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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

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 9y 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 9y 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 9y 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 9y 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.
      - CamTin 9y ago
        This is an incredible way of putting it. I'm not sure if I like what it implies, though, but I'll definitely be mulling it over. It's not a perfect analogy to securities shorting, because no one is going to lend you a house to immediately sell, so effectively all us renters would actually be naked short-sellers! Maybe there is a business model in lending out houses so people can short the housing market? Again, not sure how that would work since houses aren't fungible in the same way that securities are.
        Simulacra 9y ago
        Lending out houses.. Explain. I'm intrigued. My long term goal (we're not counting my husband here) is to buy a townhouse, live in it for a few years, then rent it out and buy a free standing house - with a backyard! Now we'll have two or more rental properties in competitive markets hopefully bringing in some income. I've been extremely lucky with the house I own now. Good tenant that I did not raise the rent on at renewal. $380 is plenty for me. She knows my goal is to protect the house, not make money off of it, so maybe I'm not the best person for an example in real estate investment.
        CamTin 9y ago
        The way it works with securities is: I own a stock. You think the price will go down. To make this bet, you borrow the stock from me. You then immediately sell it at the current price. Later, if the stock is down, you can buy it back at the new (lower) price, give it back to be, and pocket the difference. If, unfortunately for you, the stock's price has actually gone up, you have to either continue to pay for the carry on the position (essentially paying me rent for my stock), or else take the hit by buying the stock at a higher price, giving it back to me, and eating the difference. The analogy doesn't quite work with houses, because they're not fungible. I don't care which specific share of stock I get back, because they're all the same. I DO care which specific house I get back if I rent it out to you. Furthermore, I would be REALLY mad if I rented you a house and you then sold it to someone else, since that is just flatly illegal. Still, I wonder if a lot of the structural problem with housing markets is that there is insufficient short pressure. In other words, there is an obvious way to make the bet that prices will go up (buy one), but no obvious way of making the opposite bet, unless you already have a house, and decide to sell it and begin renting, which hardly anybody does. How can we let ordinary people short housing in their area?
  - dagw 9y ago
    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. Assuming you could have made the same down-payment and gotten the same deal on a mortgage as the landlord.
  - VLM 9y ago
    Note how carefully the claim is written, rental income = PITI + insurance + taxes + 380 per month With the implication that the ONLY costs of a house are PITI, insurance, and taxes. However, if you add in reasonable, even cheap values for yardwork/lawncare, roof depreciation and replacement, HVAC depreciation and replacement, and general refurbishment remodeling and replacement of interior surfaces, OP is losing a large amount of money per month. The gamble is, will OPs house appreciate in value more than OP is losing per month, or will OPs other investments made with 380 be able to keep up? OP can always walk away and mail the keys to the lender, of course, if it comes to that, so maybe extracting $400/month with the intent to foreclose when eventually necessary is a legit plan. A lot of people treat normal household expenses as an unfair accident, as if replacing the old fashioned tank water heater every decade is some totally unpredictable meteor strike that should never be accounted for in the cost of ownership. In general most models of home ownership hold water if the only expenses accounted for are annual or shorter term, but I spend roughly the same amount, maybe more, on average, of expenses of longer than annual duration. $15K every 15 years for a roof is not unpredictable meteor strike but is actually about $85/month. Built in dishwashers are designed to break down requiring replacement every three years, which isn't a disaster but is thirty bucks per month on average. A new 5K asphalt driveway every twenty years is not an unpredictable accident but is about $20/month. True, none of these are small bleeds are over $100/month or so, but the average house has well over a dozen of them. Figure about $1K to $2K per month of longer than annual term expenses. Then there are remodeling costs. Its very difficult to sell a house with a 1970s kitchen. Most house kitchens seem to get remodeled every two decades for perhaps $25K each time. You can pretend that was an unpredictable uninsured natural disaster, but more realistically you need to save $105/month for the periodic kitchen remodel. Of course a stylish avocado color bathroom or shag carpet era living room will require similar amounts of money... The expense of "fashion" is around $500 per month for a typical house. You can do the elderly WWII or boomer thing and refuse to remodel your house, but the cost is coming out of the sales price eventually. Wood paneled shag carpet rec room in the basement ... people are going to make fun of stainless steel appliances and especially granite countertops the same way in 2030 or so, if not sooner. There do exist weird pseudo-accidental problems. Planting a fast growing inappropriate tree in a dangerous location is the same thing as committing to spending $1K for a bonded insured tree service to chop it down and grind the stump. You can try to hand wave away that nobody could have known that cute little pine sprig on the property line could be a kilobuck liability a decade later, but uh, yeah, many people could tell that a big dead tree overhanging the neighbors house is going to be an expensive and entirely predictable problem, eventually.
  - jartelt 9y ago
    Sure, but the landlord can also lose his/her shirt if the market is in a valley at the time they need to sell. Your comment ignores the fact that there is market risk for property owners.
  - Rylinks 9y ago
    Prices are not set to guarantee profits for landlords. If it's a cold rental market, the owner of the property still would prefer to lose only a small amount, rather than having the unit sit empty and losing all of the fixed costs.
    - paulclinger 9y ago
      This cuts both ways though: the landlords will increase their profits when they can (when the market allows) to compensate for the risk they take on during "cold" times. The rent being paid also includes other expenses that the landlord has, like marketing of the property, that the owners don't have.
  - refurb 9y ago
    That's true, but your landlord may have bought for much cheaper a long time ago. That's not available to you right now. So renting could be cheaper than buying and the landlord makes a profit.
- ironjunkie 9y ago
  Oversimplified statement. You still had to put a downpayment that didn't go somewhere else for the whole length of your mortgage. Also, if your rent covers your mortgage, I will assume that you were simply lucky enough that in your particular area the housing market rose more rapidly than in others (for example the bay area). But you didn't know this in advance and it could very well have gone the other way around.
  - Simulacra 9y ago
    Me? Oh, no my only payments were about $3,000 in the closing costs. I did NOT have to put down a sizable down payment because I got an FHA backed loan.
- scarface74 9y ago
  Until your renter stop paying and if takes you three to six months to evict them or until they trash the place and you have to pay for repairs. Been there. Done that.
  - gambiting 9y ago
    Isn't there insurance for this exact kind of thing?
    - scarface74 9y ago
      Insurance for vacancies and dealing with non paying tenants -- no.
  - pc86 9y ago
    This can certainly happen but it's definitely uncommon bordering on rare, especially for folks who keep paying (or with whom you're willing to work out a deal). And running credit and background checks on prospective renters goes a long way toward eliminating folks who are going to be prone to stop paying a lease halfway through.
    - scarface74 9y ago
      Things happen. People lose their jobs and according to most banking standards, they expect a 75% occupancy rate when considering rental income. It only takes one bad tenant who doesn't pay for 3 months over 3 or four years and repair costs to wipe out all of your profit.
  - Simulacra 9y ago
    Mortgage insurance. It's requires for my FHA loan, but I've also paid 3 months ahead on my mortgage to give me additional breathing room.
    - scarface74 9y ago
      Mortgage insurance doesn't protect you, it protects the bank. The bank can still foreclose just as fast, they are just guaranteed to get their money if the price they sell the home for is less than the amount you owe. But it still only takes one bad tenant or one good tenant that comes on hard times to cause you to lose all of the profit.
- digianarchist 9y ago
  Here in Toronto landlords are actually paying above the rent in order to meet their mortgage/insurance obligations. https://betterdwelling.com/cibc-over-44-of-toronto-condo-investors-dont-get-enough-rent-to-cover-the-mortgage/ https://betterdwelling.com/cibc-over-44-of-toronto-condo-inv...
- traytonwhite 9y ago
  Your renter pays the market rate for rent for that property (in general). In your case, that happens to work out in your favor. But in a place like SF, a 2 bedroom apartment costs $1.5 million, which is ballpark $7k+ a month. I can rent a 2 bedroom for less than half that because the market is simply not paying $7k a month for 2 bedroom apartments. I've also rented a house where my rent payment did not even cover the mortgage (I knew the landlords - they had bought in 2006 and were still waiting on the market to rebound so they could cash out and move on). So as the article says - it all depends.
  - Simulacra 9y ago
    Actually, I screwed up there. I am charging below market rate. I was most concerned with finding a good tenant that would cover my fixed costs each month, plus $100 profit for repair, etc. My place got 4 applications within 12 hours of listing. If I'd known then what I know now, I would've priced it $3-400 more!
alanbernstein 9y ago
> The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess. But the investment is what allows moving up, no?
- code4tee 9y ago
  Exactly. Someone buying a home for a million dollars typically isn’t buying that from scratch. They sell an existing home, roll their equity into the new property and trade up. People can argue forever if real estate is a good investment (relative to other investments) but on the home you live in if you rent your whole life you get nothing at retirement. If you own you do slowly but surely build up a real asset over time. The best argument for owning in a given market over the long term is that if you rent you’re only winning if the landlord is losing money. The whole reason the landlord is renting to you is that you more than cover the cost of owning the property.
  - joncrocks 9y ago
    In your example you cite when you get to retirement and have 'nothing', what you should have is a diversified portfolio of investments that would have given you a less risky place to put the money that you haven't put into property. The best argument I've heard is that one thing owning property does do is focus you on saving towards something in a way that saving towards 'the future' doesn't.
code4tee 9y ago
People tend to move up as they establish and grow a family but then sideways or down in retirement. That equity stays even if you move up into a bigger house. It’s not uncommon for someone say in an extensive Northeast community to retire to a warmer climate down south, sell their house, use the proceeds to buy something much nicer (in a low COL area) and cash out a nice payday from their equity.
- lotsofpulp 9y ago
  It's not uncommon, but I doubt it applies to people who did not buy within commuting distance of a major city. The housing stock is old in the Northeast, the taxes high and getting higher, and unless there's more high paying jobs coming, there's no one to buy the houses.
lmm 9y ago
> Please show me how the small increases in property value multiplies my initial investment. You're leveraged 5x (say), so you get 5x as much growth. Just pulling numbers out of nowhere, let's imagine you buy a $200k house with 40k down; after ten years the house is worth a nominal $400k which is $300k in today's dollars. You've gained 100k on your initial 40k, whereas if you'd invested the $40k in the stock market at the same rate of return you'd only have made 20k. You'd achieve the same thing by taking out a loan for $160k and putting it in the stock market (per the article, property and stocks grow at the same rate), but a) you can't - a bank won't lend you that much money to buy stocks, certainly not at the same low rates of interest, and b) if they did you'd be on the hook for the risk, with ordinary loans you don't have the non-recourse protection of a mortgage. > The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess. What's the connection? If you plan on buying a $600K house when you're 50 that will consume $600K, but that's true whether you rent or buy your current house. > Renters don't always pay the taxes. There are several rentals in my neighborhood that are less than the mortgage. It's pretty rare though, and seems like the market would generally adjust either way. Occasionally in a given market renting will be cheap enough to be worthwhile. But generally renting will be more expensive since you're competing with people who can't afford to buy. > 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. It's playing the system as intended rather than "beating" it, but the bottom line is: the government is willing to pay you $x (in tax deductions) to buy instead of renting. Tax incentives are one of the few sources of free money out there in investing: when you have the opportunity you jump at it. > That "savings" on tax isn't savings... it is rent on top of rent... let that sink in. What are you talking about?
- enraged_camel 9y ago
  >>You've gained 100k on your initial 40k You haven't really gained 100k. You have gained 100k multiplied by your percentage of equity, i.e. the amount you have paid so far into your mortgage principal. Assuming it's a 30-year mortgage, that will be around 30%, so around 30k. (And of course, the house price doubling in 10 years is a bit unrealistic unless you live in a booming area.)

Simulacra 9y 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 9y 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 9y 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 9y 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.
    - CamTin 9y ago
      This is an incredible way of putting it. I'm not sure if I like what it implies, though, but I'll definitely be mulling it over. It's not a perfect analogy to securities shorting, because no one is going to lend you a house to immediately sell, so effectively all us renters would actually be naked short-sellers! Maybe there is a business model in lending out houses so people can short the housing market? Again, not sure how that would work since houses aren't fungible in the same way that securities are.
      - Simulacra 9y ago
        Lending out houses.. Explain. I'm intrigued. My long term goal (we're not counting my husband here) is to buy a townhouse, live in it for a few years, then rent it out and buy a free standing house - with a backyard! Now we'll have two or more rental properties in competitive markets hopefully bringing in some income. I've been extremely lucky with the house I own now. Good tenant that I did not raise the rent on at renewal. $380 is plenty for me. She knows my goal is to protect the house, not make money off of it, so maybe I'm not the best person for an example in real estate investment.
        CamTin 9y ago
        The way it works with securities is: I own a stock. You think the price will go down. To make this bet, you borrow the stock from me. You then immediately sell it at the current price. Later, if the stock is down, you can buy it back at the new (lower) price, give it back to be, and pocket the difference. If, unfortunately for you, the stock's price has actually gone up, you have to either continue to pay for the carry on the position (essentially paying me rent for my stock), or else take the hit by buying the stock at a higher price, giving it back to me, and eating the difference. The analogy doesn't quite work with houses, because they're not fungible. I don't care which specific share of stock I get back, because they're all the same. I DO care which specific house I get back if I rent it out to you. Furthermore, I would be REALLY mad if I rented you a house and you then sold it to someone else, since that is just flatly illegal. Still, I wonder if a lot of the structural problem with housing markets is that there is insufficient short pressure. In other words, there is an obvious way to make the bet that prices will go up (buy one), but no obvious way of making the opposite bet, unless you already have a house, and decide to sell it and begin renting, which hardly anybody does. How can we let ordinary people short housing in their area?
- dagw 9y ago
  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. Assuming you could have made the same down-payment and gotten the same deal on a mortgage as the landlord.
- VLM 9y ago
  Note how carefully the claim is written, rental income = PITI + insurance + taxes + 380 per month With the implication that the ONLY costs of a house are PITI, insurance, and taxes. However, if you add in reasonable, even cheap values for yardwork/lawncare, roof depreciation and replacement, HVAC depreciation and replacement, and general refurbishment remodeling and replacement of interior surfaces, OP is losing a large amount of money per month. The gamble is, will OPs house appreciate in value more than OP is losing per month, or will OPs other investments made with 380 be able to keep up? OP can always walk away and mail the keys to the lender, of course, if it comes to that, so maybe extracting $400/month with the intent to foreclose when eventually necessary is a legit plan. A lot of people treat normal household expenses as an unfair accident, as if replacing the old fashioned tank water heater every decade is some totally unpredictable meteor strike that should never be accounted for in the cost of ownership. In general most models of home ownership hold water if the only expenses accounted for are annual or shorter term, but I spend roughly the same amount, maybe more, on average, of expenses of longer than annual duration. $15K every 15 years for a roof is not unpredictable meteor strike but is actually about $85/month. Built in dishwashers are designed to break down requiring replacement every three years, which isn't a disaster but is thirty bucks per month on average. A new 5K asphalt driveway every twenty years is not an unpredictable accident but is about $20/month. True, none of these are small bleeds are over $100/month or so, but the average house has well over a dozen of them. Figure about $1K to $2K per month of longer than annual term expenses. Then there are remodeling costs. Its very difficult to sell a house with a 1970s kitchen. Most house kitchens seem to get remodeled every two decades for perhaps $25K each time. You can pretend that was an unpredictable uninsured natural disaster, but more realistically you need to save $105/month for the periodic kitchen remodel. Of course a stylish avocado color bathroom or shag carpet era living room will require similar amounts of money... The expense of "fashion" is around $500 per month for a typical house. You can do the elderly WWII or boomer thing and refuse to remodel your house, but the cost is coming out of the sales price eventually. Wood paneled shag carpet rec room in the basement ... people are going to make fun of stainless steel appliances and especially granite countertops the same way in 2030 or so, if not sooner. There do exist weird pseudo-accidental problems. Planting a fast growing inappropriate tree in a dangerous location is the same thing as committing to spending $1K for a bonded insured tree service to chop it down and grind the stump. You can try to hand wave away that nobody could have known that cute little pine sprig on the property line could be a kilobuck liability a decade later, but uh, yeah, many people could tell that a big dead tree overhanging the neighbors house is going to be an expensive and entirely predictable problem, eventually.
- jartelt 9y ago
  Sure, but the landlord can also lose his/her shirt if the market is in a valley at the time they need to sell. Your comment ignores the fact that there is market risk for property owners.
- Rylinks 9y ago
  Prices are not set to guarantee profits for landlords. If it's a cold rental market, the owner of the property still would prefer to lose only a small amount, rather than having the unit sit empty and losing all of the fixed costs.
  - paulclinger 9y ago
    This cuts both ways though: the landlords will increase their profits when they can (when the market allows) to compensate for the risk they take on during "cold" times. The rent being paid also includes other expenses that the landlord has, like marketing of the property, that the owners don't have.
- refurb 9y ago
  That's true, but your landlord may have bought for much cheaper a long time ago. That's not available to you right now. So renting could be cheaper than buying and the landlord makes a profit.
ironjunkie 9y ago
Oversimplified statement. You still had to put a downpayment that didn't go somewhere else for the whole length of your mortgage. Also, if your rent covers your mortgage, I will assume that you were simply lucky enough that in your particular area the housing market rose more rapidly than in others (for example the bay area). But you didn't know this in advance and it could very well have gone the other way around.
- Simulacra 9y ago
  Me? Oh, no my only payments were about $3,000 in the closing costs. I did NOT have to put down a sizable down payment because I got an FHA backed loan.
scarface74 9y ago
Until your renter stop paying and if takes you three to six months to evict them or until they trash the place and you have to pay for repairs. Been there. Done that.
- gambiting 9y ago
  Isn't there insurance for this exact kind of thing?
  - scarface74 9y ago
    Insurance for vacancies and dealing with non paying tenants -- no.
- pc86 9y ago
  This can certainly happen but it's definitely uncommon bordering on rare, especially for folks who keep paying (or with whom you're willing to work out a deal). And running credit and background checks on prospective renters goes a long way toward eliminating folks who are going to be prone to stop paying a lease halfway through.
  - scarface74 9y ago
    Things happen. People lose their jobs and according to most banking standards, they expect a 75% occupancy rate when considering rental income. It only takes one bad tenant who doesn't pay for 3 months over 3 or four years and repair costs to wipe out all of your profit.
- Simulacra 9y ago
  Mortgage insurance. It's requires for my FHA loan, but I've also paid 3 months ahead on my mortgage to give me additional breathing room.
  - scarface74 9y ago
    Mortgage insurance doesn't protect you, it protects the bank. The bank can still foreclose just as fast, they are just guaranteed to get their money if the price they sell the home for is less than the amount you owe. But it still only takes one bad tenant or one good tenant that comes on hard times to cause you to lose all of the profit.
digianarchist 9y ago
Here in Toronto landlords are actually paying above the rent in order to meet their mortgage/insurance obligations. https://betterdwelling.com/cibc-over-44-of-toronto-condo-investors-dont-get-enough-rent-to-cover-the-mortgage/ https://betterdwelling.com/cibc-over-44-of-toronto-condo-inv...
traytonwhite 9y ago
Your renter pays the market rate for rent for that property (in general). In your case, that happens to work out in your favor. But in a place like SF, a 2 bedroom apartment costs $1.5 million, which is ballpark $7k+ a month. I can rent a 2 bedroom for less than half that because the market is simply not paying $7k a month for 2 bedroom apartments. I've also rented a house where my rent payment did not even cover the mortgage (I knew the landlords - they had bought in 2006 and were still waiting on the market to rebound so they could cash out and move on). So as the article says - it all depends.
- Simulacra 9y ago
  Actually, I screwed up there. I am charging below market rate. I was most concerned with finding a good tenant that would cover my fixed costs each month, plus $100 profit for repair, etc. My place got 4 applications within 12 hours of listing. If I'd known then what I know now, I would've priced it $3-400 more!

alanbernstein 9y ago

> The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess. But the investment is what allows moving up, no?

code4tee 9y ago
Exactly. Someone buying a home for a million dollars typically isn’t buying that from scratch. They sell an existing home, roll their equity into the new property and trade up. People can argue forever if real estate is a good investment (relative to other investments) but on the home you live in if you rent your whole life you get nothing at retirement. If you own you do slowly but surely build up a real asset over time. The best argument for owning in a given market over the long term is that if you rent you’re only winning if the landlord is losing money. The whole reason the landlord is renting to you is that you more than cover the cost of owning the property.
- joncrocks 9y ago
  In your example you cite when you get to retirement and have 'nothing', what you should have is a diversified portfolio of investments that would have given you a less risky place to put the money that you haven't put into property. The best argument I've heard is that one thing owning property does do is focus you on saving towards something in a way that saving towards 'the future' doesn't.

code4tee 9y ago

People tend to move up as they establish and grow a family but then sideways or down in retirement. That equity stays even if you move up into a bigger house. It’s not uncommon for someone say in an extensive Northeast community to retire to a warmer climate down south, sell their house, use the proceeds to buy something much nicer (in a low COL area) and cash out a nice payday from their equity.

lotsofpulp 9y ago
It's not uncommon, but I doubt it applies to people who did not buy within commuting distance of a major city. The housing stock is old in the Northeast, the taxes high and getting higher, and unless there's more high paying jobs coming, there's no one to buy the houses.

lmm 9y ago

> Please show me how the small increases in property value multiplies my initial investment. You're leveraged 5x (say), so you get 5x as much growth. Just pulling numbers out of nowhere, let's imagine you buy a $200k house with 40k down; after ten years the house is worth a nominal $400k which is $300k in today's dollars. You've gained 100k on your initial 40k, whereas if you'd invested the $40k in the stock market at the same rate of return you'd only have made 20k. You'd achieve the same thing by taking out a loan for $160k and putting it in the stock market (per the article, property and stocks grow at the same rate), but a) you can't - a bank won't lend you that much money to buy stocks, certainly not at the same low rates of interest, and b) if they did you'd be on the hook for the risk, with ordinary loans you don't have the non-recourse protection of a mortgage. > The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess. What's the connection? If you plan on buying a $600K house when you're 50 that will consume $600K, but that's true whether you rent or buy your current house. > Renters don't always pay the taxes. There are several rentals in my neighborhood that are less than the mortgage. It's pretty rare though, and seems like the market would generally adjust either way. Occasionally in a given market renting will be cheap enough to be worthwhile. But generally renting will be more expensive since you're competing with people who can't afford to buy. > 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. It's playing the system as intended rather than "beating" it, but the bottom line is: the government is willing to pay you $x (in tax deductions) to buy instead of renting. Tax incentives are one of the few sources of free money out there in investing: when you have the opportunity you jump at it. > That "savings" on tax isn't savings... it is rent on top of rent... let that sink in. What are you talking about?

enraged_camel 9y ago
>>You've gained 100k on your initial 40k You haven't really gained 100k. You have gained 100k multiplied by your percentage of equity, i.e. the amount you have paid so far into your mortgage principal. Assuming it's a 30-year mortgage, that will be around 30%, so around 30k. (And of course, the house price doubling in 10 years is a bit unrealistic unless you live in a booming area.)