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The “pro renting” crowd has a lot of consistent falacies in arguments: - Financial calculations ignore the leveraged nature of buying a home. Small increases i

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 8y 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 8y 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.
- Simulacra 8y ago
  My renter pays for my mortgage which includes principal and interest, landlord insurance, and taxes. Not to mention an additional $380 a month and profit that I put towards the principal and my 401(k).
  - Ajedi32 8y ago
    This is perhaps the biggest argument in favor of ownership. Unless your landlord is _losing_ money on the deal, the price of rent takes _all_ other costs of ownership into account and then adds more on top of that. If you're renting, you most certainly _are_ losing money on the deal vs. what you'd pay if you owned _exactly_ the same property.
    - conceptpad 8y ago
      That's the simple logic of rent vs. buy, but as the article details, there are other considerations. Opportunity cost being one primary cost that you're not taking into account. To me the most important question is the most fundamental: "Am I a real estate investor?" - I am not, and the overwhelming majority of persons are not. And yet the moment we purchase a home, we become real estate investors. In my case the simple fact that I've only purchased one property in my entire life means that I'll do it with less education and awareness than my landlord did when he purchased the home I currently, comfortably, live in. I think my landlords own and rent more than a few properties, and they do a great job of managing them. I am not confident that I would manage this asset as well as the professionals do, and so I cannot claim that were I to buy this home from them with a mortgage, that I would gain anything. In my opinion this is the key fallacy within the argument favoring the Buy option.
      - lmm 8y ago
        If you intend to live in a home for the rest of your life then you're effectively short one home (or half a home if you're going to share). So I see buying your primary home as more like covering your short than making a positive investment in real estate.
kgwgk 8y ago
> Small increases in property value are multipled relative to your initial investment. But don’t forget that leverage works both ways. Small declines can wipe you out.
usaar333 8y ago
There's detailed calculators to handle all the issues you bring up: 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... Also, it's a trade-off. In some markets, buying wins. In others, renting wins. I personally found it hard to justify buying in expensive parts of the Bay Area: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...
conanbatt 8y ago
> Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. This is absolutely true, though it is also hard to account for that risk, which also leveraged the down side: Toronto is experiencing a 30% drop right now which probably means that for the last 3 years of home buyers, they are all having a mortgage higher then their property value. They actually have lost a lot of money and paid interest for it. > - “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. This is a nuanced economic topic: property taxes don't transfer to rent quite right. Rent is not that elastic to tax changes, while property values are. The rest of the comments you mention about tax exemption for being a homeowner is true and pretty ridiculous. EDIT: looking into toronto's case, it seems to particular about restrictions or otherwise. The point in general is that the leverage works both ways, so there is exposure.
hellofunk 8y ago
> - “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. It's quite common to rent a house when it is worth X, and for that rent to remain nearly the same even if the house becomes worth X+Y. Due to common restrictions on how much rent can be increased year to year, the taxes on the house can (and often do) grow considerably for the owner, while the rent stays nearly the same. In this very common scenario, the taxes are not at all baked into the rent and the owner starts to lose out until you move and they can raise the rent considerably for a new renter. In other words, renting does in fact protect renters from a rise in property values when real estate tax enters the equation. The flip side, of course, is when property loses value, the renters potentially lose out since they continue to pay based on prior taxes. I should add that the pros and cons are often local to the country you live. In many places, Germany for example, mortgage tax is not deducted from income tax. Which is perhaps why half the population in Germany rents a house for most of their lives.
- samsolomon 8y ago
  In the US there are only a few areas that have rent control. Most landlords can charge what they want after a year (or whenever the contract expires).
justherefortart 8y ago
Everyone I know that's wealthy owns lots of real estate. That's the difference between stocks and properties, at least property is real. Why do drug dealers, foreign nationals, and the ultra wealthy park their money in big city properties? Tangible value.
- usaar333 8y ago
  What's your threshold for wealthy? I know plenty of younger millionaires (via tech) who don't have real estate other than perhaps REITs.
  - justherefortart 8y ago
    Depends on the area. Wealthy in SF/LA/NYC is very different than wealthy in KC/OKC/DFW. Mostly it's how far your dollar goes (can you live off your investments alone).
- Bartweiss 8y ago
  The article does mention this as a special case, though. Owning property is a perfectly good way to store value, because property crashes don't always track market crashes and because property values recover even from heavy declines. Notably, all the people you're listing got wealthy, then bought property to diversity their investments. It's a very different situation than buying property in hopes of gaining wealth.
  - justherefortart 8y ago
    Most all of them bought houses leveraged and with inflation and 10-20% down, being paid off by renters, they have millions in property. My neighbor lives in Europe most the year, just comes back a few times to check on houses. Has 2 homes in Europe too. That money was built by judiciously buying and maintaining the properties over ~4 decades while trying to minimize costs. This was as a self funded real estate agent. Not someone born with money. There's a healthy mix of people I've known that have built almost all their net worth in real estate. In fact, most my programming friends that bought after the .com bust in SF and the great recession in 2008-2010 have more than doubled their single home investments.
pascalxus 8y ago
but it varies quite a bit based on location. It all depends on the Rent to own ratio in that area, which can vary quite a bit.

pkaye 8y 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 8y 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.

Simulacra 8y ago
My renter pays for my mortgage which includes principal and interest, landlord insurance, and taxes. Not to mention an additional $380 a month and profit that I put towards the principal and my 401(k).
- Ajedi32 8y ago
  This is perhaps the biggest argument in favor of ownership. Unless your landlord is _losing_ money on the deal, the price of rent takes _all_ other costs of ownership into account and then adds more on top of that. If you're renting, you most certainly _are_ losing money on the deal vs. what you'd pay if you owned _exactly_ the same property.
  - conceptpad 8y ago
    That's the simple logic of rent vs. buy, but as the article details, there are other considerations. Opportunity cost being one primary cost that you're not taking into account. To me the most important question is the most fundamental: "Am I a real estate investor?" - I am not, and the overwhelming majority of persons are not. And yet the moment we purchase a home, we become real estate investors. In my case the simple fact that I've only purchased one property in my entire life means that I'll do it with less education and awareness than my landlord did when he purchased the home I currently, comfortably, live in. I think my landlords own and rent more than a few properties, and they do a great job of managing them. I am not confident that I would manage this asset as well as the professionals do, and so I cannot claim that were I to buy this home from them with a mortgage, that I would gain anything. In my opinion this is the key fallacy within the argument favoring the Buy option.
    - lmm 8y ago
      If you intend to live in a home for the rest of your life then you're effectively short one home (or half a home if you're going to share). So I see buying your primary home as more like covering your short than making a positive investment in real estate.

kgwgk 8y ago

> Small increases in property value are multipled relative to your initial investment. But don’t forget that leverage works both ways. Small declines can wipe you out.

usaar333 8y ago

There's detailed calculators to handle all the issues you bring up: 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... Also, it's a trade-off. In some markets, buying wins. In others, renting wins. I personally found it hard to justify buying in expensive parts of the Bay Area: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...

conanbatt 8y ago

> Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. This is absolutely true, though it is also hard to account for that risk, which also leveraged the down side: Toronto is experiencing a 30% drop right now which probably means that for the last 3 years of home buyers, they are all having a mortgage higher then their property value. They actually have lost a lot of money and paid interest for it. > - “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. This is a nuanced economic topic: property taxes don't transfer to rent quite right. Rent is not that elastic to tax changes, while property values are. The rest of the comments you mention about tax exemption for being a homeowner is true and pretty ridiculous. EDIT: looking into toronto's case, it seems to particular about restrictions or otherwise. The point in general is that the leverage works both ways, so there is exposure.

hellofunk 8y ago

> - “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. It's quite common to rent a house when it is worth X, and for that rent to remain nearly the same even if the house becomes worth X+Y. Due to common restrictions on how much rent can be increased year to year, the taxes on the house can (and often do) grow considerably for the owner, while the rent stays nearly the same. In this very common scenario, the taxes are not at all baked into the rent and the owner starts to lose out until you move and they can raise the rent considerably for a new renter. In other words, renting does in fact protect renters from a rise in property values when real estate tax enters the equation. The flip side, of course, is when property loses value, the renters potentially lose out since they continue to pay based on prior taxes. I should add that the pros and cons are often local to the country you live. In many places, Germany for example, mortgage tax is not deducted from income tax. Which is perhaps why half the population in Germany rents a house for most of their lives.

samsolomon 8y ago
In the US there are only a few areas that have rent control. Most landlords can charge what they want after a year (or whenever the contract expires).

justherefortart 8y ago

Everyone I know that's wealthy owns lots of real estate. That's the difference between stocks and properties, at least property is real. Why do drug dealers, foreign nationals, and the ultra wealthy park their money in big city properties? Tangible value.

usaar333 8y ago
What's your threshold for wealthy? I know plenty of younger millionaires (via tech) who don't have real estate other than perhaps REITs.
- justherefortart 8y ago
  Depends on the area. Wealthy in SF/LA/NYC is very different than wealthy in KC/OKC/DFW. Mostly it's how far your dollar goes (can you live off your investments alone).
Bartweiss 8y ago
The article does mention this as a special case, though. Owning property is a perfectly good way to store value, because property crashes don't always track market crashes and because property values recover even from heavy declines. Notably, all the people you're listing got wealthy, then bought property to diversity their investments. It's a very different situation than buying property in hopes of gaining wealth.
- justherefortart 8y ago
  Most all of them bought houses leveraged and with inflation and 10-20% down, being paid off by renters, they have millions in property. My neighbor lives in Europe most the year, just comes back a few times to check on houses. Has 2 homes in Europe too. That money was built by judiciously buying and maintaining the properties over ~4 decades while trying to minimize costs. This was as a self funded real estate agent. Not someone born with money. There's a healthy mix of people I've known that have built almost all their net worth in real estate. In fact, most my programming friends that bought after the .com bust in SF and the great recession in 2008-2010 have more than doubled their single home investments.

pascalxus 8y ago

but it varies quite a bit based on location. It all depends on the Rent to own ratio in that area, which can vary quite a bit.