4 ms·

I think once you factor in property taxes for all of those years, it’s pretty close to a wash.

by thetrumanshow 8y ago

koverda 8y ago
What if you factor in rent on the other side of the equation?
- prewett 8y ago
  There was a detailed article and discussion on that yesterday, and it isn't so straightforward: https://news.ycombinator.com/item?id=16899541 https://news.ycombinator.com/item?id=16899541
mikeyouse 8y ago
Renters still pay property taxes -- they're imputed in the cost of renting a house.
- thetrumanshow 8y ago
  I’m not comparing it to the cost of renting, I’m simply saying that when I sell my home for $200,000 having bought it in the 1970s, at best it will be nearly break even.
  - dlp211 8y ago
    No, because you are not calculating imputed rent into your equation.
    - prewett 8y ago
      But you also have to calculate the opportunity cost of having a bunch of money sunk in an asset that (apparently) didn't perform spectacularly. By renting he could have invested that $200k in an S&P 500 index fund. Assuming he bought his house today in 1978, the S&P 500 increased over 27x ($97 on 4/23/1978, and $2670 today), plus he would have got about 2% dividends. I'm guessing his house didn't cost $7400 in 1978 (not to mention the 1 - 2% "dividend" he paid the government in property taxes), so I'd say renting isn't obviously worse. Depends on the rent.
      - dlp211 8y ago
        Renting doesn't magically mean you have additional money to invest. The only opportunity cost to factor is the value of the down payment. But you also need to consider their cash flow as rents rose and their mortgage payment remained mostly the same or dropped as they refinanced plus now that they own their home outright.
        mancerayder 8y ago
        And various deductions including interest.
- bendmorris 8y ago
  That's not really true (something that land value tax advocates will gladly point out) because supply of housing is fixed in the short term. Landlords charge what the market will bear for housing; rent isn't anchored to their actual costs. They bear the burden of increasing costs. There is a risk that property tax could suppress supply of housing in the long term, since it makes rentals as investment vehicles less profitable, and therefore indirectly contribute to increasing rents.
  - hiram112 8y ago
    Agreed. In my high COL area, renting is definitely cheaper than owning, at least with regard to small condos that I look for. Foreign and older buyers have pushed up the price of condos as rental properties, but now there is a glut, and they must rent at the price the market will bare, which has absolutely nothing to do with their actual costs, but instead what the average 30 year old can afford here. And in my city, there simply aren't enough millenials able to buy these high priced condos ($300K + $800 in HOA / taxes per month). Thus the rent gets pushed down to $1500, which is way less than it'd cost to buy, and is definitely a money-loser for many of the owners after paying interest, management fees, taxes, HOAs, etc.
gnarcoregrizz 8y ago
not true in CA, property taxes are basically locked in when you buy a home, and can't increase more than 2% per year.

I think once you factor in property taxes for all of those years, it’s pretty close to a wash.

koverda 8y ago

What if you factor in rent on the other side of the equation?

prewett 8y ago
There was a detailed article and discussion on that yesterday, and it isn't so straightforward: https://news.ycombinator.com/item?id=16899541 https://news.ycombinator.com/item?id=16899541

mikeyouse 8y ago

Renters still pay property taxes -- they're imputed in the cost of renting a house.

thetrumanshow 8y ago
I’m not comparing it to the cost of renting, I’m simply saying that when I sell my home for $200,000 having bought it in the 1970s, at best it will be nearly break even.
- dlp211 8y ago
  No, because you are not calculating imputed rent into your equation.
  - prewett 8y ago
    But you also have to calculate the opportunity cost of having a bunch of money sunk in an asset that (apparently) didn't perform spectacularly. By renting he could have invested that $200k in an S&P 500 index fund. Assuming he bought his house today in 1978, the S&P 500 increased over 27x ($97 on 4/23/1978, and $2670 today), plus he would have got about 2% dividends. I'm guessing his house didn't cost $7400 in 1978 (not to mention the 1 - 2% "dividend" he paid the government in property taxes), so I'd say renting isn't obviously worse. Depends on the rent.
    - dlp211 8y ago
      Renting doesn't magically mean you have additional money to invest. The only opportunity cost to factor is the value of the down payment. But you also need to consider their cash flow as rents rose and their mortgage payment remained mostly the same or dropped as they refinanced plus now that they own their home outright.
      - mancerayder 8y ago
        And various deductions including interest.
bendmorris 8y ago
That's not really true (something that land value tax advocates will gladly point out) because supply of housing is fixed in the short term. Landlords charge what the market will bear for housing; rent isn't anchored to their actual costs. They bear the burden of increasing costs. There is a risk that property tax could suppress supply of housing in the long term, since it makes rentals as investment vehicles less profitable, and therefore indirectly contribute to increasing rents.
- hiram112 8y ago
  Agreed. In my high COL area, renting is definitely cheaper than owning, at least with regard to small condos that I look for. Foreign and older buyers have pushed up the price of condos as rental properties, but now there is a glut, and they must rent at the price the market will bare, which has absolutely nothing to do with their actual costs, but instead what the average 30 year old can afford here. And in my city, there simply aren't enough millenials able to buy these high priced condos ($300K + $800 in HOA / taxes per month). Thus the rent gets pushed down to $1500, which is way less than it'd cost to buy, and is definitely a money-loser for many of the owners after paying interest, management fees, taxes, HOAs, etc.

gnarcoregrizz 8y ago

not true in CA, property taxes are basically locked in when you buy a home, and can't increase more than 2% per year.