3 ms·

To cover the mortgage, the owner has to pass it to the renter. If the renter could afford the rent, he can afford the mortgage, which mean he can probably affor

by rafale 6y ago

To cover the mortgage, the owner has to pass it to the renter. If the renter could afford the rent, he can afford the mortgage, which mean he can probably afford the house in the first place. Sounds like the stupid people outbidding each other will lose money on the rent because renters are not outbidding each other.

luigibosco 6y ago
Not sure why you refer to the renter as "he", but anyway there are many reasons people cannot afford to buy a house such as living paycheck to paycheck, damaged credit, no collateral etc.
happymellon 6y ago
You completely miss that a property that I purchase to live in will probably be both interest and loan while a property purchased to rent out will be interest only. This means that someone buying it to rent out can get a loan for significantly more than someone looking to purchase, making it much easier to outbid them.
comeonseriously 6y ago
> ... which mean he can probably afford the house in the first place. Not true. The people (or companies) winning the bidding war for these properties are paying cash. Normals don't have $900K cash laying around to buy a property originally listed at 550K.
JoshuaDavid 6y ago
> If the renter could afford the rent, he can afford the mortgage This is not necessarily true. In Los Angeles, for example, the price-to-rent ratio is about 38, i.e. if you pay $1000 / month in rent for a place, buying a comparable place would cost you about $450,000 (38 * 12 * 1000). There are a lot of people who could afford to pay $12,000 / year for housing, but could not afford the down payment on a $450,000 mortgage. For that matter, the interest payments alone mean that renting is cheaper than buying -- 3% interest on a $450,000 loan alone is already $13,500 / year, and that's before taking into account that you also have to pay property taxes (another $3,500 / year), maintenance (probably another couple thousand a year), and principle on the mortgage (about another $9,000 / year). In less inflated housing markets, it is generally true that the cost of rent is similar to the cost of a mortgage, but that is definitely not true in all markets.

by rafale 6y ago

luigibosco 6y ago

Not sure why you refer to the renter as "he", but anyway there are many reasons people cannot afford to buy a house such as living paycheck to paycheck, damaged credit, no collateral etc.

happymellon 6y ago

You completely miss that a property that I purchase to live in will probably be both interest and loan while a property purchased to rent out will be interest only. This means that someone buying it to rent out can get a loan for significantly more than someone looking to purchase, making it much easier to outbid them.

comeonseriously 6y ago

> ... which mean he can probably afford the house in the first place. Not true. The people (or companies) winning the bidding war for these properties are paying cash. Normals don't have $900K cash laying around to buy a property originally listed at 550K.

JoshuaDavid 6y ago

> If the renter could afford the rent, he can afford the mortgage This is not necessarily true. In Los Angeles, for example, the price-to-rent ratio is about 38, i.e. if you pay $1000 / month in rent for a place, buying a comparable place would cost you about $450,000 (38 * 12 * 1000). There are a lot of people who could afford to pay $12,000 / year for housing, but could not afford the down payment on a $450,000 mortgage. For that matter, the interest payments alone mean that renting is cheaper than buying -- 3% interest on a $450,000 loan alone is already $13,500 / year, and that's before taking into account that you also have to pay property taxes (another $3,500 / year), maintenance (probably another couple thousand a year), and principle on the mortgage (about another $9,000 / year). In less inflated housing markets, it is generally true that the cost of rent is similar to the cost of a mortgage, but that is definitely not true in all markets.