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Rent means having access to liquid capital that you can invest in alternatives that are not property. It also means: no property taxes, maintenance costs, stam

Rent means having access to liquid capital that you can invest in alternatives that are not property. It also means: no property taxes, maintenance costs, stamp duty, and it makes it easy to move.

chrisseaton 8y ago
> Rent means having access to liquid capital No rent means you're spending more on housing, as you need to pay for someone's mortgage, costs and their profit, so it means you save less and so have less liquid capital, and also don't have any non-liquid capital in your equity. > It also means: no property taxes, maintenance costs, stamp duty No you're paying for all that, via your rent.
- dragonwriter 8y ago
  > > Rent means having access to liquid capital > Rent means you're spending more on housing That's not a contradiction; liquidity has a cost. Yes, by tieing up capital in property purchase, you can, on average, trade liquidity for lower total cost if you are using the property forever. (Whether the actual total cost ends up being lower if you ever decide to move depends on market conditions and timing and transaction costs; transaction costs on both ends of a home purchase or sale are a lot higher than entering or exiting a residential lease.)
  - chrisseaton 8y ago
    I still don't understand what you mean. If I pay $2000 a month rent I'm always going to have less liquid capital than if I pay $1000 a month mortgage, aren't I? The mortgage payer ties up their money in the equity so it's not liquid, but the rent payer's money is just gone, so it's infinitely not liquid, and on top of that more of their money is gone. When you've paid off the mortgage the mortgage payer has more liquid capital, and a property.
    - spoonie 8y ago
      You’re forgetting about the opportunity cost of locking up all of that capital in an asset that has a high carrying cost (maintenance, taxes). The initial downpayment could have been used for other investments, so you have to compare how much you could have earned if you’d invested and rented instead of bought the house. https://youtu.be/NZR_vMTLfIk https://youtu.be/NZR_vMTLfIk
      - chrisseaton 8y ago
        > an asset that has a high carrying cost (maintenance, taxes) I don't know who you think ends up paying for maintenance and taxes in a rented property - it's the renter, through their rent.
        spoonie 8y ago
        I didn’t say renters dont pay. What I’m saying is that you don’t (usually) get to buy a house for $0 down. So it’s never a choice of $2000/mo for rent vs $1000/mo for mortgage. It’s more like $20k cash + $2000/mo for rent vs $20k equity + $1000/mo mortgage. Over long enough time horizons the monthly payments don’t matter and it’s a question of which investment appreciates more.
        wahern 8y ago
        Unless you're already wealthy, it's difficult if not impossible to have access to a large investment that provides 5x (or more!) leverage. A home is a leveraged investment and security rolled into one. Even if your mortgage interest is greater than property value appreciation you could conditionally still come out ahead as compared to the available alternatives. Diversity, leverage, better appreciation: if you're not already wealthy you can really only pick 1 (maybe 2) out of the 3. And this ignores the value of having stable monthly living expenses, something not otherwise possible without rent control. You can of course buy cheap land, but such places are typically remote from employment opportunities and, while possible, that approach is just another form of speculation--people will readily share stories about living in the country and telecommuting to a high paying job (successful speculation), but few would ever discuss how they ended up stuck in a cycle of minimum wage employment (unsuccessful speculation).
- spoonie 8y ago
  Tell that to some investors in Toronto, I think they missed the memo. :P https://business.financialpost.com/personal-finance/mortgages-real-estate/condo-owners-make-big-gains-but-nearly-half-in-negative-cash-flow-report https://business.financialpost.com/personal-finance/mortgage...
  - marketgod 8y ago
    The laws here do not favour the owner at all so it's hard. If you own 10+ condos, you can't move into the condo to evict the renter, so you are at their mercy. Toronto is probably the worst market for being a landlord. The good part is people here move frequently because travel times are ridiculous and people are willing to lose money on rent to reduce the headaches. Some tenants in apartment buildings are paying $1200 for a 2 bedroom, when the market rent is $2900. The landlord can't do anything.
    - spoonie 8y ago
      Landlords can move in for personal use, but not as a way to evict a tenant. Seems perfectly fair to me, security of tenure is something that benefits the whole community.
      - marketgod 8y ago
        Not really when people feel entitled to live in the downtown area at an extremely low rent. For example, someone new moves in for $2400 for a 2 bedroom whereas a person who has been there 20 years is paying $1300. The new person ends up having to subsidize the tenured renter and the landlord also is not able to maximize their profit. Then a big corporation can come in and buy the property because a landlord cannot maintain it well enough. The big companies have their own renovation teams who they own so it's profit to maintain it whereas the smaller landlords end up having to pay a 3rd party and they lose money. It's a delicate balance. 1.9% yearly increases and up to 4.9% on capital expenditures makes it a challenge.
    - jashkenas 8y ago
      Huh? If the landlords are willing to rent it to the tenants for $1200, isn't that literally the market rent?
- ThrustVectoring 8y ago
  Rents are set by supply (number of units available) and demand (number and pay of nearby jobs). An exogenous change in maintenance costs affects neither supply nor demand. A landlord is not going to drop rent merely because they can maintain your apartment cheaper, nor are they able to increase rent beyond what people are willing to pay. If they sell the unit, it is generally to either another landlord (who charges market rent) or to an owner-occupant whose previous residence faces the same situation. Fundamentally, landlords capture any and all surplus value.
- marketgod 8y ago
  Depends. In Toronto, you can rent and the landlord can't kick you out. They can only raise your rent 2.9% max here per year, or whatever inflation is. It's really cheaper to rent here. Property taxes can go up at a rapid rate. Also, if you sell the property it has to be to someone who moves in otherwise the renter has the right to stay. It really depends on the market. Also, the market pays much better than the appreciation of the unit subtract property taxes, maintenance, and other upkeep fees. To add to this, if you own, you are stuck in one area. Selling and buying has closing costs. I might be biased because I prefer the markets more than anything but index fund investing on its own can give you better returns than owning. IMO, owning and renting out a portion is the best return, or rental properties run by a property management company, especially if you own property in a LCOL area.

Rent means having access to liquid capital that you can invest in alternatives that are not property. It also means: no property taxes, maintenance costs, stamp duty, and it makes it easy to move.

chrisseaton 8y ago

> Rent means having access to liquid capital No rent means you're spending more on housing, as you need to pay for someone's mortgage, costs and their profit, so it means you save less and so have less liquid capital, and also don't have any non-liquid capital in your equity. > It also means: no property taxes, maintenance costs, stamp duty No you're paying for all that, via your rent.

dragonwriter 8y ago
> > Rent means having access to liquid capital > Rent means you're spending more on housing That's not a contradiction; liquidity has a cost. Yes, by tieing up capital in property purchase, you can, on average, trade liquidity for lower total cost if you are using the property forever. (Whether the actual total cost ends up being lower if you ever decide to move depends on market conditions and timing and transaction costs; transaction costs on both ends of a home purchase or sale are a lot higher than entering or exiting a residential lease.)
- chrisseaton 8y ago
  I still don't understand what you mean. If I pay $2000 a month rent I'm always going to have less liquid capital than if I pay $1000 a month mortgage, aren't I? The mortgage payer ties up their money in the equity so it's not liquid, but the rent payer's money is just gone, so it's infinitely not liquid, and on top of that more of their money is gone. When you've paid off the mortgage the mortgage payer has more liquid capital, and a property.
  - spoonie 8y ago
    You’re forgetting about the opportunity cost of locking up all of that capital in an asset that has a high carrying cost (maintenance, taxes). The initial downpayment could have been used for other investments, so you have to compare how much you could have earned if you’d invested and rented instead of bought the house. https://youtu.be/NZR_vMTLfIk https://youtu.be/NZR_vMTLfIk
    - chrisseaton 8y ago
      > an asset that has a high carrying cost (maintenance, taxes) I don't know who you think ends up paying for maintenance and taxes in a rented property - it's the renter, through their rent.
      - spoonie 8y ago
        I didn’t say renters dont pay. What I’m saying is that you don’t (usually) get to buy a house for $0 down. So it’s never a choice of $2000/mo for rent vs $1000/mo for mortgage. It’s more like $20k cash + $2000/mo for rent vs $20k equity + $1000/mo mortgage. Over long enough time horizons the monthly payments don’t matter and it’s a question of which investment appreciates more.
        wahern 8y ago
        Unless you're already wealthy, it's difficult if not impossible to have access to a large investment that provides 5x (or more!) leverage. A home is a leveraged investment and security rolled into one. Even if your mortgage interest is greater than property value appreciation you could conditionally still come out ahead as compared to the available alternatives. Diversity, leverage, better appreciation: if you're not already wealthy you can really only pick 1 (maybe 2) out of the 3. And this ignores the value of having stable monthly living expenses, something not otherwise possible without rent control. You can of course buy cheap land, but such places are typically remote from employment opportunities and, while possible, that approach is just another form of speculation--people will readily share stories about living in the country and telecommuting to a high paying job (successful speculation), but few would ever discuss how they ended up stuck in a cycle of minimum wage employment (unsuccessful speculation).
spoonie 8y ago
Tell that to some investors in Toronto, I think they missed the memo. :P https://business.financialpost.com/personal-finance/mortgages-real-estate/condo-owners-make-big-gains-but-nearly-half-in-negative-cash-flow-report https://business.financialpost.com/personal-finance/mortgage...
- marketgod 8y ago
  The laws here do not favour the owner at all so it's hard. If you own 10+ condos, you can't move into the condo to evict the renter, so you are at their mercy. Toronto is probably the worst market for being a landlord. The good part is people here move frequently because travel times are ridiculous and people are willing to lose money on rent to reduce the headaches. Some tenants in apartment buildings are paying $1200 for a 2 bedroom, when the market rent is $2900. The landlord can't do anything.
  - spoonie 8y ago
    Landlords can move in for personal use, but not as a way to evict a tenant. Seems perfectly fair to me, security of tenure is something that benefits the whole community.
    - marketgod 8y ago
      Not really when people feel entitled to live in the downtown area at an extremely low rent. For example, someone new moves in for $2400 for a 2 bedroom whereas a person who has been there 20 years is paying $1300. The new person ends up having to subsidize the tenured renter and the landlord also is not able to maximize their profit. Then a big corporation can come in and buy the property because a landlord cannot maintain it well enough. The big companies have their own renovation teams who they own so it's profit to maintain it whereas the smaller landlords end up having to pay a 3rd party and they lose money. It's a delicate balance. 1.9% yearly increases and up to 4.9% on capital expenditures makes it a challenge.
  - jashkenas 8y ago
    Huh? If the landlords are willing to rent it to the tenants for $1200, isn't that literally the market rent?
ThrustVectoring 8y ago
Rents are set by supply (number of units available) and demand (number and pay of nearby jobs). An exogenous change in maintenance costs affects neither supply nor demand. A landlord is not going to drop rent merely because they can maintain your apartment cheaper, nor are they able to increase rent beyond what people are willing to pay. If they sell the unit, it is generally to either another landlord (who charges market rent) or to an owner-occupant whose previous residence faces the same situation. Fundamentally, landlords capture any and all surplus value.
marketgod 8y ago
Depends. In Toronto, you can rent and the landlord can't kick you out. They can only raise your rent 2.9% max here per year, or whatever inflation is. It's really cheaper to rent here. Property taxes can go up at a rapid rate. Also, if you sell the property it has to be to someone who moves in otherwise the renter has the right to stay. It really depends on the market. Also, the market pays much better than the appreciation of the unit subtract property taxes, maintenance, and other upkeep fees. To add to this, if you own, you are stuck in one area. Selling and buying has closing costs. I might be biased because I prefer the markets more than anything but index fund investing on its own can give you better returns than owning. IMO, owning and renting out a portion is the best return, or rental properties run by a property management company, especially if you own property in a LCOL area.