5 ms·

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

thetrumanshow 9y 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 9y ago
  No, because you are not calculating imputed rent into your equation.
  - prewett 9y 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 9y 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 9y ago
        And various deductions including interest.
bendmorris 9y 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 9y 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.

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 9y ago
No, because you are not calculating imputed rent into your equation.
- prewett 9y 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 9y 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 9y ago
      And various deductions including interest.

bendmorris 9y 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 9y 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.