're on the hook for 10% of the price if you pull out.
      • stevekemp 9y ago
        Ouch that does sound like a lot of money! I do recall that in the two Finnish places I bought my offer also had a penalty clause - if I pulled out for any reason other than "failure to find financing" I had to pay €6,000 or so. (I wouldn't have made an offer had I not intended to follow-through, but it was still a little scary to imagine having to pay out!)
• davidjnelson 9y ago
  The biggest issue I notice is that the rental inventory is _much_ lower quality than the for sale inventory. Might be a Bay Area thing.
• lath 9y ago
  I own because I like knowing I can modify my living space however I like. I took out a bedroom to make a home theater, could never do that renting. There are definitely advantages to home ownership psychologically that can’t be defined in a dollar figure. His main point though was that renting isn’t throwing money away. I say if renting is the better option for you then who cares?
  • stephen_g 9y ago
    Yep - that was a huge deal for me (wanting workshop/garage space). Apart from that, renters rights can really vary around the world, in Australia it's pretty bad. Depending on the landlord, you can get fairly frequent inspections with as little as 24 hours notice, generally can't have pets, are often on a 6 or 12 month lease and can't always renew (if the landlord sells and the new owners don't want to keep you on... I much prefer owning, and my interest is $100 less per week than what the previous owners rented my place out for before I bought it. If the value of the house keeps up with inflation by the time I sell I'll be very happy. (We don't have capital gains tax on primary residences either, or land tax so that's nice).
  • Jessie_James 9y ago
    An additional point to remember is that many, perhaps most, landlords will put as little money into their property as possible. After all, it's an investment, not a living space. As a renter, I had problem such as: * The roof was leaking, and the landlord patched it ... poorly. * The heat exchanger in the furnace was cracked and letting CO into the living space. He refused to fix it for over two weeks as I fought him. At the time I was young and did not know better, but this literally could have killed us. * Our microwave broke, and the landlord refused to repair it. I was not allowed to replace it. * Our water heater failed. It took our landlord over 3 weeks to replace it. We finally decided to move and were able to purchase a house for $235k that was literally twice the size for $200/mo less than we were paying in rent. We lived there for 7 years and sold it for $417k. I am pretty sure we could not have invested the $200/mo savings (about $17k) for 7 years and made close to $170k in profits.
• deleted 9y ago
  [deleted]
• lsc 9y ago
  Look at the author's "history of home prices" graph (that amusingly is from 2006) The author cites that graph, then goes on to make the claim that housing costs rise with inflation. The graph certainly doesn't look like any reasonable measure of inflation I have ever seen.
• phamilton 9y ago
  These articles always ignore leverage. Generally, with 20% down you are leveraged 5:1. So even if your home is just keeping pace with inflation of 3%, you actually experience 15% growth on your investment. To use the example in the article, if your investment doubled between 2009 and now, your $200k in a $1M home just became 1.2M. 6x growth beats out 3x growth in stocks in the same period. Sure, you can be leveraged in other investments but (1) your interest won't be tax deductible, (2) your interest rates won't be nearly as low, and most importantly (3) you won't be able to borrow with no recourse (depends on the state law, but "no recourse" means your downside on a primary residence is limited to the equity in the home. If you default on the loan they can't come after your other assets.) Does it mean renting is a bad idea? No. There are plenty of reasons it might make financial sense to rent. But articles like these should accurately discuss the financial upside of buying.
  • garmaine 9y ago
    > 6x growth beats out 3x growth in stocks in the same period Was that a typo? Average market returns are much higher than that.
    • phamilton 9y ago
      The article states that since 2009 the stock market has tripled while housing markets have doubled. I'm just reassessing that example with 5x leverage.
      • lotsofpulp 9y ago
        I find it hard to believe if even the majority of housing markets have doubled. Economic growth mostly seems contained to a few established and up and coming cities.
        • garmaine 9y ago
          Yeah one flaw with the OP is that you can’t compare against average housing returns. Buying a house or condo in Silicon Valley or New York is going to out perform the average due to supply, demand, and geography. The OP is essentially really saying buy a total stock market fund instead of REIT, which isn’t that controversial.
• IncRnd 9y ago
  Rent payments are set high enough to pay the owner's mortgage and give them a profit. If you already need to pay a mortgage, why not buy the house to get the interest deductions and equity?
  • s0rce 9y ago
    Assuming you have the down payment (true in my case) then it mostly comes down to transaction costs.
    • IncRnd 9y ago
      Yea. I wasn't clear, so I reworded my comment a little at the end to better reflect what I meant.
  • conanbatt 9y ago
    Rent can never be lower than mortgage payments for the same property because then the bank would never give out mortgages and would just buy up all the properties. Rent can be higher than the mortgage payment of a portion of the house, but not to the mortgage payment of the entirety of the house.
    • IncRnd 9y ago
      Rent can never be lower than mortgage payments for the same property because then the bank would never give out mortgages and would just buy up all the properties. That's not how things work. Banks give out mortgages based upon the repayment ability and credit-worthiness of each borrower. The mortgage amount won't be too far out of line of comparables. --- Rent can be higher than the mortgage payment of a portion of the house, but not to the mortgage payment of the entirety of the house. Who says so? Even one tenant in a multi-family home can pay for the entirety of the mortgage. If you own and rent out a single-family home, you most certainly can charge rent higher than the entirety of your mortgage payment! Sometimes, landlords without mortgages rent out their property...
      • 9y ago
• tim333 9y ago
  People often don't take property cycles in to account and they can be a huge factor in many markets and semi predictable. When stuff is cheap (price to wages) and going up buying is a no brainer. When it's expensive and topping out its questionable.
• oostevo 9y ago
  The New York Times has a fairly detailed rent-vs-buy calculator that makes it easy to see the effects of changing some of the variables the author talks about in the article. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
  • Simulacra 9y ago
    Very interesting. I put in all of my details. There is no way in hell I could find anything comparable for $500 or less a month.
    • Bartweiss 9y ago
      Yeah, running that tool produces exactly the opposite conclusion from the article. Renting is easily 50% higher than the break-even price provided. An interesting experiment: go back and use the article's numbers for "what does the future hold?" That is, 2% home price growth, 2% rent growth, 8% investment returns. For me, those numbers say I could rent for $5,000 and come out ahead. Using the recent-history numbers for where I live, the price craters to $1,500. I know the article says "circumstances may vary" a dozen times, but I think it's still pretty misleading, especially the P/R section. High and rising housing prices go hand in hand with large rent increases, and rent growth dominates pretty much everything else in this calculation.
      • Simulacra 9y ago
        I live outside of DC now and it's very expensive. Rent is constantly being pushed up and up, no matter how good of a tenant you are. I'm hoping to buy again later this year to lock in a stable monthly payment.
  • usaar333 9y ago
    This is sadly a bit outdated - the 2018 tax code changes significantly hit the owning case in certain markets and the NYT calculator may view owning as ~10% better than it should be for high-income married individuals. shameless plug for my own: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calculator-22d0bf9bbbb5 https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...
• Johnny555 9y ago
  There's another intangible benefit to owning if you know you're going to stay in the area long term -- you can't be forced out of your home. I was forced out of one home I rented due to owner move-in, which led to a stressful 30 days of trying to find a new apartment in a tight housing market. We managed to find a place outside of the city, but close enough to transit for a manageable commute. And rent was about the same, though for an apartment half the size. And then, as housing prices continued to rise, that apartment raised the rent 25%. Fortunately, they gave us 60 days notice, so we started looking around for an affordable home to purchase (even farther away, but still near transit), and found one where the PITI+HOA was less than the new rent would have been. Rents have continued to rise (as have home prices, our home is now worth about twice what we paid for it 5 years ago, this market doesn't seem sustainable, but hopefully after the next crash we won't be underwater on the mortgage).
  • cperciva 9y ago
    There's another intangible benefit to owning if you know you're going to stay in the area long term -- you can't be forced out of your home. Well, you can. The city decides to put in a new subway line and your house is where they want to build a station. Or (depending on your local laws) the other members of your strata corporation vote to sell the building to a developer who wants to tear it down and build a tower. But sure, it's far less common for someone to be forced out of a home they own, and when it does happen there's typically years of notice.
    • elif 9y ago
      Well, in that very obscure case, you are generally legally obligated to something like 110% of market value, so you can't really compare that to e.g. being thrown out because tony said so..
      • im3w1l 9y ago
        How fairly are market values calculated?
    • Johnny555 9y ago
• balls187 9y ago
  The sheer amount of fuckery that Landlords engage in was more than enough for me never to be a renter again.
• libertyhouse 9y ago
  Renting or owning from a purely financial point of view is a relatively straightforward problem and is answered quite nicely with the NY Times Rent vs. Buy calculator (with the caveat that the calculator has not been updated to reflect the new tax laws). That being said, the biggest reasoning mistakes I run across are: 1. "You pay the landlords expenses plus some profit." Not true. The rental market is just that - a market that fluctuates with supply and demand. There are plenty of landlords who are losing money on their rental property. 2. "Once I have paid off my house I'm done paying for housing." Not true - you still have taxes, insurance, and maintenance whose costs will most likely increase over time. 3. Forgetting about the opportunity costs. Great - you paid off your mortgage. Now you have $500k in equity. Guess what - if you took that $500k and put it in a 5 year treasury you can earn a risk free 3% or 15k/year on that money. Better yet stick it in a broad based index fund and you will grow 6% albeit with more risk. That's your opportunity cost of your equity. Overall this is such an emotional subject for most. I'm personally glad to see some push-back on the "buying is always better" argument because its been dogma for some time. Edit: fixed typo
  • nkohari 9y ago
    > There are plenty of landlords who are losing money on their rental property. Only until your current lease term expires, at which point your housing costs will unexpectedly rise (and sometimes quite dramatically). Unless you live in such an undesirable location that the landlord is desperate for any tenant, they aren't crazy enough to agree to a lease on which they'll lose money.
    • libertyhouse 9y ago
      Not true. Landlords may prefer to forgo a new tenant and keep rent increases reasonable for many reasons. The cost of tenant turnover can be very high. They may not want to take the risk of a new tenant over a know good tenant. The local rental market may not support a rent increase. I have been a landlord and not raised rents many times. I have also been a renter and have had no rent increases or very modest rent increases for many years while renting.
• flyGuyOnTheSly 9y ago
  I know a handful of people in their 60s... The ones who made a point to buy instead of renting their entire lives are laughing all the way to the bank. The ones who are still renting are still working nearly full time and will probably be doing so until the day that they die. Buying and committing to a mortgage forces you to save money for your future, plain and simple.
  • phamilton 9y ago
    > I know a handful of people in their 60s... To be fair, I know a ton of people in their 20s who took advice from people in their 60s and now have mounds of student debt and no career. I'm not saying buying a home won't work out well. I'm just saying that the baby boomers seem to have had a unique path towards financial stability that doesn't appear to be sustainable for the generations that followed.
  • refurb 9y ago
    You're ignoring the folks where that doesn't work out. I had plenty of friends who lost $100K down payments during the housing crisis and are now starting all over again. The ones who rented had zero issues.
• IloveHN84 9y ago
  What about self-modifying renting contracts? In Germany, some contracts increase 3% every year, not that cheap. And what happens when you're in retirement and your pension isn't as much as when you were working? Can you keep with the rent?
  • Simulacra 9y ago
    This is why I eventually bit the bullet and purchase the home. I didn't want to be 65 years old trying to deal with increasing rent on a fixed income in retirement.
    • ghaff 9y ago
      To be fair, you may want to retire somewhere different from where you live when you're working--and may want, for example, a smaller place that requires less maintenance. But, yes, there's a strong argument for the desirability of owning your own place if you're a healthy 65 year old because you don't want to one day wake up and find you need to move in a couple months because an owner has sold a building.
• code4tee 9y ago
  The “pro renting” crowd has a lot of consistent falacies in arguments: - Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. - Calculations also often assume someone just pays the minimum mortgage payment for the full term of the loan. Even small additional principal payments (which most mortgages allow without penalty) drastically reduces the duration of the loan and interest paid. - “I don’t want to pay those high real estate taxes.” Renters still pay the same real estate taxes, it’s just baked into the rent and can’t be deducted from taxes. - The tax system is very biased in a favor of home ownership. You basically get penalized at tax time if you don’t own your home as expenses both owners and renters “pay” (property taxes, mortgage interest) are only deductible for the property owner. This can make a huge difference. A renter paying $2000 a month in “after tax” money is spending a lot more than a home owner spending $2000 a month but paying the interest / propert tax portion of that 2k with pre-tax money! - Capital gains from home ownership are also tax free (up to half a million in gains for couples).
  • pkaye 9y ago
    > The tax system is very biased in a favor of home ownership. With the recent tax changes including increased standard deduction, SALT cap and mortgage deduction cap, this bias is greatly reduced.
  • monkmartinez 9y ago
    I own my home in a relatively cheap COL area... I would rather rent. Houses nickel and dime you to death. The expenses pile up at both the front and back of the transaction... that is, when you buy and finally sell. Please show me how the small increases in property value multiplies my initial investment. The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess. Timing, once again, can make or break you and timing is a fool's errand. Renters don't always pay the taxes. There are several rentals in my neighborhood that are less than the mortgage. Once you cross a threshold of monthly rent, the market for available renters shrinks rapidly (Unless we are talking bay area). I mean... there are very few people spending $3000 a month in Phoenix renting. I agree about the tax system bias toward home ownership... but there are ways to beat that. Starting or having a small business being #1. We could get into many ways to beat the tax system... but lets suffice to say that homeownership isn't really "beating" the tax system. That "savings" on tax isn't savings... it is rent on top of rent... let that sink in.
• codedokode 9y ago
  > You hold a 5 percent fixed-rate 30-year mortgage. Is that really so? I've read that the mortgage interest rates are around 2-3% in Europe (by the way, in Russia they start from 9%-11% and can be as high as 15%). > A house in 1897 cost the same as a house in 1997, adjusted for inflation. It is hard to believe, given new technologies that are supposed to make it cheaper. Also what the author didn't take into account - she assumes that she will be able to work forever. But what if you get too old and won't be able to do your job well? What if you get sick? What if you get fired? What if there is a financial crisis? What if the company you work at shuts down? In all of these cases, a renter will be kicked out on the street (I know in some countries like Finland the government provides free apartment for people who don't have money, but I assume in US you'll have to live in the street). But if you own a house then you can live there even if your income drops. You can live without renovations, you can consume less electricity, you can ask for a tax deduction, you can rent out a room. Also, an owner can leave a house or an apartment to his children. The author writes about opportunity cost, that you can invest your money. But it is very high risk. If you invest into a private fund, it can become a bankrupt any time, if you invest into something government-related, tough luck if the national currency crashes. Investing into a house looks like a more safe option. Of course, there are downsides to the mortgage. If you buy a house or an apartment, it will be probably not in the best location, far away from the center of the city in an undeveloped area, no good transportation around. Because the good ones are too expensive.
  • vcanales 9y ago
    > But if you own a house then you can live there even if your income drops. This is assuming you payed off the mortgage, no? Otherwise, at least by the 10 year example given on the article, you’re busted since you can’t make mortgage payments...
    • codedokode 9y ago
      Yes, under that assumption. But even if nothing bad happens, you will retire sooner or later and your income will drop.
    • mantas 9y ago
• kazinator 9y ago
  Article assumes that if you're a renter, you don't pay insurance. Which is true for a lot of renters; but they will lose everything if the place burns down. The landlord's policy will not cover the belongings of the renters. Comparing insured versus uninsured is stupid.
  • paulclinger 9y ago
    It covers that: "Rachel pays $307 per year in renter’s insurance."
  • wldcordeiro 9y ago
    No it specifically mentions renter's insurance near the beginning but the number cited seems like a minimum policy. > Rachel pays $307 per year in renter’s insurance.
    • hudibras 9y ago
      That's about right.
• wheresmyusern 9y ago
  i would say both renting and buying a house are bad ideas. when you rent, you have to pay a huge amount of money to pay for your landlords premium gasoline for his lambo. when you buy (in a city), you are having to take on the cost of every other person who bought before you -- nobody ever willingly sells a house for less than they bought it, so houses are like ratchets that go up and up and up in price. when you buy a house in a city you are also paying for someones premium gasoline. its an endless cycle of people buying the house and making it more expensive. i would say that buying a remote home is where its at. with solar power, electric cars, self driving (even in its current state), and the soon-to-be mesh of satellites that will provide decent internet to every corner of the globe, along with a whole lot of other things, remote land and home ownership is a very exciting prospect indeed. most of the cost of a house in a city or heavily populated area is in the land (location) and in paying for the profit margin of all the buyers who came before you. so building your own house on remote land is extremely affordable because there were few previous owners and its not close to anything -- you dont need financing like with a regular house. i saw a story, i believe it was here actually, about a woman who bought a cheap house somewhere remote but good, and just did a four hour commute on the train. you can make just about anything work. and from my perspective, having your own land and a place to sleep that is truly your own is so fundamental and vital that extreme measures feel justified. i currently share an apartment with a bunch of people. our complex holds at least 200 or 300 units. at an average of two thousand dollars for each unit, all 200 of them. the people who own this complex bring in almost half a million dollars every month before taxes. a while ago, a pipe broke in our kitchen -- a pipe behind a wall, underground that carries sewage. our entire kitchen and dining area were flooded with foul water. it took them almost a month to even get someone to look at it, even though i visited the office every day to remind them that half of my home was flooded with foul water. their response was that getting a plumber to do a job like this is very expensive, so they had to go though a bidding process instead of just hiring someone asap. i dont have a lot of money or free time so i was powerless in this situation. eventually, the pipe was fixed. when you rent, you are powerless. the power dynamic is obvious both in principle and in experience. why then are so many people eager to enter into this demented arrangement in which they are essentially a modern peasant? i think everyone should own some kind of house somewhere because there is absolutely nothing worse than getting stuck without somewhere to stay. life is chaotic, rent is very expensive in many areas and housing can be difficult to come by and there have been times when i almost wasnt able to find housing. definitely one of the worst feelings ive ever experienced. unlike some people, i have no nets to catch me. if i had a remote home, not finding housing in the city would transform from a ulcer-inducing nightmare into a short vacation back to the country while keeping an eye out for good housing on craigslist.
• elvirs 9y ago
  I guess the main determinant should be mobility. If you are 23 and you dont have a career yet, want to go to a law or medical school, do your phd or whatever then chances are next 5-10 years you will be moving a lot and have no idea where you will end up settling down. In such cases having had committed to such an investment is a bad idea. But if you are 30 years old registered nurse married to your high school sweetheart who is a teacher and dont plan moving anywhere then buying is absolutely a safer bet. I dont know about other parts of the country but here most of the good areas of North East region mortgage is cheaper than rent. Most people buy a 4 bed 2 bath house and sublet the top floor or something making sometimes more than half of their mortgage payments from subletting. I think its an awesome investment if you purchase it at the bottom of the market, not on the peak, even if you buy at the peak over the course of 30 years you will end up having made a good investment unless your town goes to shit for some reason. And just like any market, housing markets goes through ups and downs and since its such a long term investment you are better off holding off 5-10 years to wait for the lows of the market meanwhile saving up for the down payment.
  • paulsutter 9y ago
    Several of my friends have bought a new house whenever they move, and rent our their prior house instead of selling. It has worked out really well for them. Past performance is no guarantee of future returns, of course, but it's worth considering
    • elvirs 9y ago
      they get approved for a new mortgage every time they move while the old one isnt even 10% paid off?
      • vageli 9y ago
        I don't know of many lenders that will give you a mortgage with 10% down.
        • gambiting 9y ago
• Simulacra 9y ago
  There's another post recently that's discussing the same topic. For an FHA back 30 year fixed mortgage, you don't need to put down 20%. I think the most I had to put down for my house was about $3000. It's turned out to be the best investment of my life, because I had to move away and so I am renting it out and make a nice profit each month.
• maxander 9y ago
  A good way of looking at the “hidden cost” of buying your home- when you get a mortgage to buy a house, you’ve simply shifted from renting your home to renting the money used to buy your home. Since your house and that cash are (sorta definitionally) worth the same amount, which you do makes less of a difference than you would think. (And no, it doesn’t matter that the mortgage money is “rent to own”- as the article points out, a home-renter could have just as easily been putting that extra cost into stocks the whole time.)
  • crispyporkbites 9y ago
    This is the best way to think about it. You're renting the money and choosing to invest it in a house. Of course no one would ever give you half a million in cash with a 50k deposit, so even if there was a better place to investment the money (e.g. stocks) you couldn't put it there anyway. A mortgage is probably the only way a common person can get this kind of leverage and invest in any asset class. It's really unlikely you have access to some other capital at a cheaper rate (even though a mortgage at 90% loan to value can be expensive, it's almost always the cheapest form of a "normal" person will get), so it usually makes sense to get one.
• Simulacra 9y ago
  This is a really poorly written and exaggerate article. I purchased a home in 2015, I had to pay $3000 to close with no further down payment. After three years I had to move for work. I'm now renting that house out, and earning $380 a month in profit. That house is mine. Our use that profit to pay extra on the principal and contribute to my 401(k). Someday, that house will be paid for, and it will be all mine. Then any profits will be completely mine, minus taxes and insurance of course. Renting puts you at the financial wims of someone else. How often do you see a rental company lowering your rent? By owning, you know that your monthly outlay is going to be very stable. That makes it a lot easier for financial planning, not just now, but for when we are older. Who wants to be 65 and still renting?
  • rocky1138 9y ago
    One of the very first things the article states is that this is not for people who are not living in the home as their primary residence.
    • jack9 9y ago
      > not living in the home as their primary residence. Which makes it disingenuous to the initial headline. > Renting Is Throwing Money Away Right? Yes. Given a choice, you always want to own (or at least be building equity). That's the nature of the phrase in the headline. Having money act as an investment (growing/working) for you is preferable to not.
  • deleted 9y ago
    [deleted]
  • scarface74 9y ago
    If you are not a local landlord, that increases all of the other risks of being a landlord - bad tenants, tenants who don't pay and a drawn out eviction process, vacancies, etc. If you are a long distance landlord and have a third party take care of all that for you, you end up paying around 10% of the rent per month and at least 50% of the first months rent for a new tenant for them to find one for you. After my experience with being a landlord, I said the only way I would do it again was if it was some type of multi unit deal and I could afford a 75% occupancy rate, and someone else to manage it.
• Overtonwindow 9y ago
  It really depends on your situation. If you can afford to buy, and plan to live at least in the short term in that property, I think buying is a good thing. If you need flexibility and want to move around, or you can’t afford to buy, then renting is better. Personally I think buying is the best thing in the long term, and by long-term anything longer than five years. Rent keeps going up. A mortgage doesn’t really change that much.
• bane 9y ago
  The answer in most cases is "yes". This post is full of the kinds of flawed arguments that usually accompany pro-rent arguments -- which do a real disservice in identifying those cases where the answer is "No". Breaking down the problems by section: Equity "Here’s the rub: Only a small slice of your mortgage payment builds equity." There you go, the article defeats itself not even a full screen below the correct answer. If you rent, 0% of your monthly payments build equity. If you own, X% of your monthly payments build equity. X > 0 It attempts to list all the parts of a mortgage payment as if itemizing it makes the equity earned meaningless. Your mortgage consists of four parts: Principal (the equity-building piece) Interest Taxes Insurance This is basically correct, but the case for "Your rent consists of the same four parts + two additional parts where the property owner may make a profit off of you as well as some additional money to cover various expenses that they'd rather not pay for out of pocket." Again, nothing in this section invalidates that building equity is better than not. One way of thinking about renting is that you pay all of this, plus the extra stuff and in the end you've built equity for somebody else and none for you. Opportunity cost I didn't bother to read this to be honest, these sections are almost entirely filled with notions that "if I just invested my money in horse farms or leverage backed security instruments I'd make more money in the long run" blah blah blah. The logical flaw in these are usually pretty easy to spot as they involve a scenario setup that's not like-for-like (meaning the same house as a renter vs. as a buyer) and focus on weird time frames like the lifetime of the loan not the life of the person. In other words, at the end of 30 years, the rent may have made more money in some scenario of a perfect investor, but then they still have to rent to have a place to live. The homeowner now owns their property free and clear and can do all kinds of things with it, and their now future income is entirely liquid. Should I rent of buy Do what you want! But don't follow the flawed arguments in this blog. Here's what it really comes down to, do you want your money to be more liquid and your location to be more mobile? Then rent. Do you want to own large amounts of assets that can be liquidated in a few months (in most places) or that you can live in virtually free in the future? Then buy. Bonus: if you buy, you can end up in a situation where you just have other people literally giving you money to pay your mortgage away...it's called being a landlord. You can even do it with parts of your property, like a bedroom or a basement. Over time you can own a property outright, rent it out, and use that rent to service another mortgage in a property where you live meaning you live virtually free and accrue assets at a frightening rate. edit once again, here's probably the best post written on the subject. http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html
• kisstheblade 9y ago
  "You hold a 5 percent fixed-rate 30-year mortgage" Yeah, no. I know that many people may have loans of this size and I never understood it. And it is of course a reason for high prices. When my parent's bought a house a typical mortgage was paid off in maybe 10 years. I myself took a loan of 12 years. And not at 5% percent! The real rate is about 0.2% at the moment (and has been 1-2% during the ten years I've been paying). After paying this reasonably sized loan I can buy another house with a similar loan. I have also heard of 60 year loans! (eg. sweden). Now that is indeed stupid and throwing money away.
• zw123456 9y ago
  I recently did the math on this myself, I just sold my Condo and right now I am renting while looking for a house. I have all cash so I can ignore interest rates which makes it easier, I also have a pretty good wealth manager so I have a pretty good idea of what my return will be if I invest the money in stocks and bonds and rent rather than buying a house. For me, renting comes out ahead strictly looking at the dollars over time, by a pretty good margin. But, guess what, I am buying a house anyway for one very simple reason. I want to own my house and be able to do whatever I want. I am getting a place with a big basement and it will be my dream lab, with all my computers, 3D printer, test equipment, soldering station and so on. I could never set something like that up in an apartment. To me that is more important than the money.
  • pwinnski 9y ago
    In Dallas, renting is generally more expensive than buying, and yet I'm still happily renting. In fact, I'm moving next month from my current 3-bedroom 1500 sq ft apartment to a (slightly-nicer) 2-bedroom 850 sq ft apartment, and cutting my monthly payment by more than a third. I previously rented a 3-bedroom 1500 sq ft house that was slightly more than the big apartment, and before that I owned an even bigger house for 13 years. I know the numbers make it a good idea for me to buy, but I'm renting an apartment anyway, and enjoying the flexibility. If I still owned a 1500 sq ft house with three bedrooms for my kids, I'd be "stuck" with that house and the associated costs now that they've grown up and moved out. Instead I get to downsize as easily as signing a different lease, and I still have no maintenance responsibilities. To me, that is more important than the money!
    • zw123456 9y ago
      Ya, sometimes there is more things to consider than just the money, depending on your priorities.
  • beagle3 9y ago
    Your wealth manager might be good, but you have no idea what your return will be from stocks or bonds. The only more-or-less guarantee you can have is about half of the official rate of inflation, and you don’t get there with stocks and very rarely with bonds.
• unholyguy1070 9y ago
  Several bad assumptions in the article 1: 8% a year in the stock market is a very old number that you only achieve if you go back to the Great Depression. It’s actually under 7% if you take the last 30 years as your baseline 2: The local real estate market matters a lot. Crunch those numbers again for San Francisco real estate and you will have beaten the S&P by at least a factor of x3 in the last 30 years. Similar for NYC 3: not only is the real investment leverage with deductible interest and downside caps, but the capital gains are also waved on the first 250K/500k (unlike stock market gains) 4: you will not pay 5% on any loan. More like 3-4% You can claim that the SF gains are a fluke, however there seems to be a general trend of most of the high end employment opportunity concentrating in a few large cities across the world. Those cities are outperforming the overall stock market consistently
• suff 9y ago
  It's less important to point out that bad real-estate deals exist. No one is debating that. Nor is anyone debating the sliding scale that shows your first year is mostly interest. ASLO, no one (even the OP) is debating (assuming you are savvy enough to avoid a bad deal) that in 30 years, home owners have a massive nest-egg, not to mention 30 years of effectivley fixed monthly payments (even if taxes go up slightly). Would LOVE to compare net worth with the OP.
• deleted 9y ago
  [deleted]
• littlestymaar 9y ago
  > You hold a 5 percent fixed-rate 30-year mortgage Wait, are you Americans paying 5% interest on mortgage, whitout even counting insurance? For real?! Edit: Having looked at other comments in this thread, it looks like interest are taxe-deductible, which makes it more affordable, but that's also really weird: it means the gouvernment subsidizes financial institutions to charge American consumers a lot more than the normal prize …
  • halfjoking 9y ago
    > the government subsidizes large industry X to charge American consumers a lot more This is basically how American government works.
  • rosege 9y ago
    interest rates vary pretty widely around the world. Im guessing you might be in Europe where rates are pretty low still. In Australia they never dropped anything like they did in Europe. If you're lucky you can get a loan around 3.9% but lots of ppl are close to 5% here and you can only tax deduct it if its an investment property
    • mrweasel 9y ago
      Just as an example from Denmark: My parents have a house financed with a load with negative interests.
      • rosege 9y ago
        how does that work? does the bank pay them for taking their money?
        • mrweasel 9y ago
          The amount is very low, and I'm sure there are fees that will eat any "profit". It's important to understand the it's not the bank that lend you the money to buy your house, at least not directly. You home is financed by bonds, issued by a sort of credit union. Investors then buy those bonds, pensions funds for instance. The Danish housing marked is extremely stable, so it's a safe place to put your money. So some investors will be willing to take a small lose on buying bonds in homes, in return for safety.
• mstaoru 9y ago
  To me, renting vs. buying is a bit like AWS vs. own bare metal in a rack. With AWS, you can have 1G RAM or 10000G RAM or anything in between, you can move between data centers without much trouble, and you can cancel virtually anytime. Once you spent $$$ on your own metal, you're stuck with it. Renting gives so much flexibility, and even if it's a bit more expensive in the long run, flexibility pays. Of course, there are scenarios when you don't want to rent e.g. having kids or elderly parents living together.
• sershe 9y ago
  Two things this also ignores that for me work out in favor of renting right now (in Seattle). 1) The options for renting and owning are not the same. We have a ~1300ft apartment that is just a bit too big for us; it is on the 4th floor and has an expansive view and southern exposure, which is rather important for me. There's transit access and groceries/coffee/etc. walking distance. Condos in Seattle are few, esp. in new buildings. Most of the houses are far from stuff, are by definition on street level so even under ideal conditions few have lots of air and view, and vast majority are too big... So, I'm going to be paying extra for sqft we won't use (we already have unused, unfurnished corners in 1300sqft), the yard that for me is a net negative (maintenance), and loss of quality in other dimensions (relatively worse view and light). If my apartment was a condo, I'd seriously consider buying it. As is, it's hard to find a house that is not much more expensive than rent while ALSO being worse. 2) I haven't done the math for this, but in the end, you die. I don't care how much I'm worth when I die as long as it's >= 0. So, leaving aside the case of getting lucky with well-above-inflation appreciation (still, did houses in Bay Area appreciate that much faster than stock market since 2000 or 2009?)... one could sell the house in Seattle and retire to Vegas if he were living in Seattle for job market access only. However, in that case one can probably retire early and move to Vegas without caring for job market access, on the difference from the house prices. If one were rooted in the community, selling the house and downsizing is not an option (in fact I've heard older people in Seattle complain about this - the value and property taxes go up and up but they never want to sell out of the community so the appreciation is a negative for them). There are various scenarios possible, and it's not clear that the net worth in 30 years is well, worth it - liquid; you may have little time left to use it, or not even want to sell.
• ironjunkie 9y ago
  Love that article, This is one of my favorite dinner conversation and I'm always shocked to see how most people never question the whole "buying a house" social construct. Once you do the math, you start to realize that most of it is a fallacy, and that in most cases you are way better off renting a place. Something else that people forget is that they tend to buy a house way bigger than what they actually need. Typically a young couple would be ok living in a one bedroom, but usually would prefer to buy a house with 3 bedrooms. This means that they are now paying a mortgage (and downpayment) for something way bigger than what they need and therefore losing an even bigger opportunity cost.
  • justherefortart 9y ago
    Show your work.
• tobyjsullivan 9y ago
  Another factor I found missing from this article was the inflation of rent prices over time. Back when I did my own rent vs. buy analysis, I found mostly as the author did. However, the key argument in favour of buying ended up being that rent increases seem to far-exceed inflation. I could only find US trends for the period of 1940-2000 but, over that time, rents increased 5.32% per year compared to inflation of approx. 3.5% per year. What this means is that if I don't buy a house now, and trends continue, the space that I was renting last year for $1500/mo will cost approx. $5,600/mo in real dollars in 2042 (a 25-year projection) or $2,360/mo in inflation-adjusted dollars. This is just one more factor in a complex decision but it seems important to the cost-benefit analysis. I implore you to find the data and run the numbers yourself if you're trying to decide but my prior research did not paint a good picture for life-long renters. Edit: It's worth acknowledging that rent protections exist and can keep rents steady for some. However, these usually require that a tenant never moves which is an assumption the author made a good argument against.
  • justherefortart 9y ago
    I bought my first house in 1999. It costs less for the remaining mortgage than renting a 1br apartment in my city and has for about a decade. The interest is so low now I don't even get the write off and just use the standard deduction. The house has more than doubled in "value" (based on comps) as well. I'd still have been paying the same money to rent, but it would have gone up an average of 5%/year. The down side is I have had to pay to replace the roof, hot water tank, and HVAC, but that's all been recent fixes. Not living in an apartment is also 1000x better.
  • Bartweiss 9y ago
    This is the biggest weakness of the article, I think. Rent growth is included in the Rachel/Owen example, but it's set at 2%/year to get the 15 year equilibrium. And during the P/R discussion, that rate is implicit in the analysis of what's an acceptable P/R to buy at. But rent growth is obviously tied to housing price growth - the highest P/R markets range from 5% to 10% per year of rent increases, which is exactly what's driving renters to demand housing at high prices. On a more theoretical level, we can observe that the article uses national averages to show that housing prices track inflation. That only holds where new housing stock is built to match rising populations. More accurately housing prices track (inflation + population growth - new stock), substantially changing a lot of these conclusions.
• KKKKkkkk1 9y ago
  Since housing is an emotional subject, let's try to argue by analogy. I regularly buy lots of dairy products. Milk, yogurt, cheese. Why shouldn't I save some money and buy myself a cow instead? That way, I could satisfy all my dairy needs, and maybe even have some extra milk to sell to my neighbors. No more making the dairy farmers rich at my expense. Now, assume that I sell my cow ten years later. And let's say that cattle prices grow 3% annually. (As we all know, cattle prices can only go up.) Will my cow investment yield me a 3% annual profit, given that my cow has gotten older and I must have made significant investments to feed it and keep it healthy?
  • IshKebab 9y ago
    A cow is not the same as a freehold property. Land does not age (except maybe near the sea), and houses generally last a very long time.
    • piracy1 9y ago
      Also, running a dairy farm requires some economy of scale that renting a house doesn't
      • bluGill 9y ago
        If you have enough land for the cow to eat grass (note we are carefully not counting the cost of this land) you can milk the cow by hand: the only equipment needed is what you probably already have in your kitchen anyway, and a few bottles of "cow lotions" (some are cleaners but in any case cheap). Running a dairy farm with 3000 cows has a lot of economy of scale but that is mostly time. And happy cows - cows much prefer their comfortable barn year round to being outside in the weather.
    • thaumasiotes 9y ago
      > Land does not age Tell it to the pastoral nomads who used to live in what is now the Sahara.
  • chrisseaton 9y ago
• sirwitti 9y ago
  While I like the idea of doing the math for such impactful decisions, it's probably not that easy to get correct constants/values to do it so you get meaningful numbers. For example in Austria (europe) renting prices went up ~25% in the last 4 years or so, so the 2% inflation correction (per year) the author assumes is probably wrong for many countries/cities. At the same time rent (in Austria) includes several cost factors such as water supply, garbage, insurances for the house,... whereas the cost of your house's mortgage does not. What I'm saying is: If you do the math it only makes sense to do it in such a detailed way that you get meaningful results.
• erispoe 9y ago
  Some of the countries with the lowest homeownership rates [1] are also amongst the most financially secure on the planet. In Switzerland only 43% of households own their home and swiss households are, on average, way more secure than their american counterparts. [1]: https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...
  • freddie_mercury 9y ago
    And some aren't. I don't follow your point, could you elaborate?
  • tempuser24 9y ago
    I agree with freddie_mecury I am not sure I see the argument or what you mean by "financially secure". But if I can guess at your point I would say that if "financially secure" means having cash then it would make sense that higher percentage renter countries would be that. Another point I'd like to add is the US isn't far from Switzerland on that list. Also Singapore being in the #2 spot with 90% home ownership, but in my opinion Singapore is considered a wealthy country[1] with a GDP close to the US. And lastly I will say that the sample size on is limited to about 25% of countries in the world, though there are most of the developed ones. [1]https://tradingeconomics.com/singapore/gdp-per-capita https://tradingeconomics.com/singapore/gdp-per-capita
    • erispoe 9y ago
      Homeownership isn't necessary to achieve financial security and/or build equity. The idea that it is, all the time, everywhere, a necessary step does not hold. In countries where the state does not heavily subsidize homeownership via tax incentives (Switzerland or Germany by contrast with USA or France), many households choose to invest in other assets. On the contrary, the fact that states have to subsidize homeownership to make it a competitive investment for households (at the expense of renters paying taxes and not benefitting from incentives), is evidence that in a tax-neutral environment, homeownership doesn't make much sense. Singapore is misleading, because 82% of the population actually lives in public housing (HDB). I suppose they're counted as "homeownership" because they are leased for 99 years [1], but that's a strong authoritative state with central planning and management of housing. Lease doesn't build that much equity because at you get closer to the term the value of the lease naturally declines. And you're not free to sell or buy to who you want. [1]: https://en.wikipedia.org/wiki/Public_housing_in_Singapore https://en.wikipedia.org/wiki/Public_housing_in_Singapore
• zwischenzug 9y ago
  I'm fed up of having this argument in London. I rent, and pay about 2% of the value of the property in a year. I get around 8% on shares over the last ten years. Renting is an absolute no-brainer for me. People are shocked when I tell them how much return I get on my savings vs how much my rent is, especially when I tell them where I live (a 'premium' part of London).
  • chrisseaton 9y ago
    I don’t understand why you are arguing in favour of renting with those numbers. You pay more in rent than you would do for a mortgage, and you earn less from your shares than you would do from London property price rises... what’s the upside of renting in your case?
    • nothrabannosir 9y ago
      I was under the impression London house prices rose very little last year? It turns out it was 2.5%; low compared to the rest of England. Surely the stress around Brexit is helping depress property value. https://data.london.gov.uk/housingmarket/ https://data.london.gov.uk/housingmarket/ If you could have made 8% instead: good work in 2017. Not commenting on the rest, but for a 1y data point, it was good.
      • zwischenzug 9y ago
        London is falling at around the rate of 1% per month right now. https://www.markiteconomics.com/Survey/PressRelease.mvc/5918dd96cb3c44419125e5ab1662edd7 https://www.markiteconomics.com/Survey/PressRelease.mvc/5918... as are rents (shares not doing great either), but that's another story.
    • zwischenzug 9y ago
      In case it wasn't clear: 8% is per annum.
    • stale2002 9y ago
      The upside is the 8% return on the stock market that he gets from that 100K that he DIDN'T have to put on the down payment t.
• roman_g 9y ago
  The whole article is a statistical fallacy. You should never compare "average" growth rates but extreme outcomes. What is the best possible outcome and the worst one in case of renting and in case of mortgage? P.S. Read Nassim Taleb (and Daniel Kahneman) for the sake of reason.
• fdr 9y ago
  The strictly financial part of the calculation is important, but personal cost of volatility may be even more important for those in a position to choose to rent or buy. I suggest it should also give pause to those who plan to build extensive social capital somewhere long term, but continue to rent. I view real estate ownership as a personal hedge. As we've seen in San Francisco from displacement of those in less lucrative sectors, rent that floats exposes you directly to the prosperity -- and inflation -- of all sectors in a region: in the future, that sector may not be your own. Property taxes expose you to this effect, but it is attenuated in magnitude (doubly so by California's Prop 13). The inflation of rents rendering your employment in a sector in a place obsolete is not so important if you can pick up and move, but it can prove socially expensive (and not priced in) if you have roots, are a contributor to civil society and/or have children. I feel badly for lifetime-renters-by-necessity those whose social capital is wiped out by these fluctuations without any compensation. As I see it, buying reduces the cross section of your outgoing flows to more radical local fluctuations, binding it to fixed or more moderate internationally-floating indicators (like ten-year treasuries, or LIBOR). Notably, no major family outgoing flow is so volatile: groceries have similar costs nationwide. Many other goods are globalized, have substitute options, and little friction: housing stands out as the big exception. I also suggest that marriage-house-children is not mere tradition, though it is that too. It is also a recognition of the increases in cost of volatility to the family unit: finding mutual job opportunities, and then the complexity of transplanting a child.
  • koolba 9y ago
    > I view real estate ownership as a personal hedge. It’s also a solution to the problem of most people having no self control. Put $X into a separate untouchable savings/investment account without fail every month sounds simple but most wont do it. Instead they’ll keep raising their monthly misc spending and the money will disappear. Change it to “do this or lose the roof over your head plus your down payment” and suddenly your success rate skyrockets.
  • loxs 9y ago
    What if you build "social capital" in a place where most people rent... then situation changes and most of your social contacts move away, because it's no more economically feasible to live there? What happens to your social capital then?
• mhomde 9y ago
  People often fail to take into account that risk has a value. I did some quantitative analysis (most of that is BS but that's another story) for a gig and it was big eye opener. People talk like: "Well property praises will always go up. It's a good investment yada yada" but there is a risk that they won't (which often is a sore point). There's even a risk they'll crash. Many people (at least in Sweden) is so over leveraged that it wouldn't take that much for the bank to require a mortgage holder to put in more money to cover the decreased value of the property. How large risk for a "catastrophic decrease" varies but taking that risk is a cost in itself. It's the same as with insurance, the less healthy/more risk you are the more it costs. With renting you might not have the upside of investment, but you also don't have to bear the "cost" of that risk
  • Twisell 9y ago
    Also renovation work... That’s often an under-accounted risk but if you own a flat you could well be forced at some point to cash out vast amounts of money so that your equity just don’t loose value. If you rent you just wait for the landlord to pay or you move to a better flat if bad maintenance become unbearable.
  • phamilton 9y ago
    > so over leveraged that it wouldn't take that much for the bank to require a mortgage holder to put in more money to cover the decreased value of the property That's an interesting contract. For a primary mortgage that would be very unusual in the US. (For a secondary line of credit against the home, the bank would likely freeze the line of credit if the value dropped too far.)
    • mhomde 9y ago
      I'm not super familiar with how it works in the US. But here you loan against the value of your property. If the value plunges you no longer have coverage for your loan and the bank may ask you to cover the difference. This happened in the 90's in Sweden where many even were forced to sell their homes when they couldn't pay. Many home owners I've talked with is not aware of that this is even a possibility and refuse to acknowledge the risk. I guess it's one of those thing one rather not think about :) Another major difference is that in Sweden, in contrast to the US you can't simply give up the keys to you home and be rid of the debt (as I think it is in the US) but it stays with you.
• gigatexal 9y ago
  All I know is I put 10% down, had tenants pay the mortgage by renting out the three other rooms while I lived in the other one and sold it 3 years later for 100k more than I owed. My outlay was close to nothing on a net basis and it proved to be a really great tax shelter when I got a raise. Also I was able to set roots down and get to know the city and feel some semblance of ownership in the town. That and my mortgage never rose except for when the value of my home rose with taxes.
• dajonker 9y ago
  If you are renting, you are renting it from someone who owns the place. I am going to assume that whoever is the owner will at least break even, but more likely will make a profit off the rent income. Therefore, buying is cheaper than renting. Can anyone explain to me what's wrong with this argument?
  • pas 9y ago
    In downturns you can leave without losing a penny. But the owner can't, as a sunking market already means some lost value. This is a risk, you can basically price it. Real estate and renting is usually thought as a very efficient market, so it quickly adjusts to new equilibria. But that just means it's flaws (differences from ideal market and from market clearing) are usually the same as the context (regulations, population flows, regional economy) they are embedded in.
  • AndrewDucker 9y ago
    Assume, for a moment, a situation where buying is more expensive for the first five years, but then becomes cheaper (as rents rise, but the amount you repay on the mortgage stays static). In that situation people buying to rent will make a profit after about ten years. It's therefore not worth it for the short term. Also, buyers are responsible for maintenance on the building, and for some maintenance, which renters aren't. So there are trade offs. (Also, a landlord has to find renters, deal with some of them not paying, invest time and effort into managing their small business, etc)
  • freddie_mercury 9y ago
    Renting is a market. Why would it be such a special market that every seller is guaranteed to at least break even, when that doesn't hold in any other market? The market rent isn't whatever it takes for every owner to make a profit. In particular, not every owner will have the same cost of capital or the same expenses. Imagine one owner who paid off the mortgage years ago and is able to rent a unit for $200 while another owes the bank 100% of the value at 5% interest and needs to charge $300 just to break even.
• baxtr 9y ago
  The topic is almost esoteric, in a sense that they are "true believers" on both sides that always have the next argument ready why the other side can't be right. My conclusion is: the whole thing is a classic bet. If house prices develop really well, you are better off, if not you might be better off renting (assuming you are comparing same lifestyles). That's like forecasting the stock market.
  • ghaff 9y ago
    And there's also a bet on mobility versus stability. Something comes up in a year or two that makes you want to move? Renting was the better choice. End up staying in the same place for a few decades and customize a lot of things to your liking? Buying was. Personally, I think this is the biggest factor compared to a lot of financial calculations that people argue over endlessly of which many of the inputs are ultimately speculative at best.
• 6841iam 9y ago
  if you view buying as a consumption decision then a lot of this doesn't apply
• adamwong246 9y ago
  These articles sincerely freak me out. I just bought a house and frankly, I have second thoughts. But the entire subject is so polarized, I really have a hard time resolving whether or not it was a wise investment.
• 6841iam 9y ago
  another thing this article fails to address is what is the supply of homes in a given region and how wealthy are people there. if you take mountain view where google is headquartered there are many wealthy people near by thanks to rising stock prices of goog, fb, aapl, Netflix etc. because of this and the lack of homes getting built house prices are just going up. in 2017 less than 250 single family homes sold in mountain view. just put that in perspective. 250. thousands started working at google but only 250 homes sold. and the average days on market for a home was: ~10 days. if these firms continue making money and if they continue to see their stock prices going up then you'll continue to see house prices rise in these markets. articles like these fail in markets like mountain view / Palo Alto. they probably make more sense for markets that have abundant housing like Las Vegas / Denver.
• ShadowFaxSam 9y ago
  This same principal can be applied to buying or leasing a car. When I first graduated college and had my first "adult" job I wanted to purchase my first car. The general mantra I heard was "Leasing is throwing money away". I ended up financing my first car, (used) thinking I was making the correct financial decision. The problem with someone fresh out of college buying or financing a car is they really have no idea what they're next 3-5 years have in store (change in cities, jobs, etc). My friends who went the leasing option were making considerably lower monthly payments and were able to move on to another car at the end of the year with no difficulty, or could move to another city without carrying a multi-year financial obligation. I ended up moving to Europe before I had even completely paid off the car and had to sell it at a loss. I wish I could go back and simply lease a car for my first few years out of school before I figured out where my career would take me.
  • meric 9y ago
    In life people make mistakes. Picking the wrong finance option for the first car is a relatively small one. :)
  • maccard 9y ago
    If you had moved to Europe with a lease, you probably wouldn't have been able to hand over the car and walk away (unless you were at a certain point in the lease), so you would have been on the hook for the lease payments.
    • ShadowFaxSam 9y ago
      True, but the average term of a lease is only 24-36 months while the length of term for financing a car is 60-84 months. (I had a 72 month plan). So you can get out of a lease much earlier, and if you do exit early, you typically only have to make the next 6 months of payments.
      • BoorishBears 9y ago
        To be fair, not long ago 24 months was the common loan term. Now people are getting 7 year and even 9 year loans. We live in a time when you can finance a 400$ watch for 2 years. The renewed focus on chipping away at people’s monthly income is almost impressive.
• PeterStuer 9y ago
  (I wrote the payment plans calculator for asset based finances for a major financial services company, so I'm not unversed in the matter) Having been a renter for a long time and a home owner for the last decade, I can tell you that the latter is far better than the former. - The best thing: No Landlord! to tell you what you can or cannot do, fight over for repairs, or be at the whim of eviction (this will depend on the jurisdiction, but in most cases a landlord that wants you out e.g. to go live there herself will manage to evict you) - Investing always carries risk. Any investor will tell you that the very best thing you can invest in is the thing that you enjoy, as that is always a gain no matter what the financial outcomes of the investment. That said, you should match your wants to your means. I would say go for a payment plan you are fairly guaranteed to be able to make, rather than gambling on getting substantially more income in the future than you are making now. You can do this by selecting a conservative formula (went for a fixed payment, variable capped run-time myself) - I don't see why the author feels the need to be so derogatory to his readers with his frankly childish 'special snowflake' diatribes
  • sigi45 9y ago
    It feels much saver to be in his/her own home. No money? Than don't repair stuff. it sucks but is still better and cheaper than being evicted.
• tomohawk 9y ago
  We've been living in an era of low inflation for quite some time. When inflation becomes more of a real issue again, renting is really going to look like a poor decision next to buying as rents skyrocket. What if this happens as you're getting ready to retire? The calculations in the article assume PMI (not putting 20% down) and making minimum payments. Purchasing a dwelling this way adds risk and expense. It's better to wait until you have at least 20% to put down (AND 6 months of living expenses saved up), as you then avoid PMI and prove to yourself that you actually have the means to take on the purchase of a dwelling. Get the 30 year mortgage, but plan on paying it off in 10 - 15 years. Its also better to wait until the market is a buyers market. Since purchasing a home, I've always paid less than I would have if I rented. Its now paid off and I don't have to worry about it. Freedom feels really good.
  • deleted 9y ago
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• lbill 9y ago
  This article actually made me think quite a bit! I'll read it again an do the math when I'll search for a new place to live, and when I'll have some cash to invest.
• snarfy 9y ago
  The way they changed the standard deduction and personal exemptions for 2018, for most people the tax deduction from their mortgage won't be worth it. It will be better to take the standard deduction instead of itemize. I had to adjust my tax withholding this year otherwise I would have owed a few thousand next year (compared to the few thousand return I received this year). The whole tax benefit for owning a home is gone. Not only is there no benefit, you are now penalized.
• reacweb 9y ago
  There are so many factors to take into account. When you buy, you buy generally bigger than what you would rent because you buy for the future, you rent for the present. Bigger houser means also more maintenance costs and more taxes. Inflation does not always work: the value of a house getting older and outdated may decrease. The environment may degrade. OTOH, when renting, it is psychologically harder to spare. With a mortgage, you have no choice.
• digianarchist 9y ago
  What I really want as a renter is not to buy a house but to protect myself from rises in the residential housing market in whatever area I'm living. I want to invest a portion of my income that will grow when the housing market grows. That way I can continue renting but hedge against big swings should I want to buy in the future.
  • loxs 9y ago
    How do you protect yourself from drops in the local housing market? Especially if you have a mortgage?
    • BoorishBears 9y ago
      Isn’t the idea that you don’t worry about it? You’ll still have your home. On the other hand, if the market explodes and renters who are paying prices below market start getting forced to pay more or move out, you’re left with no options
      • loxs 9y ago
        Yeah but if the market collapses and you lose your job, you'll be forced to sell at a huge loss
        • BoorishBears 9y ago
          How does a drop in the local housing market lead to you losing your job? A general market crash causes many people to lose their jobs, it doesn’t discriminate against homeowners. The renters are probably in a worse position in that case too, stop paying rent for a month and you’ll be evicted the next month. Stop paying your mortgage and the bank will at least work with you for a little longer.
          • loxs 9y ago
            Yeah, like the landlord won't work with you for a little longer in a global crash? They will be very eager to start looking for new tenants? Of course, if your job is remote, a local crash won't make you lose your job, but if it's local... prices just don't drop locally without reasons.
• neffy 9y ago
  He's assuming that the rent stays constant. A lot of what he says is correct, but this is a critical point. Buy, with a standard compound rate mortgage, and you essentially freeze your rental payment. Yes, for the first few years of the mortgage you won't pay back much equity - but you can compensate for that if you overpay your mortgage (make sure terms and conditions allow you to do this without penalty), say by the amount your rent would have otherwise increased. Do that, and you can make quite a dramatic difference in the cost, and the duration of the mortgage...further reducing your rent. Broadly, house prices track the money supply growth, and money supply growth is approximately 2x a decade in the USA. Unless you're moving a lot, it is usually better to buy if you can.
  • loxs 9y ago
    No, he is not assuming that. Go read the article again
    • neffy 9y ago
      You're right, I didn't get that far... but what he does is actually worse. He assumes a 2% increase in rent (no, just no) - rents track real estate increases quite well too, the common link is the cost of the landlord's mortgage to buy the property, and an ROI of 8% on an MMF. Also no. All of this is linked back to monetary expansion - in periods of high inflation, when you also get high returns on MMF's, your rent is equally increasing rapidly. In periods of low inflation, you don't get those kinds of return without unacceptable risk.
      • Bartweiss 9y ago
        > He assumes a 2% increase in rent (no, just no)... and an ROI of 8% on an MMF. Also no. I don't think the example was an MMF - isn't it a whole-market index fund? (The link under that phrase doesn't really clarify, it's just a driver for internal traffic.) Even so, I just checked examples for those, and that class of fund has been earning about 6.5%. That's quite a difference from 8% The 2% rate on rent isn't insane as a national average, but failure to break it down still invalidates large parts of the article. In particular, the P/R section is ruined by that assumption. We're told that at P/R ~15 Owen and Rachel break even, and at P/R >20 Owen loses badly. But high P/R is basically inextricable from rapidly increasing rents. San Francisco, with national-high P/R of 45, has seen 10% average rent increases. Boston, with P/R of 28, has been averaging 4% rent increases. Individual circumstances vary, of course, but the toy example is rendered seriously misleading by overstating market returns while ignoring the fact that rent growth is guided by home price growth.
• quickthrower2 9y ago
  A point that is not mentioned is being smart about where you buy your house. If you can do some research and estimate the future demand for the area you are buying, buy a place with more of the cash going into the land value than the residence, not buy brand new (generally) etc. then your carefully chosen residence/investment might beat the stock market especially when leverage is applied.
• herbst 9y ago
  Renting = paying 'premium' to stay flexible. The reason I don't care about buying is that I don't even know which country I want to live in next year. Also i prefer to not have dept, for whatever reason.
• givan 9y ago
  In the housing market there is a useless but with big influence 3rd party that became so ordinary that nobody questions it anymore. In eastern europe after comunist regimes fall houses were very cheap and nobody needed a loan to buy one, they could collect the money in just a few years, this has changed after eu banking entered the markets and loaning become something ordinary to buy a house just like in the west this lead to an average of 10x increase in prices. If banks will be allowed only to loan money to businesses then the supply and demand alone will adjust the housing market to real buying power, this will also lead to more money being pumped into economy instead of keeping artifical economic bubbles. Walls became the new gold for "investment" banks to keep their money, this mechanism is enforced through artifical goverment scarcity and bank loaning.
  • a_imho 9y ago
    Well put. Could probably appreciate the genius behind it more if I was not on the short end of that stick.
• jlebrech 9y ago
  renting is paying a premium for the right to move easily. for a freelancer that moves from country to country that's important.
• iamaelephant 9y ago
  As soon as someone quotes the Dow Jones I stop reading because I know they have nothing worthwhile to say.
• swebs 9y ago
  >Are you better off: > - Tying up your cash into a home > - Finding an alternative investment, coupled with a rent payment? This is the part I don't get. That would require renting to be cheaper per month than having a mortgage, yet it will always be more expensive for the same property because the landlord is paying the mortgage* plus marking up the price to make a profit. *Or at least charging the equivalent market value since there will be other landlords in the city who are paying a mortgage
  • hamstercat 9y ago
    Housing is very location-dependant so that may very well be the case in your city, but not all cities are like this. Renting in my city is cheaper than a mortgage (even without accounting for property taxes). There are multiples reason that can explain this, such as local laws, popular knowledge ("renting is throwing money away!"), no understanding of opportunity cost, anything not paid on rent would be spent elsewhere, and a general lust for house. That is why it's very important to have a critical mind when evaluating a decision such a buying a property, as no two situations are the same. In some case it absolutely makes sense to buy, in others not. There's also non-financial reasons for buying, but discussions like this is strictly about financial reasoning.
  • Mvandenbergh 9y ago
    It really depends on the local price:rent multiple. In some places the price gets driven up because landlords are counting on future capital appreciation rather than cash flows from rent. " The gross rental yield on the average London property last year stood at 3.5 per cent, according to research from Deutsche Bank. In other words, a landlord buyer at these levels, according to the bank, will typically require 200 years to pay off their mortgage after tax and interest are taken into account using only the cash flows from their property, assuming a 65 per cent loan-to-value ratio, a 35-year mortgage term and a constant rate of interest." https://www.ft.com/content/922574d8-5cc4-11e7-b553-e2df1b0c3220 https://www.ft.com/content/922574d8-5cc4-11e7-b553-e2df1b0c3... In other words - the landlords are taking a levered risk that renters are not.
• nmeofthestate 9y ago
  I bought my first flat (got a mortgage on my first flat - £34.5k) in the mid nineties, I moved once, and now have no mortgage and a house worth £250k. If I had rented, I doubt I would now have savings to that amount. Also I'm kind of a saddo who likes being able to change my home to how I like it. People who rent often seem embittered by the experience, and angry that houses are too expensive to buy.
• ashelmire 9y ago
  Bad assumptions in the article. Firstly, rent in major cities (like where many of us live) is higher, sometimes much higher, than the mortgage payments for similar properties (home prices in my area give a mortgage payment of around 1500... rents are at 3k). Secondly, you can get homes for way less than 20% down without huge jumps in total cost these days through various programs. The people making the choice between renting and buying are those who would be taking advantage of programs like FHA loans.
• stevespang 9y ago
  Pummel me for not having the time to read all of this tome, but did the author include the Federal tax mortgage interest deduction in his calculations ?
• VLM 9y ago
  Nothing could be better suited to the Boomer condition than buying real estate, so for the class of people who would rather die than think which is the ideal for most americans, cliches about buying always being better than renting ARE true if you're propagandizing legacy boomers about how wise they were to follow the herd a long time ago and BTW here is some delicious clickbait advertisements etc. For everyone else, yeah, not so much. Schillers graph and assumption miss the point that we're in a long term multi decade credit crisis where the $ of GDP per $ of (new or existing) debt is collapsing. That leads to collapsing interest rates because you can't squeeze blood from a stone, low rates of investment return, hyper focus on risk control and limitation outside VC type gambling, etc. And housing prices are based on a constant $X/month being available to dump into mortgage (or rent) payments, so collapsing interest rates from normal levels when a gen-Xer was a kid to insane low levels now mean insane high real estate prices. House purchasers do not rationally evaluate the worth of a house like Graham and Dodd securities analysis from the 30s... Its a simpler calculation, I make the 95th percentile of income or whatever, I can afford $X/mo the COMMISSIONED real estate agent found me a great home which is also at the 95th percentile of luxury and quality and neighbors which costs $(X1.1)/mo (see comment about being commissioned salespeople, LOL) and at insane present interest rates $(X1.1)/mo magically turns into some insane and detached from reality purchase price. You're always buying the biggest loan you can afford, to live in the same house you'd live in regardless of current interest rate. And if you individually are a cash buyer or some other situation, it doesn't matter the market is swamped with loan buyers who control the price of the market regardless of your different personal situation. We have too much debt for the size of economy we have, and the aging of generational shifts result in new leading and declining markets, leading to crazy weirdness. That's the current bubble economy in one line. The main financial puzzle of life in the 10s, 20s, and beyond, is how to profitably short, or at least not get stuck in the carnage, of the post Boomer era in ... everything. Having a giant dollar value illiquid asset stuck like a millstone around your neck is probably not the best strategy for the future even if it was the best strategy for the past, that's all the article is really saying. Leverage is always only numerically illustrated by rising prices; post boomer the prices will fall.
• code4tee 9y ago
  There are a lot of short term periods where renting certainly makes more sense than buying. However over a lifetime it’s extremely hard to make the numbers work out if you only ever rent vs someone that conservatively owns. That of course also ignores all the non-financial benefits of owning. Many people just want to own their little part of the world and make it fit just for them—decor, style, renovation, landscaping, etc. and you just can’t get that from renting. Being a lifetime renter is just not a lifestyle most people want—-hence the aspirational nature of home ownership.
  • ghaff 9y ago
    That's really the thing. At some point, many/most people want a place that's their own which they can modify to their liking. And many of them will want a house of the sort that's difficult to rent long-term. And eventually, when retiring or looking towards retirement, they're going to want to live somewhere that can't be sold out from under them or have rent raised to the point they can't afford to live there any longer. This IMO is the real rent/buy calculation. Do you value being able to pick up and move across the country without having to deal with owning a piece of property? Or do you want to own something that you can make your own with a fairly predictable monthly bill--except when something breaks?
    • bojan 9y ago
      Something always breaks. But that doesn't mean it's not predictable. If you treat it as a monthly payment to the repairs fund, you are probably good.
      • ghaff 9y ago
        Very large and unexpected things do happen. About 10 years ago, I ended up with about a $60K bill to correct a chimney that was basically collapsing and pulling the house down with it. But I agree with your general point. In the case of my paid-off house, I figure it's about [EDITED] $1K per month (counting some big projects) for upkeep (depending on how you count things that are nice-to-dos rather than strictly necessary) plus taxes and insurance. It is a very old house (early 1800s) so maintenance is probably a bit higher than a more modern house would be.
• shmerl 9y ago
  And in some places rent is way lower than paying mortgage for the same kind of dwelling. Mortgages can simply be not affordable, while rent is.
• kudokatz 9y ago
  A deliberately-one-sided note of the downsides of home ownership: http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrib...
• Install_Gentoo 9y ago
  Rent is theft.
• deleted 9y ago
  [deleted]
• rbosinger 9y ago
  When you have kids it's nice to own because you know what school district you'll be in and knowing you are unlikely to be forced to move you can provide some stability for them. I never considered that aspect until I got there myself.
• chillingeffect 9y ago
  If you think about this from a system or landlord's perspective, it's much easier. You don't need to do lots of accounting, just consider the system: Your cost to live there is the same as as the landlord's, except for 1. Landlord's profit 2. Mortgage transaction costs and 3. Efficiencies through shared expenses. For #1, You have the power to shop around. For #2, You want to find a place where the landlord has owned or plans to own for a long-time, so e.g. the realtor's fee has long since been amortized. For #3, One larger, more efficient heater is better than a bunch of smaller ones. Same goes for insulation. Industrial appliances like washers and driers mean cheaper cost per use. Optimizing the system is about balancing your landlord's fees for running the house against your own opportunity cost to run your house as a hobby, with two credits in your favor for shared resources and buried expenses like realtor's fees. If you're handy, or have a partner who can work from home, running the house as a hobby is easier. If you or all partners work out of the home, your non-work time is much more valuable and running the house as a hobby is much more difficult.
• bobthechef 9y ago
  We can certainly debate the financial benefits of owning vs. renting. It's an important angle to consider and this article is simply challenging the automatic assumption that ownership is financially always the sounder choice. However, we might want to also consider other dimensions, like the social benefits of owning vs. renting. Is it really good for us as individuals and for society in general when property is concentrated in the hands of relatively few people? It's one thing to have a relatively large number of property owners who both rent their properties out and rent their own living space. It's a totally different thing when, say, several moguls and the government own 75% of the apartments in a city. Also, while mobility is important for some, others form communities, and still others don't have that option or desire to move around. When you don't own, you don't really have skin in the game. If something sucks, you leave. When you own, you've put in your chips. You've bought a stake in the community. You're going to care more about both the property you live in and the neighborhood. If the market takes a turn locally, there will exist a greater incentive to make the changes necessary to buck the turn instead of just moving. If the schools suck, and you care about education, ownership is more likely to create the incentive to improve them. If you rent, you move to another district. For some, that move makes sense. But for many, it makes greater sense to improve what's around them. In other words, the assumption that owning a house is primarily or solely an investment can be challenged as a narrow view of ownership.
• kerbalspacepro 9y ago
  This article has a bunch of pictures and stupid shit in between paragraphs and makes it hard to read. Not HN worthy at all.
• franzmafka 9y ago
  Author writes like hyperactive undergrad, couldnt really get past it.
• blisterpeanuts 9y ago
  In 1995, I rented an apartment and kept it for 10 years at about $1000 per month. Total invested: $120,000. Had I purchased in about 1998 or '99 when I was single, making good money doing hourly contracting, my then-$200K property would have risen to $500K by 1995 (in the area that I was house hunting). By today it would be $700K or more. I was ill-advised by parents to not buy ("Not a good investment and you don't know where you'll be in five years") and I foolishly listened to them. Now I own a couple of houses but with a lot of years left on the mortgages. Oh, how I wish I'd listened to my gut instead of lazily putting off purchasing! Today I'd have a positive net worth of probably over $1 million, instead of probably half or one third of that. To young people in their 20s-30s, I strongly recommend getting some property. Buy the least expensive condo in the best neighborhood you can find, preferably with great schools (whether you have children yet is irrelevant). Live in it a while, then try to buy a standalone house with a bit of land--either trade up or, preferably, hang onto the condo and rent it out. There are cycles in real estate, but over the long haul, prices go up. The best time to buy a house is 20 years ago. The second best time is today. Words of wisdom that are as true now as they were 50 or 100 years ago.
• sytelus 9y ago
  This article is classic example of misusing math to make an exact counter point. It ignores the fact that, - rents always keeps increasing for renter staying at same location - there are significant tax advantages for high income earners - people are not usually qualified to make investment decisions that would consistently outperforme real estate - you build significant credit worthiness - you get almost 2X or more living space for same or lower expenses - in hard times, you can sublet extra room typically generating more income than investment dividends - you get great free public schools, saving tons of money in private schools - you have a say in how your neighborhood develops and evolves
• coryfklein 9y ago
  You know what else is throwing away money: * Every house paying to own and store all the tools for maintaining a yard. * Every home owner spending 1-4 hours each maintaining said yard, when economies of scale make outside labor about 400% more efficient. Unfortunately, much of these savings don't apply when 20% of the houses in a neighborhood outsource, and they all use 8 different companies. * The ridiculous cost of building, heating, cooling, and maintaining an 8 sided cube (read: house) vs when building them adjacent to each other (read: townhouse) and pooling resources for half the maintenance. * Every house even having its own yard, as opposed to plotting residential spaces with a shared "small park" adjacent to 4-10 residences, with even larger parks dispersed throughout. (Those houses with a tiny yard the breadth of a human wingspan are exempt from this criticism.) I swear whoever is designing rural areas needs to take a look at master-planned communities like Daybreak in South Jordan, UT [1]. Sure some folks may have a libertarian, give me some land leave me alone I'll take care of myself kind of mindset, but we humans evolved in tribes. We need to build more communities that encourage random interactions with the other homo sapiens around us, while getting rid of this wasteful (both economically and from a time-wasting perspective) emphasis on owning a home and maintaining a yard. [1] http://www.daybreakutah.com/daybreak-story/ http://www.daybreakutah.com/daybreak-story/
• pascalxus 9y ago
  Here in the bay area, you can Think of it as the cost of employment. When you work at Google and get paid X, roughly 50% goes to rent. But, as long as the rest of the 50% is enough to live comfortably and build large assets, then it's still a good deal. Then when you've built up enough assets, leave and retire somewhere.
• IkmoIkmo 9y ago
  This is one of the most annoyingly formatted and written articles. So antagonistic and condescending, with not-as-funny-as-you-think jokes and images inbetween, half a dozen single sentence, hell, single line paragraphs with white space inbetween, constant repetition and using up half my screen width. As for content, meh. The point of the story is: it depends. Renting isn't throwing away money in every situation, fair enough. But it begs the question, what reasonable assumptions can be made for your situation. And here the author mostly fails to deliver, as it builds on a tens of assumptions without rooting them in evidence, or only partially. So the author will happily use a timeframe of multiple decades to show interest rates are historically quite high, and thus a 5% rate is warranted, but then disregards a historical timeframe of a few decades and just assumes houses will appreciate 2% per year (!) and inflation is also 2% a year, aka houses haven't appreciated in real terms at all. Despite the fact the timeframe she uses for interest rates, shows housing prices vastly outpace inflation. In short, awfully written, with a very basic point: it depends on assumptions, and then pulls assumptions out of thin air (no surprise, as the story ends with the buyer/renter being exactly as well off, indicating the author picked assumptions accordingly) without evidence, which often aren't even realistic in the first place. But yes, agreed, renting certainly isn't always throwing away money. And dropping out of school certainly isn't always a bad thing. And amputating your leg certainly isn't in every single case bad for you, it can sometimes be good, like when you have gangrene. But all of that is silly without seriously talking about assumptions, taking 10 pages of antagonistic writing to tell someone to run their own numbers is beyond me.