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If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you

If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you'd put in the stock market for the purposes of these comparisons. A good "rent vs. buy" calculator will let you easily visualize these terms, e.g. this [NYT calculator](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...) which helpfully shows you the sensitivity of the outcome on each parameter. I think your model here oversimplifies and misses some of the key details. In more detail, you need to consider that your mortgage is going to be more expensive than rent, so if you're renting you have an extra $X/mo to invest in the stock market. Plus you have your deposit $Y that you'd invest in the stock market as well. Then you need to make your prediction on what the growth rate per annum of stocks vs. real estate is going to be, and compound your investments accordingly over time.

himlion 6y ago
> 1. rent is less than a mortgage This is highly variable. From what I've heard this is usually the case in the USA, while in Europe renting is often much more expensive than a mortgage on a similar home.
- vonmoltke 6y ago
  > I've heard this is usually the case in the USA Where have you heard that it is usually the case in the US? I have put money into two different housing markets (Dallas-Ft. Worth and northern New Jersey) and it was not the case in either.
  - persedes 6y ago
    same for the research triangle in NC. edit: just checked an area little further out, same still applies. ~2 years ago the only home we found that would've been that "cheap" reeked of mold. It does not surprise me for these densely populated areas, but I can imagine this might be the case in more rural areas.
    - theptip 6y ago
      I'm wondering if this is a "mortgage payment amount" vs. "total cost of ownership" difference? Not my area of expertise, but a quick search gives some conflicting and unspecific articles like: https://www.cnbc.com/2019/02/13/how-much-more-money-it-costs-to-own-a-home-than-rent-in-every-us-state.html https://www.cnbc.com/2019/02/13/how-much-more-money-it-costs... https://www.businessinsider.com/us-cities-where-its-cheaper-to-own-home-than-rent https://www.businessinsider.com/us-cities-where-its-cheaper-... Or in your experience in these markets are you seeing rent above the total monthly cost of ownership? When I'm saying "mortgage is more expensive" that's really a lazy shorthand for "total monthly cost of owning a house including HOA and maintenance", not sure if that was clear from the context.
      - persedes 6y ago
        From my small sample size I'm seeing around ~500$ / month (33%) more for renting vs what you'd pay on a 30 year mortgage. This difference might be covered by total costs of ownership, but according to the nyt rent vs buy calculator, you'll only be better off renting when looking at a time frame of less than ~5 years. Greensboro, NC is on that list (which would fall in the more remote category) and the same still seems to apply. Not sure if my numbers are right, but a 2,000 sqft house from the 60s is being offered to rent for 1,500$, which is kind of ridiculous imho. Property value should be around 200k, with a monthly mortgage <900$: https://www.zillow.com/homedetails/1603-Milan-Rd-Greensboro-NC-27410/5935444_zpid/ https://www.zillow.com/homedetails/1603-Milan-Rd-Greensboro-...
- milkytron 6y ago
  Agreed. Even in the USA, from what I've seen, if you put a 15-20% down payment towards a home in a strong rental market (or what used to be), the mortgage will be less. I moved into a residential development about two years ago, and people were buying houses and renting them out nearly immediately. Not sure what they pay on it, but for my scenario, renting the equivalent was about $200 more per month than getting a mortgage (taxes, maintenance and all). And the difference was increasing right up until the pandemic happened, not sure where it stands now. If you're willing to put a solid down payment into a home, you can pay less than rent would otherwise be, it's just a matter of how much.
- sethammons 6y ago
  agreed, variable. Lived most my life in Southern California. I've seen rent being both cheaper and more expensive than a mortgage. For a long while, the mortgage was a much better monthly payment; folks without a down payment were locked out of mortgages and stuck paying higher rents. Looking at my flyover state on craigslist + zillow, a random house I picked rents for $1.4k/mo and has an estimated mortgage of $1.5/mo. Your rent "savings" would be $100/mo and ignoring cost of maintenance if you mortgaged.
nasalgoat 6y ago
My mortgage is about half what rent would be in Toronto. So that's not a hard and fast rule.
dahart 6y ago
> typically: 1. rent is less than a mortgage Why do you say this is typical? It depends on what you rent, of course. If you rent a house that was purchased a long time ago, it can be less. But a lot of rentals are in apartment complexes, and are newer and more expensive per square foot than equivalent purchases. I also think typically rental units are smaller than houses for most people, so I wonder whether you're really comparing apples to apples. Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs. > if you're renting you have an extra $X/mo to invest in the stock market. People usually use the down payment as the capital opportunity cost that you can invest as an alternative to buying a house. My question is this: statistically, how many people actually do it and make better returns than buying a house? It's one thing to talk about it being possible, and another to actually do it. I don't know how to consistently make better returns investing than I've made on my houses, and I'm not sure I have the energy to stay on top of it every month. Note your suggestion to invest instead of rent involves monthly adjustments of your investments.
- theptip 6y ago
  > Why do you say this is typical? It looks like I'm just mistaken on this one, it seems that in some markets rent is cheaper. I think you're right that it's not apples-to-apples though, I suspect that median rental stock is typically less well maintained than it would be if it were owned, in the markets where rent is cheaper. I think most people are indexing their price point on things like square footage, yard, location, etc., and not necessarily all of the factors that contribute to the cost of ownership to the landlord. > Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs. While this is true for owners that buy with a mortgage and then rent the property, I don't think this logic works in general -- it's not uncommon for the owner to own the property outright; this could be an individual that inherited a house or paid off their mortgage, or a large company where they are investing capital in houses instead of borrowing (e.g. a REIT); in that case you have a target yield to clear, but no "mortgage costs" per se. > I'm not sure I have the energy to stay on top of it every month. The standard recommendation here is to put your money in an index tracker, which has very low fees and essentially replicates the performance of the S&P 500 or whatever market you want to track. https://investor.vanguard.com/etf/profile/performance/voo https://investor.vanguard.com/etf/profile/performance/voo would be one. Anyone who bought the S&P and held it for 10 years made about 14% YoY (more like 10% if you take the last 30 years), and that's not considering the liquidity premium (i.e. you can exit your stock position whenever you need to, whereas selling a house takes time and effort).
rootusrootus 6y ago
> If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you'd put in the stock market for the purposes of these comparisons. This varies by location, no doubt. My mortgage was the same monthly cost of my rent, when I bought my first house. After the tax benefits, it was less expensive, though a wash once you factored in maintenance. And it was a fixed payment, whereas the rent was increasing every year.
- MuffinFlavored 6y ago
  > After the tax benefits, it was less expensive With the standard deduction being $12.4k/yr per person... are you really deducting more than $12.4k/yr in mortgage interest + property taxes?

himlion 6y ago

> 1. rent is less than a mortgage This is highly variable. From what I've heard this is usually the case in the USA, while in Europe renting is often much more expensive than a mortgage on a similar home.

vonmoltke 6y ago
> I've heard this is usually the case in the USA Where have you heard that it is usually the case in the US? I have put money into two different housing markets (Dallas-Ft. Worth and northern New Jersey) and it was not the case in either.
- persedes 6y ago
  same for the research triangle in NC. edit: just checked an area little further out, same still applies. ~2 years ago the only home we found that would've been that "cheap" reeked of mold. It does not surprise me for these densely populated areas, but I can imagine this might be the case in more rural areas.
  - theptip 6y ago
    I'm wondering if this is a "mortgage payment amount" vs. "total cost of ownership" difference? Not my area of expertise, but a quick search gives some conflicting and unspecific articles like: https://www.cnbc.com/2019/02/13/how-much-more-money-it-costs-to-own-a-home-than-rent-in-every-us-state.html https://www.cnbc.com/2019/02/13/how-much-more-money-it-costs... https://www.businessinsider.com/us-cities-where-its-cheaper-to-own-home-than-rent https://www.businessinsider.com/us-cities-where-its-cheaper-... Or in your experience in these markets are you seeing rent above the total monthly cost of ownership? When I'm saying "mortgage is more expensive" that's really a lazy shorthand for "total monthly cost of owning a house including HOA and maintenance", not sure if that was clear from the context.
    - persedes 6y ago
      From my small sample size I'm seeing around ~500$ / month (33%) more for renting vs what you'd pay on a 30 year mortgage. This difference might be covered by total costs of ownership, but according to the nyt rent vs buy calculator, you'll only be better off renting when looking at a time frame of less than ~5 years. Greensboro, NC is on that list (which would fall in the more remote category) and the same still seems to apply. Not sure if my numbers are right, but a 2,000 sqft house from the 60s is being offered to rent for 1,500$, which is kind of ridiculous imho. Property value should be around 200k, with a monthly mortgage <900$: https://www.zillow.com/homedetails/1603-Milan-Rd-Greensboro-NC-27410/5935444_zpid/ https://www.zillow.com/homedetails/1603-Milan-Rd-Greensboro-...
milkytron 6y ago
Agreed. Even in the USA, from what I've seen, if you put a 15-20% down payment towards a home in a strong rental market (or what used to be), the mortgage will be less. I moved into a residential development about two years ago, and people were buying houses and renting them out nearly immediately. Not sure what they pay on it, but for my scenario, renting the equivalent was about $200 more per month than getting a mortgage (taxes, maintenance and all). And the difference was increasing right up until the pandemic happened, not sure where it stands now. If you're willing to put a solid down payment into a home, you can pay less than rent would otherwise be, it's just a matter of how much.
sethammons 6y ago
agreed, variable. Lived most my life in Southern California. I've seen rent being both cheaper and more expensive than a mortgage. For a long while, the mortgage was a much better monthly payment; folks without a down payment were locked out of mortgages and stuck paying higher rents. Looking at my flyover state on craigslist + zillow, a random house I picked rents for $1.4k/mo and has an estimated mortgage of $1.5/mo. Your rent "savings" would be $100/mo and ignoring cost of maintenance if you mortgaged.

nasalgoat 6y ago

My mortgage is about half what rent would be in Toronto. So that's not a hard and fast rule.

dahart 6y ago

> typically: 1. rent is less than a mortgage Why do you say this is typical? It depends on what you rent, of course. If you rent a house that was purchased a long time ago, it can be less. But a lot of rentals are in apartment complexes, and are newer and more expensive per square foot than equivalent purchases. I also think typically rental units are smaller than houses for most people, so I wonder whether you're really comparing apples to apples. Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs. > if you're renting you have an extra $X/mo to invest in the stock market. People usually use the down payment as the capital opportunity cost that you can invest as an alternative to buying a house. My question is this: statistically, how many people actually do it and make better returns than buying a house? It's one thing to talk about it being possible, and another to actually do it. I don't know how to consistently make better returns investing than I've made on my houses, and I'm not sure I have the energy to stay on top of it every month. Note your suggestion to invest instead of rent involves monthly adjustments of your investments.

theptip 6y ago
> Why do you say this is typical? It looks like I'm just mistaken on this one, it seems that in some markets rent is cheaper. I think you're right that it's not apples-to-apples though, I suspect that median rental stock is typically less well maintained than it would be if it were owned, in the markets where rent is cheaper. I think most people are indexing their price point on things like square footage, yard, location, etc., and not necessarily all of the factors that contribute to the cost of ownership to the landlord. > Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs. While this is true for owners that buy with a mortgage and then rent the property, I don't think this logic works in general -- it's not uncommon for the owner to own the property outright; this could be an individual that inherited a house or paid off their mortgage, or a large company where they are investing capital in houses instead of borrowing (e.g. a REIT); in that case you have a target yield to clear, but no "mortgage costs" per se. > I'm not sure I have the energy to stay on top of it every month. The standard recommendation here is to put your money in an index tracker, which has very low fees and essentially replicates the performance of the S&P 500 or whatever market you want to track. https://investor.vanguard.com/etf/profile/performance/voo https://investor.vanguard.com/etf/profile/performance/voo would be one. Anyone who bought the S&P and held it for 10 years made about 14% YoY (more like 10% if you take the last 30 years), and that's not considering the liquidity premium (i.e. you can exit your stock position whenever you need to, whereas selling a house takes time and effort).

rootusrootus 6y ago

> If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you'd put in the stock market for the purposes of these comparisons. This varies by location, no doubt. My mortgage was the same monthly cost of my rent, when I bought my first house. After the tax benefits, it was less expensive, though a wash once you factored in maintenance. And it was a fixed payment, whereas the rent was increasing every year.

MuffinFlavored 6y ago
> After the tax benefits, it was less expensive With the standard deduction being $12.4k/yr per person... are you really deducting more than $12.4k/yr in mortgage interest + property taxes?