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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

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.

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.