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> Finally, one can use the savings from paying rent What savings? Rent as you stated already includes anticipated maintenance costs, property taxes, the landl

> Finally, one can use the savings from paying rent What savings? Rent as you stated already includes anticipated maintenance costs, property taxes, the landlord's mortgage costs, often an agency fee, plus a margin for the landlord. I don't think I've seen rental rates ever cheaper than a personal mortgage. The main advantage of renting is avoiding long-term commitment but you'll pay a premium for that flexibility. Otherwise there wouldn't be an incentive for landlords.

xivzgrev 7y ago
No? In San Francisco median rent is much lower than equivalent monthly cost would be on median home. You are correct that rent includes all the costs plus markup. But a big factor is that housing costs (esp in california) remain pretty steady once you buy. So that rent does include the housing cost...from 10, 20, x years ago. Alternatively a developer builds a building and rents out the unit instead of marking up and selling units. So the cost isn’t as high as market price. An example: I recently rented a 1 bedroom in a desirable neighborhood for $3500 per month. Equivalent condos are over $1m dollars in that area. But it certainly didn’t cost the developer of my building $1m to build my unit.
- gambiting 7y ago
  Isn't SF an outlier in literally every financial question though? I'm currently in the process of buying a house in the UK and our mortgage payments are going to be a lot less than we were paying for rent in the same area. Like, 40% less. If you have any kind of stability and are not planning to move in 2-3 years it's crazy not to buy.
  - oarsinsync 7y ago
    London's also a bit of an odd one in that regard. You either need half a million+ for a shoebox or to live way out of town, and run the risk that the foreign-investment-fueled housing bubble collapses off the back of Brexit, leaving you with more mortgage than equity. (This is why I'm still renting...)
    - TeMPOraL 7y ago
      At this point one has to wonder, who's making money off Brexit situation still being unresolved...
      - Veen 7y ago
        People like me who live in the UK but work remotely for US companies benefit from a weak pound. But I don't think people like me are pulling the strings: it's just a political mess.
      - pjc50 7y ago
        You could work backwards by looking at how the "Brexit party" managed to split and regenerate from UKIP to run a campaign across all the Euro election seats in a matter of months. Where did that come from? They claim to have raised ""£750,000 in donations online, all in small sums of less than £500" in their first ten days"; given that Farage is currently under investigation for his funding https://www.theguardian.com/politics/2019/may/21/eu-investigate-nigel-farage-failure-declare-expenses-arron-banks https://www.theguardian.com/politics/2019/may/21/eu-investig... , it might be worth considering alternative explanations.
      - foldr 7y ago
        The current situation is perfectly comprehensible without recourse to conspiracy theories. Brexit hasn't happened because there is no Parliamentary majority for any specific form of Brexit. Meanwhile, one of the main architects of Brexit doesn't appear to be too worried about the financial implications: https://www.theguardian.com/politics/2019/may/29/matt-hancock-lays-into-boris-johnson-over-brexit-business-f-word-tirade https://www.theguardian.com/politics/2019/may/29/matt-hancoc...
  - gabrielhoch 7y ago
    London is similar to SF, as an example I rent a relatively nice 2-bed flat for £1850/m, but after looking at what it would cost me to buy my mortgage would be at least in the region of £2500 + the maintenance fee from the building + repairs which I don't have to pay for as a renter. This pattern is really common in high cost of living cities.
    - flukus 7y ago
      > London is similar to SF, as an example I rent a relatively nice 2-bed flat for £1850/m But what will the price be in 10 years? The mortgage will go down, especially if you pay above minimum repayments, your wages will go up (theoretically) helping you make those payments. The mortgage price will go down, bottoming out at $0 while the rent will always increase.
  - consp 7y ago
    It's about the same here (Netherlands, excluding Amsterdam). Rent is about 30-50% more than mortgage payments before taxes and after taxes it's even cheaper (due to weird rules giving tax breaks to home owners). You definitely pay a premium. note: Amsterdam an outlier like SF.
dagw 7y ago
I don't know what it's like in the US, but in Sweden you can get a much better deal on your mortgage if you only have to borrow 80% of the cost of the house than if you have to borrow 95+%, even when borrowing the same amount. If you have a good job and can afford $1500/month but don't have any savings to use as a down payment on a house you're not going to able to get as nice a place buying as you will renting.
- jbarberu 7y ago
  They recently changed the lower limit of the down payment to 15% in Sweden. But yes, you'll generally get a better interest rate if you put more of your own money into the purchase. As a Swede in the middle of buying a house in the U.S. I have to say it's surprisingly similar. The big differences between Sweden and the U.S. is the loan terms. Here in the U.S. the terms are extremely long, you'll typically get 10, 15 or 30 years with a locked interest rate. In Sweden you'd normally lock your rate for 1-5 years up to 10 years depending on your financial situation. When I owned a condo in Sweden I went for 1 year locked rate and then month-to-month once that first year passed. What you have instead of a fixed term is a fixed amortization. By law you have to pay back 2%/year until your principle is down to 70%, 1% until it's down to 50% and after that you can just pay interest if that's what you want to do.
- eridan2 7y ago
  There are many places where you can't borrow 95% of the cost, or you can only with additional guarantees
- yardie 7y ago
  It’s similar in the US. If contributing less then 20% you have to pay PMI (mortgage insurance). This may add a few $100s per month to your payment but in no way contributes to the principal. It works against you in other ways because it limits your upper price limit as banks want your payments to be within 30% of your AGI
- ZeroFries 7y ago
  The math might not work out as poorly as you imagine. I don't know the exact numbers for Sweden, but in Canada (where insurance is required for downpayment less than 20%), putting 5% is actually not a bad move, even if you have 20% down ready, because, similar to the arguments for rent, you can invest the difference and make similar returns to the extra costs for the mortgage.
gtsteve 7y ago
I live in the UK. It's cheaper to buy than rent almost everywhere but I never minded that. The main thing that moved me to buy was because the protection for renters is nowhere near as good. I moved on average every 18 months for 10 years because the landlord decided they wanted to sell the place or just wanted me out so they could increase the rent. One landlord didn't even bother with that and just asked if I'd be willing to pay 2x the current rent. If you complain about something being broken, they might fix it or just evict you with 2 months notice. Now I own my own place and I finally actually have rights and I will choose when I move on.
- Veen 7y ago
  > If you complain about something being broken, they might fix it or just evict you with 2 months notice. This is why you shouldn't agree to a rolling tenancy. When the initial tenancy period is over, negotiate for a year or two. Most landlords, in my experience, don't want their houses sitting empty so they're happy to have you on the hook for a year. Although, it depends where you live: I work remotely so I tend to rent in less expensive parts of the country like Devon where there isn't so much volatility in the market.
  - gtsteve 7y ago
    Yes but often you have no choice but to agree. When I've tried to negotiate in the past the response was for them to say "thanks but no thanks" and wait for someone else. Given this is London it moves very quickly and another tenant will be along soon.
    - Veen 7y ago
      Yes, that's why I was enthusiastic about the Government's plans to introduce three-year minimum tenancies, but the idea was unfortunately scrapped. https://www.gov.uk/government/news/longer-tenancy-plans-to-give-renters-more-security https://www.gov.uk/government/news/longer-tenancy-plans-to-g...
  - crdoconnor 7y ago
    Unless rents are going up (and in London they are not) I don't see how longer tenancies help you. It certainly doesn't give the landlord an incentive to fix.
vonseel 7y ago
rental rates ever cheaper than a personal mortgage. This comparison is usually apples to oranges. For example, in Austin, a 20s-30s homebuyer may have a budget of 300-400k for a property. This amount pretty much limits the options to homes on the edge of town or in suburbs. The same person may prefer renting in or near downtown, if they aren’t buying, and that could cost just as much as a mortgage on a much larger house (in a much less expensive location). So, hard to do fair comparisons.
- sametmax 7y ago
  And most people don't bave that kind of money, already have a mortage to pay and must rent anyway.
- dsfyu404ed 7y ago
  That's because Austin (and Denver and Seattle for that matter) are basically SF Lite. Pick any city that isn't having it's housing market turned upside down by California monopoly money (well, tech monopoly money) and you statement does not apply.
  - lordCarbonFiber 7y ago
    >Pick a city where there aren't many jobs, there isn't much to do, and young people aren't interested in moving their and my antiquated ideas about what the housing market should look like hold. FTFY I suspect people, especially people considering buying their first home, have a specific profile of locations that behave in this new way because of that interest.
    - dsfyu404ed 7y ago
      There are cities up and down the east coast and throughout the Midwest that have plenty of jobs and stuff to do. The only thing they don't have is a freight train full of tech startups barreling out of control down a mountain while VCs shovel more coal into the boiler. Basically just strike SF, NYC, Boston and Seattle of your list. Then strike off every city that lots of people from SF, NYC, Boston and Seattle are cashing out their inflated home values and moving to to raise their families off your list. The US is a big country. You're left with a very long list. My sample size is <10 but 100% of the first time home buyers I know opted for a 2nd tier city or an exurb that's just barely within commuting range of wherever the big fat salaries are. The nature of the city other than physical location had approximately nothing to do with it. The techies who can drop a quarter mil on a 800ft^2 condo that's within biking distance of work and walking distance of a bunch of overpriced bars are in the minority and not indicative of overall trends. Take your narrow world view and even narrower assumptions of what young people want and shove it somewhere.
benj111 7y ago
Buying a house has all sorts of costs that need to be paid upfront. If you're only staying somewhere for a year, those costs need to be accounted for in that year. Yes in the long term buying works out cheaper, not in the short term though.
Dumblydorr 7y ago
Specifics, specifics. The rent vs buy debate will not be answered with finality, it always comes down to specifics. You're wrong about renting, I save a lot and invest much of it, while renting.
- suff 7y ago
  Have you ever gotten a six figure check when you move out? Happens to buyers all the time.
  - TheHypnotist 7y ago
    I guess the flip side is not owing a six figure mortgage.
  - WhompingWindows 7y ago
    I'm too young and poor to have had time to save up, buy a house, and sell it. Again, specifics are king in this debate.
  - tom_ 7y ago
    I think it's more likely to happen to the seller.
  - noonespecial 7y ago
    Ever gotten a six figure bill on your way out? Happened to lots of buyers around 2008.
    - Spooky23 7y ago
      In most places they walked away with nothing.
    - suff 7y ago
      Yeah, once every 100 years...
  - jartelt 7y ago
    Many buyers often neglect that they put $50k into their kitchen remodel, bought a new roof, and repaired the water heater/AC/washer along the way. So that $100k check feels like pure profit, but often is just reimbursement for past expenses.
glangdale 7y ago
Whether you see rental rates cheaper than a personal mortgage is extremely dependent on where you live. Many 'hot' housing markets have a big anticipation of future capital gains already priced in (rationally or otherwise) and house prices are not remotely in line with rental returns (Sydney, Australia is an example of this). I would imagine things would be quite different and more like you say in more normal markets.
conanbatt 7y ago
The houses you rent are not economically the same as the houses you buy and live in.
refurb 7y ago
Renting is absolutely cheaper in some cities, San Francisco included. Just look at the rent to price ratio. A ratio of 15 is breakeven, anything higher means it’s cheaper to rent. SF is in the high 20s. The rental market and housing market are two separate markets. Just because it costs $X to own a home doesn’t mean rent has to be $X or higher.
- madengr 7y ago
  Well they typically don’t make 500 ft^2 homes for $1M, but you can find 500 ft^2 apartments for $3k/month. I think a house has a minimum size, thus a minimum price over that of rent.
  - refurb 7y ago
    The same holds true for houses. As someone who has been following the SF market closely, an 1100 sq ft house that's worth $1.1M would cost $5,300 in cash flow per month (mortgage, taxes, insurance) plus another $925 in opportunity cost (down payment @ 5%) for a grand total of $6225. And that's not including maintenance costs. The same home could be rented for ~$4500 per month. Keep in mind that most rented houses were purchased a while ago. If you bought the same house when it was $700K, you could still make a profit on a rent of $4500. The reason why owning costs more is because buyers are also assuming appreciation. If you sell the same house for $1.5M 5 years later, you still make a nice profit even if your monthly cash flow is negative.
    - kd5bjo 7y ago
      Don’t forget that part of that $6225 is paying down principal, which will be recouped when selling or simply disappear from monthly costs after the mortgage is paid off. Also, most ownership costs move less with inflation than rents do, so in 10 years the comparison is $6225 2019 dollars vs $4500 2029 dollars. Also, once you hit 20% ownership, you no longer have to pay mortgage insurance. I haven’t run the numbers lately to figure out which side wins, but the analysis is significantly more complicated than comparing monthly outlays in the first year.
tom_ 7y ago
Rent on an apartment that you'd be very happy to rent is often cheaper than a mortgage on a house you'd want to buy! It's not unusual for people to accept different compromises when they're not necessarily going to have to live somewhere indefinitely.
- tonyedgecombe 7y ago
  There is also a tendency to "invest" in your house in a way you wouldn't bother with if you didn't own it. We just bought a new oven, if a landlord was paying for it I'm sure they would have spent half of what we did.
ZeroFries 7y ago
In the GTA (Toronto area) it costs around $2500 for a SFH, or $1M+ to buy. Around Ottawa, a house rents for similar prices, perhaps a couple hundred less, but the same house can be bought for half the price. It absolutely makes sense to rent in the GTA but less so around Ottawa. Landlords in the GTA are banking on ever escalating real estate prices to make a profit when they finally sell. Rent doesn't always scale with land-value.
jartelt 7y ago
In many high cost of living markets rent for a modest apartment is much cheaper than the cost of a mortgage on even the smallest house you can find. For example, you can rent an apartment on the peninsula in the Bay Area for less than $3,000 a month, but buying the smallest house you can find on the peninsula will cost you at least $4,500 a month for just the mortgage. If you rent in this case you can take the $1,500 in savings (plus the savings from no property tax, maintenance, homeowners insurance, etc.), and save/invest it.
esoterica 7y ago
In very hot housing markets the cost of owning exceeds the cost of renting, because buyers are gambling that prices will keep skyrocketing and they will make up for it in capital gains. If prices fail to increase for some reason (e.g. tech bubble bursts in SF) then buying will cost them hundreds of thousands or millions.

xivzgrev 7y ago

No? In San Francisco median rent is much lower than equivalent monthly cost would be on median home. You are correct that rent includes all the costs plus markup. But a big factor is that housing costs (esp in california) remain pretty steady once you buy. So that rent does include the housing cost...from 10, 20, x years ago. Alternatively a developer builds a building and rents out the unit instead of marking up and selling units. So the cost isn’t as high as market price. An example: I recently rented a 1 bedroom in a desirable neighborhood for $3500 per month. Equivalent condos are over $1m dollars in that area. But it certainly didn’t cost the developer of my building $1m to build my unit.

gambiting 7y ago
Isn't SF an outlier in literally every financial question though? I'm currently in the process of buying a house in the UK and our mortgage payments are going to be a lot less than we were paying for rent in the same area. Like, 40% less. If you have any kind of stability and are not planning to move in 2-3 years it's crazy not to buy.
- oarsinsync 7y ago
  London's also a bit of an odd one in that regard. You either need half a million+ for a shoebox or to live way out of town, and run the risk that the foreign-investment-fueled housing bubble collapses off the back of Brexit, leaving you with more mortgage than equity. (This is why I'm still renting...)
  - TeMPOraL 7y ago
    At this point one has to wonder, who's making money off Brexit situation still being unresolved...
    - Veen 7y ago
      People like me who live in the UK but work remotely for US companies benefit from a weak pound. But I don't think people like me are pulling the strings: it's just a political mess.
    - pjc50 7y ago
      You could work backwards by looking at how the "Brexit party" managed to split and regenerate from UKIP to run a campaign across all the Euro election seats in a matter of months. Where did that come from? They claim to have raised ""£750,000 in donations online, all in small sums of less than £500" in their first ten days"; given that Farage is currently under investigation for his funding https://www.theguardian.com/politics/2019/may/21/eu-investigate-nigel-farage-failure-declare-expenses-arron-banks https://www.theguardian.com/politics/2019/may/21/eu-investig... , it might be worth considering alternative explanations.
    - foldr 7y ago
      The current situation is perfectly comprehensible without recourse to conspiracy theories. Brexit hasn't happened because there is no Parliamentary majority for any specific form of Brexit. Meanwhile, one of the main architects of Brexit doesn't appear to be too worried about the financial implications: https://www.theguardian.com/politics/2019/may/29/matt-hancock-lays-into-boris-johnson-over-brexit-business-f-word-tirade https://www.theguardian.com/politics/2019/may/29/matt-hancoc...
- gabrielhoch 7y ago
  London is similar to SF, as an example I rent a relatively nice 2-bed flat for £1850/m, but after looking at what it would cost me to buy my mortgage would be at least in the region of £2500 + the maintenance fee from the building + repairs which I don't have to pay for as a renter. This pattern is really common in high cost of living cities.
  - flukus 7y ago
    > London is similar to SF, as an example I rent a relatively nice 2-bed flat for £1850/m But what will the price be in 10 years? The mortgage will go down, especially if you pay above minimum repayments, your wages will go up (theoretically) helping you make those payments. The mortgage price will go down, bottoming out at $0 while the rent will always increase.
- consp 7y ago
  It's about the same here (Netherlands, excluding Amsterdam). Rent is about 30-50% more than mortgage payments before taxes and after taxes it's even cheaper (due to weird rules giving tax breaks to home owners). You definitely pay a premium. note: Amsterdam an outlier like SF.

dagw 7y ago

I don't know what it's like in the US, but in Sweden you can get a much better deal on your mortgage if you only have to borrow 80% of the cost of the house than if you have to borrow 95+%, even when borrowing the same amount. If you have a good job and can afford $1500/month but don't have any savings to use as a down payment on a house you're not going to able to get as nice a place buying as you will renting.

jbarberu 7y ago
They recently changed the lower limit of the down payment to 15% in Sweden. But yes, you'll generally get a better interest rate if you put more of your own money into the purchase. As a Swede in the middle of buying a house in the U.S. I have to say it's surprisingly similar. The big differences between Sweden and the U.S. is the loan terms. Here in the U.S. the terms are extremely long, you'll typically get 10, 15 or 30 years with a locked interest rate. In Sweden you'd normally lock your rate for 1-5 years up to 10 years depending on your financial situation. When I owned a condo in Sweden I went for 1 year locked rate and then month-to-month once that first year passed. What you have instead of a fixed term is a fixed amortization. By law you have to pay back 2%/year until your principle is down to 70%, 1% until it's down to 50% and after that you can just pay interest if that's what you want to do.
eridan2 7y ago
There are many places where you can't borrow 95% of the cost, or you can only with additional guarantees
yardie 7y ago
It’s similar in the US. If contributing less then 20% you have to pay PMI (mortgage insurance). This may add a few $100s per month to your payment but in no way contributes to the principal. It works against you in other ways because it limits your upper price limit as banks want your payments to be within 30% of your AGI
ZeroFries 7y ago
The math might not work out as poorly as you imagine. I don't know the exact numbers for Sweden, but in Canada (where insurance is required for downpayment less than 20%), putting 5% is actually not a bad move, even if you have 20% down ready, because, similar to the arguments for rent, you can invest the difference and make similar returns to the extra costs for the mortgage.

gtsteve 7y ago

I live in the UK. It's cheaper to buy than rent almost everywhere but I never minded that. The main thing that moved me to buy was because the protection for renters is nowhere near as good. I moved on average every 18 months for 10 years because the landlord decided they wanted to sell the place or just wanted me out so they could increase the rent. One landlord didn't even bother with that and just asked if I'd be willing to pay 2x the current rent. If you complain about something being broken, they might fix it or just evict you with 2 months notice. Now I own my own place and I finally actually have rights and I will choose when I move on.

Veen 7y ago
> If you complain about something being broken, they might fix it or just evict you with 2 months notice. This is why you shouldn't agree to a rolling tenancy. When the initial tenancy period is over, negotiate for a year or two. Most landlords, in my experience, don't want their houses sitting empty so they're happy to have you on the hook for a year. Although, it depends where you live: I work remotely so I tend to rent in less expensive parts of the country like Devon where there isn't so much volatility in the market.
- gtsteve 7y ago
  Yes but often you have no choice but to agree. When I've tried to negotiate in the past the response was for them to say "thanks but no thanks" and wait for someone else. Given this is London it moves very quickly and another tenant will be along soon.
  - Veen 7y ago
    Yes, that's why I was enthusiastic about the Government's plans to introduce three-year minimum tenancies, but the idea was unfortunately scrapped. https://www.gov.uk/government/news/longer-tenancy-plans-to-give-renters-more-security https://www.gov.uk/government/news/longer-tenancy-plans-to-g...
- crdoconnor 7y ago
  Unless rents are going up (and in London they are not) I don't see how longer tenancies help you. It certainly doesn't give the landlord an incentive to fix.

vonseel 7y ago

rental rates ever cheaper than a personal mortgage. This comparison is usually apples to oranges. For example, in Austin, a 20s-30s homebuyer may have a budget of 300-400k for a property. This amount pretty much limits the options to homes on the edge of town or in suburbs. The same person may prefer renting in or near downtown, if they aren’t buying, and that could cost just as much as a mortgage on a much larger house (in a much less expensive location). So, hard to do fair comparisons.

sametmax 7y ago
And most people don't bave that kind of money, already have a mortage to pay and must rent anyway.
dsfyu404ed 7y ago
That's because Austin (and Denver and Seattle for that matter) are basically SF Lite. Pick any city that isn't having it's housing market turned upside down by California monopoly money (well, tech monopoly money) and you statement does not apply.
- lordCarbonFiber 7y ago
  >Pick a city where there aren't many jobs, there isn't much to do, and young people aren't interested in moving their and my antiquated ideas about what the housing market should look like hold. FTFY I suspect people, especially people considering buying their first home, have a specific profile of locations that behave in this new way because of that interest.
  - dsfyu404ed 7y ago
    There are cities up and down the east coast and throughout the Midwest that have plenty of jobs and stuff to do. The only thing they don't have is a freight train full of tech startups barreling out of control down a mountain while VCs shovel more coal into the boiler. Basically just strike SF, NYC, Boston and Seattle of your list. Then strike off every city that lots of people from SF, NYC, Boston and Seattle are cashing out their inflated home values and moving to to raise their families off your list. The US is a big country. You're left with a very long list. My sample size is <10 but 100% of the first time home buyers I know opted for a 2nd tier city or an exurb that's just barely within commuting range of wherever the big fat salaries are. The nature of the city other than physical location had approximately nothing to do with it. The techies who can drop a quarter mil on a 800ft^2 condo that's within biking distance of work and walking distance of a bunch of overpriced bars are in the minority and not indicative of overall trends. Take your narrow world view and even narrower assumptions of what young people want and shove it somewhere.

benj111 7y ago

Buying a house has all sorts of costs that need to be paid upfront. If you're only staying somewhere for a year, those costs need to be accounted for in that year. Yes in the long term buying works out cheaper, not in the short term though.

Dumblydorr 7y ago

Specifics, specifics. The rent vs buy debate will not be answered with finality, it always comes down to specifics. You're wrong about renting, I save a lot and invest much of it, while renting.

suff 7y ago
Have you ever gotten a six figure check when you move out? Happens to buyers all the time.
- TheHypnotist 7y ago
  I guess the flip side is not owing a six figure mortgage.
- WhompingWindows 7y ago
  I'm too young and poor to have had time to save up, buy a house, and sell it. Again, specifics are king in this debate.
- tom_ 7y ago
  I think it's more likely to happen to the seller.
- noonespecial 7y ago
  Ever gotten a six figure bill on your way out? Happened to lots of buyers around 2008.
  - Spooky23 7y ago
    In most places they walked away with nothing.
  - suff 7y ago
    Yeah, once every 100 years...
- jartelt 7y ago
  Many buyers often neglect that they put $50k into their kitchen remodel, bought a new roof, and repaired the water heater/AC/washer along the way. So that $100k check feels like pure profit, but often is just reimbursement for past expenses.

glangdale 7y ago

Whether you see rental rates cheaper than a personal mortgage is extremely dependent on where you live. Many 'hot' housing markets have a big anticipation of future capital gains already priced in (rationally or otherwise) and house prices are not remotely in line with rental returns (Sydney, Australia is an example of this). I would imagine things would be quite different and more like you say in more normal markets.

conanbatt 7y ago

The houses you rent are not economically the same as the houses you buy and live in.

refurb 7y ago

Renting is absolutely cheaper in some cities, San Francisco included. Just look at the rent to price ratio. A ratio of 15 is breakeven, anything higher means it’s cheaper to rent. SF is in the high 20s. The rental market and housing market are two separate markets. Just because it costs $X to own a home doesn’t mean rent has to be $X or higher.

madengr 7y ago
Well they typically don’t make 500 ft^2 homes for $1M, but you can find 500 ft^2 apartments for $3k/month. I think a house has a minimum size, thus a minimum price over that of rent.
- refurb 7y ago
  The same holds true for houses. As someone who has been following the SF market closely, an 1100 sq ft house that's worth $1.1M would cost $5,300 in cash flow per month (mortgage, taxes, insurance) plus another $925 in opportunity cost (down payment @ 5%) for a grand total of $6225. And that's not including maintenance costs. The same home could be rented for ~$4500 per month. Keep in mind that most rented houses were purchased a while ago. If you bought the same house when it was $700K, you could still make a profit on a rent of $4500. The reason why owning costs more is because buyers are also assuming appreciation. If you sell the same house for $1.5M 5 years later, you still make a nice profit even if your monthly cash flow is negative.
  - kd5bjo 7y ago
    Don’t forget that part of that $6225 is paying down principal, which will be recouped when selling or simply disappear from monthly costs after the mortgage is paid off. Also, most ownership costs move less with inflation than rents do, so in 10 years the comparison is $6225 2019 dollars vs $4500 2029 dollars. Also, once you hit 20% ownership, you no longer have to pay mortgage insurance. I haven’t run the numbers lately to figure out which side wins, but the analysis is significantly more complicated than comparing monthly outlays in the first year.

tom_ 7y ago

Rent on an apartment that you'd be very happy to rent is often cheaper than a mortgage on a house you'd want to buy! It's not unusual for people to accept different compromises when they're not necessarily going to have to live somewhere indefinitely.

tonyedgecombe 7y ago
There is also a tendency to "invest" in your house in a way you wouldn't bother with if you didn't own it. We just bought a new oven, if a landlord was paying for it I'm sure they would have spent half of what we did.

ZeroFries 7y ago

In the GTA (Toronto area) it costs around $2500 for a SFH, or $1M+ to buy. Around Ottawa, a house rents for similar prices, perhaps a couple hundred less, but the same house can be bought for half the price. It absolutely makes sense to rent in the GTA but less so around Ottawa. Landlords in the GTA are banking on ever escalating real estate prices to make a profit when they finally sell. Rent doesn't always scale with land-value.

jartelt 7y ago

In many high cost of living markets rent for a modest apartment is much cheaper than the cost of a mortgage on even the smallest house you can find. For example, you can rent an apartment on the peninsula in the Bay Area for less than $3,000 a month, but buying the smallest house you can find on the peninsula will cost you at least $4,500 a month for just the mortgage. If you rent in this case you can take the $1,500 in savings (plus the savings from no property tax, maintenance, homeowners insurance, etc.), and save/invest it.

esoterica 7y ago

In very hot housing markets the cost of owning exceeds the cost of renting, because buyers are gambling that prices will keep skyrocketing and they will make up for it in capital gains. If prices fail to increase for some reason (e.g. tech bubble bursts in SF) then buying will cost them hundreds of thousands or millions.