3 ms·

I could easily refute all the points in that article if I had the time. I'll suffice to give this example: "A" buys a $100,000 house, "B" rents a $100,000 hou

I could easily refute all the points in that article if I had the time. I'll suffice to give this example: "A" buys a $100,000 house, "B" rents a $100,000 house. Both pay about $1,500 per month. At the end of 15 years, "A" owns an asset worth $100,000, "B" owns nothing. You decide.

keiferski 16y ago
If you're renting a $100,000 house for $1,500 a month, you are probably overpaying on rent, no?
- xd 16y ago
  In the UK at least, rent is higher than the equivalent mortgage payments at the moment. I pay around 2/3rd the cost of what friends pay for their rented property and this is common across the country. This has been caused by the decline in mortgage lending.
  - petercooper 16y ago
    It depends on when people bought and the region of the country. I see the exact opposite picture here in a rural, northern area. My small 2 bedroom end of terrace costs me just more in mortgage payments than a 4 bed detached house in the same town. The reason? I bought at peak of market in 2007 whereas the people renting out the big houses bought 10+ years ago when such houses cost little more than my shoe box. Given the total lack of a job market, too, the rents have failed to increase.
  - jeffepp 16y ago
    These inefficient market conditions are exactly what I would look for when purchasing or investing in a home. The worst case scenario is + cashflow.
  - danzad 16y ago
    Was that a 100% mortgate or did you put down a deposit?
- younata 16y ago
  Well, depending on the size of the house. I've seen apartments go for around $500/month in areas where a decently sized house is about $100,000 to buy. So, it's not that unreasonable to expect to rent a house for $1,500/month.
dusing 16y ago
In some markets (like St Paul where I am) "B" doesn't pay as much as "A". For example right now I rent a sweet house for $2500 that I've been told the mortgage is 3600 + a hefty association fee + prop tax + maintenance. Oh not to mention the value the property has already lost since purchase, and is still modestly loosing each and every month.
acangiano 16y ago
Depending on the market, there are times when renting is actually cheaper than buying, also considering that you pay taxes, repair, and maintenance on a house you own. See here for an elementary explanation: http://www.khanacademy.org/video/renting-vs--buying-a-home?playlist=Finance http://www.khanacademy.org/video/renting-vs--buying-a-home?p...
- zeroplus 16y ago
  You arent taking into acct the investment value of the downpayment. Plus the benefits of having high liquidity
alex_h 16y ago
If someone is getting $1500 /month rent for their $100,000 house, then reason #1 to own a house is "Rent it out, and get 18% p.a. returns on it"
- leviathant 16y ago
  My wife and I didn't sell our first house when we moved, we're prepping it to rent out. It was a serious fixer-upper, so we renovated the bejeezus out of it while living there (learned a lot and bought a bunch of tools). Average rent for a property that size is easily double our mortgage payment - which is why we bought instead of renting in the first place. Even factoring in taxes and maintenance costs, renting out that first house, even at the low end of what we could get for it, we'll handily subsidize our current residence as well as pay off the old house. Even if we were to sell it, the quality of work we put into it more than pays for the time and money we put into renovations. To each their own I guess.
- kgo 16y ago
  Any good investment plan involved diversification. If you buy one house, one bad tennant could mean six months or more of no rent payments while you go through the eviction process and try to get someone else in there. One really bad tennant could cause tens of thousands of dollars of damages.
true_religion 16y ago
I agree in theory, but in practice people don't go from renting houses to buying identical houses---they always trade up: from a 2 bedroom apartment to a 3 bedroom condominium, from a 3 bedroom house to a 5 bedroom McMansion, etc. Because of this the costs of ownership once mortgage, taxes, utilities and maintenance are tallied up are often more than what a person was previously spending on rent. Secondly, his major point is that home ownership involves a cash down payment. Its' not a case of person A/B spending 1500 per month, its a case of person A buying a 100k home and paying 20k in cash for the right to a loan. That 20k may have been better spent in more volatile and profitable investment than home ownership. Third and lastly, a house can lose value. Did the major employer leave the area or downsize (e.g. Detroit most prominently, Ghost towns, and a scattering of towns all over US that relied on heavy industry)? If so, then your house value has fallen. Did the area fail to gentrify or did you buy in a bubble? If so, then your house value has fallen. Has there been a disaster that the economy hasn't recovered from (e.g. Katrina, coal slush floods in W. VA, BP oil spills effect on homefront properties)? If so, then ..... The argument that a house is an investment fails because it is the least liquid of investments, and thus harms the buyer the most when the prices fall. You can always sell your stock even in a strong downturn, but who is going to buy your drafty McMansion situated in an edge of town neighborhood in a down economy?
- jeffepp 16y ago
  The analogy is similar re: stock. Is your $25 citigroup stock really worth selling @ $3? Most likely those people sold at .60 cents. Most people who are losing money in real estate were also selling stocks at the bottom (2 years ago) and were buying tech stocks with two hands in 1999.
  - true_religion 16y ago
    > Most people who are losing money in real estate ... Many people are losing money simply by having the value of their houses fall. They don't want to sell, but their so called "investment" is worth half the price today on the open market than it was when they bought it. Realistically, they may never recover the value they spent in their lifetimes.
glenngillen 16y ago
Not really. I know the US has exceptionally low interest rates, but in every other country I've ever lived interest rates are almost always higher than rental yields. Properties that are yielding higher than the current interest rate are the exception rather than the rule. On that basis, you're paying a premium to "own" your home. The only benefit of owning in such a market is that purchasing means you draw a line in the sand, "A" is now more in control if their monthly rent. But they're not in complete control, interest rates rise, the building needs to get repaired, there's those not insignificant legal and other costs associated with purchasing in the first place. That adds up to quite an expense. Meanwhile "B" doesn't have those concerns, and a great deal of flexibility and liquidity. I'll personally stay "B", and my investment properties will be limited to those rare gems that are cash-flow positive within a year or two.
sbalea 16y ago
Not so clear cut. A needs to put something down for the house, let's say the standard 20%. B invests those $20k at a conservative rate of return, say 5%. After 15 years, B has $41579. Also, A will have to pay maintenance costs on the house, which are very hard to estimate. On the other hand, A's house might appreciate, he gets a tax deduction on the interest paid and B's rent might go up over time. My point is there are a lot more factors at play here.
deleted 16y ago
[deleted]

keiferski 16y ago

If you're renting a $100,000 house for $1,500 a month, you are probably overpaying on rent, no?

xd 16y ago
In the UK at least, rent is higher than the equivalent mortgage payments at the moment. I pay around 2/3rd the cost of what friends pay for their rented property and this is common across the country. This has been caused by the decline in mortgage lending.
- petercooper 16y ago
  It depends on when people bought and the region of the country. I see the exact opposite picture here in a rural, northern area. My small 2 bedroom end of terrace costs me just more in mortgage payments than a 4 bed detached house in the same town. The reason? I bought at peak of market in 2007 whereas the people renting out the big houses bought 10+ years ago when such houses cost little more than my shoe box. Given the total lack of a job market, too, the rents have failed to increase.
- jeffepp 16y ago
  These inefficient market conditions are exactly what I would look for when purchasing or investing in a home. The worst case scenario is + cashflow.
- danzad 16y ago
  Was that a 100% mortgate or did you put down a deposit?
younata 16y ago
Well, depending on the size of the house. I've seen apartments go for around $500/month in areas where a decently sized house is about $100,000 to buy. So, it's not that unreasonable to expect to rent a house for $1,500/month.

dusing 16y ago

In some markets (like St Paul where I am) "B" doesn't pay as much as "A". For example right now I rent a sweet house for $2500 that I've been told the mortgage is 3600 + a hefty association fee + prop tax + maintenance. Oh not to mention the value the property has already lost since purchase, and is still modestly loosing each and every month.

acangiano 16y ago

Depending on the market, there are times when renting is actually cheaper than buying, also considering that you pay taxes, repair, and maintenance on a house you own. See here for an elementary explanation: http://www.khanacademy.org/video/renting-vs--buying-a-home?playlist=Finance http://www.khanacademy.org/video/renting-vs--buying-a-home?p...

zeroplus 16y ago
You arent taking into acct the investment value of the downpayment. Plus the benefits of having high liquidity

alex_h 16y ago

If someone is getting $1500 /month rent for their $100,000 house, then reason #1 to own a house is "Rent it out, and get 18% p.a. returns on it"

leviathant 16y ago
My wife and I didn't sell our first house when we moved, we're prepping it to rent out. It was a serious fixer-upper, so we renovated the bejeezus out of it while living there (learned a lot and bought a bunch of tools). Average rent for a property that size is easily double our mortgage payment - which is why we bought instead of renting in the first place. Even factoring in taxes and maintenance costs, renting out that first house, even at the low end of what we could get for it, we'll handily subsidize our current residence as well as pay off the old house. Even if we were to sell it, the quality of work we put into it more than pays for the time and money we put into renovations. To each their own I guess.
kgo 16y ago
Any good investment plan involved diversification. If you buy one house, one bad tennant could mean six months or more of no rent payments while you go through the eviction process and try to get someone else in there. One really bad tennant could cause tens of thousands of dollars of damages.

true_religion 16y ago

I agree in theory, but in practice people don't go from renting houses to buying identical houses---they always trade up: from a 2 bedroom apartment to a 3 bedroom condominium, from a 3 bedroom house to a 5 bedroom McMansion, etc. Because of this the costs of ownership once mortgage, taxes, utilities and maintenance are tallied up are often more than what a person was previously spending on rent. Secondly, his major point is that home ownership involves a cash down payment. Its' not a case of person A/B spending 1500 per month, its a case of person A buying a 100k home and paying 20k in cash for the right to a loan. That 20k may have been better spent in more volatile and profitable investment than home ownership. Third and lastly, a house can lose value. Did the major employer leave the area or downsize (e.g. Detroit most prominently, Ghost towns, and a scattering of towns all over US that relied on heavy industry)? If so, then your house value has fallen. Did the area fail to gentrify or did you buy in a bubble? If so, then your house value has fallen. Has there been a disaster that the economy hasn't recovered from (e.g. Katrina, coal slush floods in W. VA, BP oil spills effect on homefront properties)? If so, then ..... The argument that a house is an investment fails because it is the least liquid of investments, and thus harms the buyer the most when the prices fall. You can always sell your stock even in a strong downturn, but who is going to buy your drafty McMansion situated in an edge of town neighborhood in a down economy?

jeffepp 16y ago
The analogy is similar re: stock. Is your $25 citigroup stock really worth selling @ $3? Most likely those people sold at .60 cents. Most people who are losing money in real estate were also selling stocks at the bottom (2 years ago) and were buying tech stocks with two hands in 1999.
- true_religion 16y ago
  > Most people who are losing money in real estate ... Many people are losing money simply by having the value of their houses fall. They don't want to sell, but their so called "investment" is worth half the price today on the open market than it was when they bought it. Realistically, they may never recover the value they spent in their lifetimes.

glenngillen 16y ago

Not really. I know the US has exceptionally low interest rates, but in every other country I've ever lived interest rates are almost always higher than rental yields. Properties that are yielding higher than the current interest rate are the exception rather than the rule. On that basis, you're paying a premium to "own" your home. The only benefit of owning in such a market is that purchasing means you draw a line in the sand, "A" is now more in control if their monthly rent. But they're not in complete control, interest rates rise, the building needs to get repaired, there's those not insignificant legal and other costs associated with purchasing in the first place. That adds up to quite an expense. Meanwhile "B" doesn't have those concerns, and a great deal of flexibility and liquidity. I'll personally stay "B", and my investment properties will be limited to those rare gems that are cash-flow positive within a year or two.

sbalea 16y ago

Not so clear cut. A needs to put something down for the house, let's say the standard 20%. B invests those $20k at a conservative rate of return, say 5%. After 15 years, B has $41579. Also, A will have to pay maintenance costs on the house, which are very hard to estimate. On the other hand, A's house might appreciate, he gets a tax deduction on the interest paid and B's rent might go up over time. My point is there are a lot more factors at play here.

deleted 16y ago

[deleted]