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Renting things is a financial tool and it can save you money. The calculation is simple. You estimate the difference between how much something costs and how mu

Renting things is a financial tool and it can save you money. The calculation is simple. You estimate the difference between how much something costs and how much you can sell it for once you're done using it. That's your real cost to own it. Compare that number to the cost of renting it for the same time period. If the cost to rent is lower, renting is a better deal. For larger and more involved transactions (especially homes) things get more complex, but that's still the basic arithmetic. Making more things rentable isn't a big problem. The big problem is that many people don't understand this arithmetic so they end up shooting themselves in the foot when you start giving them options. And unfortunately the people who need this knowledge the most are often the least likely to have it. There's a simple solution which is to just teach a great personal finance curriculum in high schools nationwide. (Well, as simple as solving a problem for hundreds of millions of people is going to get.) Of course this being HN we can probably dream up fancier solutions like incentivizing people to take some personal finance training online.

rebuilder 7y ago
It seems like you'd see the same kinds of problems with this as you would with predatory lending: even if the cost of a loan (or renting in this case) were much higher in even the medium term, if you're poor enough, it still makes sense because the alternative is not having enough money to live on, right now. Loans and renting are IMO potentially the same thing in this context. It seems to me there's a fairly straightforward regulatory solution to this issue: require tighter financial checks, or reduce the protections given lenders in case of default.
JMTQp8lwXL 7y ago
In an efficient market, shouldn't the cost to own and cost to rent be roughly the same? Otherwise, everyone would rush to the clearly cheaper option.
- fromthestart 7y ago
  No, because of the time value of money. Money now is worth more than money later. Having all of your toys today vs saving for a couple years to buy a home. [1] has a somewhat explanation but the same conclusion. 1. https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
  - JMTQp8lwXL 7y ago
    If I rent everything, and put my short-terms savings from renting (as opposed to buying) in the S&P 500, would I end up with more wealth in the long term, when compared to buying outright? If the subscription economy has the effect of being a low-interest loan on anything, it's not a bad deal. One would be unwise to turn down a 0% car loan-- save your money, and grow it, instead of paying up front for the entire car. Same idea, but applied to the subscription economy.
    - sokoloff 7y ago
      Side note: There's a financing-related cost to a 0% car loan. It's whatever the surplus on the insurance that you're required to carry (because you have a loan) over what the true value of that insurance is to you. I have a 0% loan right now on my LEAF. I'm likely to pay off that loan pretty soon as the value of that insurance (to me) is decreasing as the car ages, but I can't dump it unless the loan is paid off.
- adrianN 7y ago
  I think most markets are not efficient in that sense because people don't have perfect information and are not perfectly rational.
- cs02rm0 7y ago
  Logically yes I think it would be close, depending on how you objectively define close. Humans aren't always logical though and that low monthly repayment without requiring you to save up can look really tempting. At least with something desirable like a car, where some parts of the world have seen a significant shift towards renting. No idea how well it works for beds, but it wouldn't surprise me if there's margin there too.
- apatters 7y ago
  A rational/efficient example of where renting might be a better deal for you is if you don't have access to wholesale prices and someone else does. They buy at a discount and then they rent out to you at a price which makes it cheaper for you than buying at retail. A classic scenario is renting a movie. Let's use DVDs as an example--even though they're falling out of favor, they're a little simpler to talk about, and the economics of online aren't that much different. Studios like big numbers and would like to sell movie media/rights/access/whatever (it's complicated) to someone who can drive lots of demand. So the rental outlet will get a steep discount on those things for buying in bulk. Meanwhile, you're not even sure if you'll want to watch that movie more than once, and the resale value of a used DVD after a couple years is basically zero. So renting the DVD at least the first time, and maybe every time you want to watch it, is a pretty good deal. Case in point, Redbox's "markup" over whatever they're paying the studios is large, but it's still a pretty good deal for you and me.
  - Thorrez 7y ago
    I doubt studios want to give Redbox a discount, because rentals cut into sales, which the studios care about more than rentals. Redbox operates because of first-sale doctrine. I assume Redbox pays the same as stores pay, which is indeed cheaper than what a consumer pays, but there's no discount especially for Redbox. Why do digital rentals cost more than physical rentals? Because first-sale doctrine doesn't apply to digital so studios can charge more. First-sale doctrine prevents studios from charging more for physical rentals, and they won't be eager to pile on any extra discounts for Redbox. I think the real benefit to the consumer of renting from Redbox instead of buying is that Redbox has economies of scale on exchanging movies between consumers and distributing them geographically. If a consumer buys a movie, watches it, and resells it, that's a lot of hassle, whereas Redbox has managed that redistribution by building automation.
    - mywittyname 7y ago
      Studios used to give discounts to movie rental companies. An old girlfriend of mine managed one about $15 years ago and I seem to remember the prices for new DVDs being $4-6 on the order form. This was for movies that retailed in the $15-20 range. I think what happened is they started selling to Walmart et al for the same price.
- KozmoNau7 7y ago
  For you to be able to rent something, someone has to own it. And since that someone will want to make a profit, the rental fee reflects that. I think a better option is shared ownership, such as several neighbors sharing a lawnmower, or similar things that see regular use, but also have significant idle intervals between uses. Communal spaces and tools save money and foster collaboration.
- tomatocracy 7y ago
  Depends how much risk you are transferring onto the asset owner when renting. At a minimum they are taking risk on the useful life of the asset - they might also be taking risk on maintenance costs etc. An asset owner will want to be compensated for taking that risk (over and above expecting to break even on average ie in the form of a margin) whereas if you take the risk yourself as an owner then that doesn’t factor into your cash costs.
- esotericn 7y ago
  The idea that everyone will go for the cheaper option is predicated on the fact that human beings have literally no motivation other than to be perfect wealth accumulators. In that model they wouldn't rent _or_ buy a bed, because they could just sleep on the floor. Or more accurately, they'd rent or buy whatever they think would maximize income including the cost of it; e.g. if having a bed maximized overall health over life or something then they'd buy or rent the most basic bed that fulfills the criteria of keeping their back healthy or whatever. I own loads of furniture that's like, mine. It has value to me in the fact that it's my object, unencumbered by financialization. Personally I seek to minimize financialization wherever possible. I'll pay slightly more up front for things to just delete the monetary stuff from my brain. I don't want to think about it, I want my life to work and money to exist at the side of it not in the forefront.

rebuilder 7y ago

It seems like you'd see the same kinds of problems with this as you would with predatory lending: even if the cost of a loan (or renting in this case) were much higher in even the medium term, if you're poor enough, it still makes sense because the alternative is not having enough money to live on, right now. Loans and renting are IMO potentially the same thing in this context. It seems to me there's a fairly straightforward regulatory solution to this issue: require tighter financial checks, or reduce the protections given lenders in case of default.

JMTQp8lwXL 7y ago

In an efficient market, shouldn't the cost to own and cost to rent be roughly the same? Otherwise, everyone would rush to the clearly cheaper option.

fromthestart 7y ago
No, because of the time value of money. Money now is worth more than money later. Having all of your toys today vs saving for a couple years to buy a home. [1] has a somewhat explanation but the same conclusion. 1. https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
- JMTQp8lwXL 7y ago
  If I rent everything, and put my short-terms savings from renting (as opposed to buying) in the S&P 500, would I end up with more wealth in the long term, when compared to buying outright? If the subscription economy has the effect of being a low-interest loan on anything, it's not a bad deal. One would be unwise to turn down a 0% car loan-- save your money, and grow it, instead of paying up front for the entire car. Same idea, but applied to the subscription economy.
  - sokoloff 7y ago
    Side note: There's a financing-related cost to a 0% car loan. It's whatever the surplus on the insurance that you're required to carry (because you have a loan) over what the true value of that insurance is to you. I have a 0% loan right now on my LEAF. I'm likely to pay off that loan pretty soon as the value of that insurance (to me) is decreasing as the car ages, but I can't dump it unless the loan is paid off.
adrianN 7y ago
I think most markets are not efficient in that sense because people don't have perfect information and are not perfectly rational.
cs02rm0 7y ago
Logically yes I think it would be close, depending on how you objectively define close. Humans aren't always logical though and that low monthly repayment without requiring you to save up can look really tempting. At least with something desirable like a car, where some parts of the world have seen a significant shift towards renting. No idea how well it works for beds, but it wouldn't surprise me if there's margin there too.
apatters 7y ago
A rational/efficient example of where renting might be a better deal for you is if you don't have access to wholesale prices and someone else does. They buy at a discount and then they rent out to you at a price which makes it cheaper for you than buying at retail. A classic scenario is renting a movie. Let's use DVDs as an example--even though they're falling out of favor, they're a little simpler to talk about, and the economics of online aren't that much different. Studios like big numbers and would like to sell movie media/rights/access/whatever (it's complicated) to someone who can drive lots of demand. So the rental outlet will get a steep discount on those things for buying in bulk. Meanwhile, you're not even sure if you'll want to watch that movie more than once, and the resale value of a used DVD after a couple years is basically zero. So renting the DVD at least the first time, and maybe every time you want to watch it, is a pretty good deal. Case in point, Redbox's "markup" over whatever they're paying the studios is large, but it's still a pretty good deal for you and me.
- Thorrez 7y ago
  I doubt studios want to give Redbox a discount, because rentals cut into sales, which the studios care about more than rentals. Redbox operates because of first-sale doctrine. I assume Redbox pays the same as stores pay, which is indeed cheaper than what a consumer pays, but there's no discount especially for Redbox. Why do digital rentals cost more than physical rentals? Because first-sale doctrine doesn't apply to digital so studios can charge more. First-sale doctrine prevents studios from charging more for physical rentals, and they won't be eager to pile on any extra discounts for Redbox. I think the real benefit to the consumer of renting from Redbox instead of buying is that Redbox has economies of scale on exchanging movies between consumers and distributing them geographically. If a consumer buys a movie, watches it, and resells it, that's a lot of hassle, whereas Redbox has managed that redistribution by building automation.
  - mywittyname 7y ago
    Studios used to give discounts to movie rental companies. An old girlfriend of mine managed one about $15 years ago and I seem to remember the prices for new DVDs being $4-6 on the order form. This was for movies that retailed in the $15-20 range. I think what happened is they started selling to Walmart et al for the same price.
KozmoNau7 7y ago
For you to be able to rent something, someone has to own it. And since that someone will want to make a profit, the rental fee reflects that. I think a better option is shared ownership, such as several neighbors sharing a lawnmower, or similar things that see regular use, but also have significant idle intervals between uses. Communal spaces and tools save money and foster collaboration.
tomatocracy 7y ago
Depends how much risk you are transferring onto the asset owner when renting. At a minimum they are taking risk on the useful life of the asset - they might also be taking risk on maintenance costs etc. An asset owner will want to be compensated for taking that risk (over and above expecting to break even on average ie in the form of a margin) whereas if you take the risk yourself as an owner then that doesn’t factor into your cash costs.
esotericn 7y ago
The idea that everyone will go for the cheaper option is predicated on the fact that human beings have literally no motivation other than to be perfect wealth accumulators. In that model they wouldn't rent _or_ buy a bed, because they could just sleep on the floor. Or more accurately, they'd rent or buy whatever they think would maximize income including the cost of it; e.g. if having a bed maximized overall health over life or something then they'd buy or rent the most basic bed that fulfills the criteria of keeping their back healthy or whatever. I own loads of furniture that's like, mine. It has value to me in the fact that it's my object, unencumbered by financialization. Personally I seek to minimize financialization wherever possible. I'll pay slightly more up front for things to just delete the monetary stuff from my brain. I don't want to think about it, I want my life to work and money to exist at the side of it not in the forefront.