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I did not buy a house because I expected it to appreciate in value. I bought a house because the alternative was to pay rent. Rent is a service. A renter doe

I did not buy a house because I expected it to appreciate in value. I bought a house because the alternative was to pay rent. Rent is a service. A renter does not get anything of inherent, transferable value out of the exchange. A renter is also subject to the whims of his/her landlord and, from my experience, a renter has to move regularly to avoid rent increases and bad landlords. The majority of my mortgage payment goes towards ownership of a product - my house - which has inherent, transferable value. When I'm ready to move again, I can sell my house and put that money towards acquiring a new one using less debt. Meanwhile, I don't have to worry about landlord problems or rent increases so I can wait to move until I am ready. I'd say that's a perfectly good reason to take on some debt. After all, if that money wasn't going to the bank, then it would just go to a landlord instead. EDIT: I'm not saying rent is bad. It is a perfectly reasonable option for many people depending on their preferences and circumstances. I just wanted to highlight the reasons why I chose to take on some debt to buy a house, regardless of whether it will appreciate in value.

SloopJon 7y ago
> The majority of my mortgage payment goes towards ownership of a product - my house For many (most?) people that's not true. Even ignoring that mortgage payments often include property taxes and/or private mortgage insurance, you can expect to pay more interest than principal for the first fifteen years or more of a thirty-year mortgage.
- earthboundkid 7y ago
  Yes, if you look at your mortgage payments, very little is going to principal. On the flipside, when you rent, you get certain services—maintenance of property and major appliances—that you don't get as a home owner. When I started my mortgage I was surprised at how much money I started spending on home stuff that I never used to spend as a renter. Partly it's because you own it so you have higher standards, but partly you're just eating costs that used to be hidden.
  - wpietri 7y ago
    Exactly. Some would say I'm wasting money by renting. I'd say I'm saving myself time and stress by not becoming an unpaid novice handyman, and not spending money on home improvements that I could do without.
  - kseifried 7y ago
    But you pay for those in the form of rent. As a homeowner you can also pay someone to do those things. There are a ton of property management companies that will handle a single house if you want to completely hand it off to someone. In general when renting you usually rent a LOT less than you end up buying which I think is where many people get the "renting is cheaper than buying" thought. It's not like your landlord magically eats all these extra costs. They pass them on to you.
    - earthboundkid 7y ago
      It depends on the market. In most of the US, buying is cheaper all things considered, but that’s not always true. Would you rather buy or rent in Flint?
- ashtonkem 7y ago
  I think we can put property taxes aside, you’ll have to pay your landlords property taxes if you rent after all. If you can afford the cost of a down payment (more on that later), then buying a home does have some utility in wealth generation. You’re right that most of the initial mortgage payments go towards interest, but even collecting 25% of your monthly payment towards your own net worth is a big deal compared to collecting 0%. Especially since there is a good chance that your landlord has a mortgage too, either original or secondary to afford more property, so you must pay their interest plus a portion of their living expenses. This is why generally speaking home ownership is considered superior to renting if you’re not going to move anytime soon. I think the main argument against home ownership from a wealth standpoint is that it ties up a large amount of money as collateral that you could otherwise be using. Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively, potentially making me even more money. This is why the counterintuitive rule is that if you have enough money to buy a house with cash, you should get a mortgage and invest the rest, as you’ll be better off that way in the long run[0]. [0] Caveat here being your age. If you’re 30, you have another 30 years for the difference to grow in the stock market, while if you’re 70 you’d probably appreciate the lower cost of living and stability that this provides.
  - jerf 7y ago
    "Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively" I've been saying this for years, maybe after this year it'll make more sense: It is not sensible to model "the market" as if it makes steady X% (for X somewhere in the 5-8 range) returns every year. It can and has gone decades being flat-ish, or slightly down after inflation, or up but nowhere near X% a year. The timescale where this is a reasonable model is longer than your expected productive working years. "Return X% a year" is basically the best case on a decade time scale, not the average case. There have been time frames in my life when paying principle on my mortgage was a significantly better "investment" than the stock market. In hindsight it'll be obvious what you should have done, but in hindsight you can turn a few hundred dollars into a few million in just a couple of weeks with perfect past knowledge of the market, so if we're stipulating hindsight you've made way bigger mistakes than merely "buying a house".
- jerf 7y ago
  "Doctor, it hurts when I do this." "Don't do that." The standard recommendations for buying a house, in my opinion, are recommendations for buying a house you can barely afford. I recommend buying houses you can comfortably afford, and put some extra principal payments in towards the beginning if at all possible. (Especially if you're just starting now-ish... I suspect the whole "but you could have put it in the stock market instead and made tons more money" both looks a bit less appealing than it did a year ago, and may take a bit before it's advice that would turn out well again.) An HN-specific nuance is that I might as well be saying "don't live in the valley"... you want to call that an exception, eh, go ahead, you're an adult. But in general I recommend that. (Also, you have to check the area you are in. Where I happen to live & in the price zone I'm in, mortgages are quite a bit cheaper than rent. Though that may not be true in another year!)
  - brlewis 7y ago
    >I recommend buying houses you can comfortably afford This is great advice. In addition to paying less mortgage, the more affordable house is likely smaller, costing less to heat and maintain. I'd be really interested to see a TCO breakdown for various sizes and ages of house.
    - jerrre 7y ago
      Where I live cheaper houses are more likely to be old (ie 80+ years) and badly insulated, costing more to heat and to maintain....
    - _they 7y ago
      This is tough if you have children. I have no problem living in a 1200sq ft modest house, but they simply don't exist in good school zones in my area.
- celticninja 7y ago
  if I rent for 10 years or I pay a mortgage for 10 years, then at the end of the 10 years I have likely paid less in mortgage payments than I would have paid in rent payments. further if I sell my property then it is likely that I could recoup some or all of my mortgage payments, I definitely can't do this with my rent payments.
  - jakear 7y ago
    People always talk about how “you pay more in interest than principle for the first X years” but seemingly forget that you pay some principle always, versus never paying any principle renting. And in my area (Seattle), the rent vs. mortgage monthly prices aren’t all too different, but with mortgage you get some of it back, plus appreciation. But I won’t fight too hard against people being pro-rent, as my family makes a good chunk of change off of them :)
joyj2nd 7y ago
It may make more sense, to bey an apartment, rent it out and live in another place that your rent.
egypturnash 7y ago
A renter does not get anything of inherent, transferable value out of the exchange. Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value? Any decent landlord provides the service of "medium-sized repairs happen without any more work on your part than a message".
- gouggoug 7y ago
  > Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value? How often does this happen, and how much does it cost? I can guarantee you your time is not worth this much and it is still less expensive and safer for you to buy a house than rent one. If you rent for 30 years, at the end of these 30 years you will have nothing and if anything happens, you'll be left in the streets. If you take a loan for 30 years, at the end you will have a roof above your head, for the rest of your life. The small amount of time you spend finding a contractor and cost of those infrequent leaks repairs represent nothing.
  - bmn__ 7y ago
    > If you rent for 30 years, at the end of these 30 years you will have nothing That chestnut again. It makes me sad to see it on HN. It's just a dishonest comparison. The money saved by not paying back a bank loan plus interest goes into long term investment, not into consumables. In most places on the world, for the last 40 years, the renter comes ahead of the home-owner in spe in terms of total cost.
    - wahern 7y ago
      > In most places on the world I presume the context is the United States where a typical loan requires no more than a 20% down payment, providing 4:1 non-recourse leverage, with 3-4% interest. Outside of home mortgages, that sort of sweet-heart financing is only available to the very wealthy. When you factor in retained equity, at the end of the day, unless mobility or liquidity is exceptionally important to you, buying absolutely makes sense for the vast majority of Americans who can afford it. The home mortgage interest tax deduction is just icing on the cake. That housing prices don't appreciate as much as the stock market is not dispositive. Now, once you already own a home, then of course the fact that the stock market provides higher returns matters for subsequent investment decisions. The calculus of residential ownership isn't nearly as favorable for non-owner-occupants. For small-time real estate investors banks offer you less leverage (3:1 or worse), higher interest rates, and your risk exposure is greater because you're purely speculating--whereas with owner-occupier you were presumably going to be living in that market, so you're only marginally speculating. The situation is different in many other parts of the world with different socioeconomic policies (e.g. expensive mortgages, high down payments) and real estate markets (e.g. more common for housing to depreciate in value), but that's irrelevant to the U.S. You can't say whether owning makes sense or not without accounting for all the opportunity costs, which can vary widely. But in the U.S., generally and historically, buying a home adds up. Maybe the U.S. is worse off for incentivizing homeownership, but it is what it is.
csomar 7y ago
> A renter does not get anything of inherent, transferable value out of the exchange. Your getting a roof? And maybe a garden? > A renter is also subject to the whims of his/her landlord and, from my experience, a renter has to move regularly to avoid rent increases and bad landlords. You have a contract that sets the duration. If you have a flexible contract you also have the option to change (if you have more money or need less space).

SloopJon 7y ago

> The majority of my mortgage payment goes towards ownership of a product - my house For many (most?) people that's not true. Even ignoring that mortgage payments often include property taxes and/or private mortgage insurance, you can expect to pay more interest than principal for the first fifteen years or more of a thirty-year mortgage.

earthboundkid 7y ago
Yes, if you look at your mortgage payments, very little is going to principal. On the flipside, when you rent, you get certain services—maintenance of property and major appliances—that you don't get as a home owner. When I started my mortgage I was surprised at how much money I started spending on home stuff that I never used to spend as a renter. Partly it's because you own it so you have higher standards, but partly you're just eating costs that used to be hidden.
- wpietri 7y ago
  Exactly. Some would say I'm wasting money by renting. I'd say I'm saving myself time and stress by not becoming an unpaid novice handyman, and not spending money on home improvements that I could do without.
- kseifried 7y ago
  But you pay for those in the form of rent. As a homeowner you can also pay someone to do those things. There are a ton of property management companies that will handle a single house if you want to completely hand it off to someone. In general when renting you usually rent a LOT less than you end up buying which I think is where many people get the "renting is cheaper than buying" thought. It's not like your landlord magically eats all these extra costs. They pass them on to you.
  - earthboundkid 7y ago
    It depends on the market. In most of the US, buying is cheaper all things considered, but that’s not always true. Would you rather buy or rent in Flint?
ashtonkem 7y ago
I think we can put property taxes aside, you’ll have to pay your landlords property taxes if you rent after all. If you can afford the cost of a down payment (more on that later), then buying a home does have some utility in wealth generation. You’re right that most of the initial mortgage payments go towards interest, but even collecting 25% of your monthly payment towards your own net worth is a big deal compared to collecting 0%. Especially since there is a good chance that your landlord has a mortgage too, either original or secondary to afford more property, so you must pay their interest plus a portion of their living expenses. This is why generally speaking home ownership is considered superior to renting if you’re not going to move anytime soon. I think the main argument against home ownership from a wealth standpoint is that it ties up a large amount of money as collateral that you could otherwise be using. Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively, potentially making me even more money. This is why the counterintuitive rule is that if you have enough money to buy a house with cash, you should get a mortgage and invest the rest, as you’ll be better off that way in the long run[0]. [0] Caveat here being your age. If you’re 30, you have another 30 years for the difference to grow in the stock market, while if you’re 70 you’d probably appreciate the lower cost of living and stability that this provides.
- jerf 7y ago
  "Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively" I've been saying this for years, maybe after this year it'll make more sense: It is not sensible to model "the market" as if it makes steady X% (for X somewhere in the 5-8 range) returns every year. It can and has gone decades being flat-ish, or slightly down after inflation, or up but nowhere near X% a year. The timescale where this is a reasonable model is longer than your expected productive working years. "Return X% a year" is basically the best case on a decade time scale, not the average case. There have been time frames in my life when paying principle on my mortgage was a significantly better "investment" than the stock market. In hindsight it'll be obvious what you should have done, but in hindsight you can turn a few hundred dollars into a few million in just a couple of weeks with perfect past knowledge of the market, so if we're stipulating hindsight you've made way bigger mistakes than merely "buying a house".
jerf 7y ago
"Doctor, it hurts when I do this." "Don't do that." The standard recommendations for buying a house, in my opinion, are recommendations for buying a house you can barely afford. I recommend buying houses you can comfortably afford, and put some extra principal payments in towards the beginning if at all possible. (Especially if you're just starting now-ish... I suspect the whole "but you could have put it in the stock market instead and made tons more money" both looks a bit less appealing than it did a year ago, and may take a bit before it's advice that would turn out well again.) An HN-specific nuance is that I might as well be saying "don't live in the valley"... you want to call that an exception, eh, go ahead, you're an adult. But in general I recommend that. (Also, you have to check the area you are in. Where I happen to live & in the price zone I'm in, mortgages are quite a bit cheaper than rent. Though that may not be true in another year!)
- brlewis 7y ago
  >I recommend buying houses you can comfortably afford This is great advice. In addition to paying less mortgage, the more affordable house is likely smaller, costing less to heat and maintain. I'd be really interested to see a TCO breakdown for various sizes and ages of house.
  - jerrre 7y ago
    Where I live cheaper houses are more likely to be old (ie 80+ years) and badly insulated, costing more to heat and to maintain....
  - _they 7y ago
    This is tough if you have children. I have no problem living in a 1200sq ft modest house, but they simply don't exist in good school zones in my area.
celticninja 7y ago
if I rent for 10 years or I pay a mortgage for 10 years, then at the end of the 10 years I have likely paid less in mortgage payments than I would have paid in rent payments. further if I sell my property then it is likely that I could recoup some or all of my mortgage payments, I definitely can't do this with my rent payments.
- jakear 7y ago
  People always talk about how “you pay more in interest than principle for the first X years” but seemingly forget that you pay some principle always, versus never paying any principle renting. And in my area (Seattle), the rent vs. mortgage monthly prices aren’t all too different, but with mortgage you get some of it back, plus appreciation. But I won’t fight too hard against people being pro-rent, as my family makes a good chunk of change off of them :)

joyj2nd 7y ago

It may make more sense, to bey an apartment, rent it out and live in another place that your rent.

egypturnash 7y ago

A renter does not get anything of inherent, transferable value out of the exchange. Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value? Any decent landlord provides the service of "medium-sized repairs happen without any more work on your part than a message".

gouggoug 7y ago
> Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value? How often does this happen, and how much does it cost? I can guarantee you your time is not worth this much and it is still less expensive and safer for you to buy a house than rent one. If you rent for 30 years, at the end of these 30 years you will have nothing and if anything happens, you'll be left in the streets. If you take a loan for 30 years, at the end you will have a roof above your head, for the rest of your life. The small amount of time you spend finding a contractor and cost of those infrequent leaks repairs represent nothing.
- bmn__ 7y ago
  > If you rent for 30 years, at the end of these 30 years you will have nothing That chestnut again. It makes me sad to see it on HN. It's just a dishonest comparison. The money saved by not paying back a bank loan plus interest goes into long term investment, not into consumables. In most places on the world, for the last 40 years, the renter comes ahead of the home-owner in spe in terms of total cost.
  - wahern 7y ago
    > In most places on the world I presume the context is the United States where a typical loan requires no more than a 20% down payment, providing 4:1 non-recourse leverage, with 3-4% interest. Outside of home mortgages, that sort of sweet-heart financing is only available to the very wealthy. When you factor in retained equity, at the end of the day, unless mobility or liquidity is exceptionally important to you, buying absolutely makes sense for the vast majority of Americans who can afford it. The home mortgage interest tax deduction is just icing on the cake. That housing prices don't appreciate as much as the stock market is not dispositive. Now, once you already own a home, then of course the fact that the stock market provides higher returns matters for subsequent investment decisions. The calculus of residential ownership isn't nearly as favorable for non-owner-occupants. For small-time real estate investors banks offer you less leverage (3:1 or worse), higher interest rates, and your risk exposure is greater because you're purely speculating--whereas with owner-occupier you were presumably going to be living in that market, so you're only marginally speculating. The situation is different in many other parts of the world with different socioeconomic policies (e.g. expensive mortgages, high down payments) and real estate markets (e.g. more common for housing to depreciate in value), but that's irrelevant to the U.S. You can't say whether owning makes sense or not without accounting for all the opportunity costs, which can vary widely. But in the U.S., generally and historically, buying a home adds up. Maybe the U.S. is worse off for incentivizing homeownership, but it is what it is.

csomar 7y ago

> A renter does not get anything of inherent, transferable value out of the exchange. Your getting a roof? And maybe a garden? > A renter is also subject to the whims of his/her landlord and, from my experience, a renter has to move regularly to avoid rent increases and bad landlords. You have a contract that sets the duration. If you have a flexible contract you also have the option to change (if you have more money or need less space).