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Very interesting how affluent people still rent. I noticed the same in LA in a high end building. What is the reason? Having more money to invest in different a

Very interesting how affluent people still rent. I noticed the same in LA in a high end building. What is the reason? Having more money to invest in different asset classes instead of the biggest chunk being in real estate?

usaar333 7y ago
Freedom to move, don't want to deal with burdens of ownership, better ROI to rent, etc.
- aledalgrande 7y ago
  Can you describe better ROI to rent more in detail?
  - usaar333 7y ago
    Investment opportunity cost. I've written articles about this: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t... https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calculator-22d0bf9bbbb5 https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...
nostrademons 7y ago
On an economic level, it makes sense to own other assets and rent your primary residence if the discounted cash flow from the investments available for the price of your home exceeds your rent. Typical returns on real-estate are about 3-4% (you pay the bank about that much to borrow the cash to buy a place, and if you own the place outright, you can make about that much in rent), but there's also the mortgage-interest tax-deduction, so it's equivalent to maybe 5.5% returns. The stock market typically gives about 7% returns, but with higher risk: if your risk-tolerance is high it makes sense to not spend money on a house but instead to invest it in stocks and use the cash spun off by that to pay your rent. (If your risk tolerance is very high, you can take out that mortgage, borrow the money for the house, and invest your savings in the stock market anyway.) On a pragmatic level, high-income people who rent often have jobs that require a large level of geographic flexibility to get their maximum salary. Think of your professional skillset & network as an asset that various companies can "rent" for different rates, depending on how much value it adds to them. Different companies will pay wildly different amounts for that; it doesn't make sense to buy if you get a 50% raise by moving to a different city (or just a different area of your metro region) but costs of selling your house eat up several months salaries.

usaar333 7y ago

Freedom to move, don't want to deal with burdens of ownership, better ROI to rent, etc.

aledalgrande 7y ago
Can you describe better ROI to rent more in detail?
- usaar333 7y ago
  Investment opportunity cost. I've written articles about this: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-area-right-now-9eff37da8d6 https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t... https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calculator-22d0bf9bbbb5 https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...

nostrademons 7y ago

On an economic level, it makes sense to own other assets and rent your primary residence if the discounted cash flow from the investments available for the price of your home exceeds your rent. Typical returns on real-estate are about 3-4% (you pay the bank about that much to borrow the cash to buy a place, and if you own the place outright, you can make about that much in rent), but there's also the mortgage-interest tax-deduction, so it's equivalent to maybe 5.5% returns. The stock market typically gives about 7% returns, but with higher risk: if your risk-tolerance is high it makes sense to not spend money on a house but instead to invest it in stocks and use the cash spun off by that to pay your rent. (If your risk tolerance is very high, you can take out that mortgage, borrow the money for the house, and invest your savings in the stock market anyway.) On a pragmatic level, high-income people who rent often have jobs that require a large level of geographic flexibility to get their maximum salary. Think of your professional skillset & network as an asset that various companies can "rent" for different rates, depending on how much value it adds to them. Different companies will pay wildly different amounts for that; it doesn't make sense to buy if you get a 50% raise by moving to a different city (or just a different area of your metro region) but costs of selling your house eat up several months salaries.