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Renting is not cheaper than buying, when the cost is calculated long term, in non-investment realty markets. Houses in cities like NYC, Toronto, San Francisco a

Renting is not cheaper than buying, when the cost is calculated long term, in non-investment realty markets. Houses in cities like NYC, Toronto, San Francisco are being bought by asset management firms as investments, turned into condos or Single Family Rentals (SFRs). Consider this second home scenario. A 2000 square foot home in one area in Maryland (outside Baltimore and Annapolis) costs $3000 per month to rent. Median home price in the same area for roughly same size is $450k. Figure you have $90k down (most don't - which is another way people are forced into renting), and you get 3.5% interest with a 30yr fixed mortgage. You are looking at paying $360k principal and $222k interest over those 30 years, with a payment of ~$1600. Both families live 30 years in the their houses (also not realistic, but makes it easier). After 30 years the SFR family has spent $1,080,000 and has nothing to show for it. After 30 years the owner family has spent $582,000 (~54% of the SFR money). Not only that, they also own the house. At the U.S. national average home appreciation of 3.85%, that home is now worth $1,397,679. That means that while the SFR family is in the red $1.08 million, the owning family has money if they sell the house, to the tune of $815,000. Don't ever let someone tell you renting is cheaper in the long term than owning. Renting may be all someone can afford at the time, but it is always a con in the long run.

soared 5y ago
You've completely ignored risk. Any financial action (like taking out a $450k loan) comes with risks, otherwise everybody would always do it. In the past 30 years we've had 3 major economic downfalls (.com, 08, Covid-19) - each of which could very easily cause someone to lose their job and subsequently their home/mortgage. Your argument is how many people look at the stock market as well. It always goes up! - if you entered the stock market correctly, exited it correctly, invested correctly, had a long enough time horizon, and could stomach risk/declines. Renting is not a long con and its absurd to claim that.
- Communitivity 5y ago
  You are 100% right, I did not factor in risk. The SFR has a 100% guarantee of losing all the money they spend on rent. The national average for home appreciation over many years is 3.85%. There is a reason real estate is the investment of choice for many asset managers. Yes, if you sell the house during a downturn you could lose money. If you buy on the edge of a flood plain, or in a bad neighborhood, you could lose money. Individual stocks are high risk, but the DJIA has gone up consistently if you look at it across multiple years. Renting being a con might have been too strong - it might not be an intentional act to steal money. However, renting is almost never in your best interests, if you are not doing it for the flexibility (don't have enough money at the moment to buy a house, don't want to be tied down, etc.)
weird-eye-issue 5y ago
Of course if you look at it over 30 years it looks like a no brainer but what percentage of renters ever live in a place 30 years? It's simply unrealistic and completely changes the math if you were to look at it on a more realistic scale.
- Communitivity 5y ago
  It makes the math less, but it's still a significant advantage to the home owner, even if the family only stays there 5 years.
findjashua 5y ago
In general, the monthly expense for a home is ~.5% of the home price. Comparing that to the rent is a decent starting point. In your example, monthly expense of ownership is ~2250, which is lower than the rent of 3000. Of course, this doesn’t take into account the down payment and risk associated with home price fluctuations.
sagarm 5y ago
The NYTimes has a good rent-vs-buy calculator that can help you figure out the cost (not cash flow) of owning vs renting. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... You have completely neglected: - maintenance (1%/yr) - property taxes (1-2%/yr) - utilities included in rent - opportunity cost (8% return on alternativee investments) - transaction costs (4% to buy, 6% to sell) - rent growth (=home price growth IMO) - inflation (should =rent and home price growth IMO) - mortgage interest deduction Etc etc. The NYTimes calculator includes all of these. That said $3k/mo for a $450k home is heavily in favor of renting. The approximate cost to own the home is only ~$1500/mo. In SF a property that costs $3k/mo to rent might cost closer to $800k. That comes out to about the same cost either way, according to the assumptions I stated above.
bradknowles 5y ago
The other factor here is how much rent goes up on an annual basis. In many places in California, I understand rent has gone up, on average, over 20% — each and every year for the past couple of decades. How many investments in this world can effectively guarantee a > 20% APY? That’s way better performance than the stock market.

soared 5y ago

You've completely ignored risk. Any financial action (like taking out a $450k loan) comes with risks, otherwise everybody would always do it. In the past 30 years we've had 3 major economic downfalls (.com, 08, Covid-19) - each of which could very easily cause someone to lose their job and subsequently their home/mortgage. Your argument is how many people look at the stock market as well. It always goes up! - if you entered the stock market correctly, exited it correctly, invested correctly, had a long enough time horizon, and could stomach risk/declines. Renting is not a long con and its absurd to claim that.

Communitivity 5y ago
You are 100% right, I did not factor in risk. The SFR has a 100% guarantee of losing all the money they spend on rent. The national average for home appreciation over many years is 3.85%. There is a reason real estate is the investment of choice for many asset managers. Yes, if you sell the house during a downturn you could lose money. If you buy on the edge of a flood plain, or in a bad neighborhood, you could lose money. Individual stocks are high risk, but the DJIA has gone up consistently if you look at it across multiple years. Renting being a con might have been too strong - it might not be an intentional act to steal money. However, renting is almost never in your best interests, if you are not doing it for the flexibility (don't have enough money at the moment to buy a house, don't want to be tied down, etc.)

weird-eye-issue 5y ago

Of course if you look at it over 30 years it looks like a no brainer but what percentage of renters ever live in a place 30 years? It's simply unrealistic and completely changes the math if you were to look at it on a more realistic scale.

Communitivity 5y ago
It makes the math less, but it's still a significant advantage to the home owner, even if the family only stays there 5 years.

findjashua 5y ago

In general, the monthly expense for a home is ~.5% of the home price. Comparing that to the rent is a decent starting point. In your example, monthly expense of ownership is ~2250, which is lower than the rent of 3000. Of course, this doesn’t take into account the down payment and risk associated with home price fluctuations.

sagarm 5y ago

The NYTimes has a good rent-vs-buy calculator that can help you figure out the cost (not cash flow) of owning vs renting. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... You have completely neglected: - maintenance (1%/yr) - property taxes (1-2%/yr) - utilities included in rent - opportunity cost (8% return on alternativee investments) - transaction costs (4% to buy, 6% to sell) - rent growth (=home price growth IMO) - inflation (should =rent and home price growth IMO) - mortgage interest deduction Etc etc. The NYTimes calculator includes all of these. That said $3k/mo for a $450k home is heavily in favor of renting. The approximate cost to own the home is only ~$1500/mo. In SF a property that costs $3k/mo to rent might cost closer to $800k. That comes out to about the same cost either way, according to the assumptions I stated above.

bradknowles 5y ago

The other factor here is how much rent goes up on an annual basis. In many places in California, I understand rent has gone up, on average, over 20% — each and every year for the past couple of decades. How many investments in this world can effectively guarantee a > 20% APY? That’s way better performance than the stock market.