6 ms·

You are ignoring costs that are truly just lost and don't exist with a rental payment, like repairs and insurance and HOA, etc.

dragontamer 5y ago
But I'm not ignoring them. I'm currently paying a $1600 / month mortgage, of which $1000 is principal, $400 is interest and $200 is escrow (tax / insurance) in an area with $2000/month rent. So I'm really paying $600 / month for interest, tax, insurance. It's another $1400/month before I get to rent prices. And even with a new roof and new deck last year, I'm no where close to renters prices in terms of actual cost. Especially considering that I had no maintenance costs in 2019 (lucky year) And those $2000/month apartments are literally my next door neighbors. I get way more room than them, a private garage and lots of other benefits. (Those apartment dwellers occasionally ask me if they can park in my driveway when space runs out. That's how close they are.).
- splitstud 5y ago
  And 10 years from now inflation will have only increased the tax and insurance. In almost any locale, buying is inarguably the better option.
  - deleted 5y ago
    [deleted]
- RHSeeger 5y ago
  > $1000 is principal, $400 is interest Your numbers don't seem normal. Looking at a mortgage calculator, given a new $370,000 home price, with 20% down, 3.92% interest... the P&I is $1,399. Of that, $967 is interest and $432 is principal. Those numbers are almost the reverse of yours. It wouldn't be until ~year 20 of the mortgage that the numbers would match yours.
  - dragontamer 5y ago
    Try again: 15-Year mortgage 2.375% interest. Aka: current market conditions. With interest rates so low, your monthly payments are minuscule right now and make the 15-Year a good option. Any homeowner with good credit scores can right now switch off their current mortgage into a 15-Y 2.375% ish loan.
    - kbelder 5y ago
      I bought a house three years ago. It burned down one year ago. I am buying another house this month that is 40% more expensive, and will be paying less on a monthly basis. This is due to (1) rolling over money invested into the first house, and (2) stupidly low interest rates. If you can realistically afford a house, I don't see how renting could ever make sense, at least not when the prices are close. Basically, consider a mortgage payment as a rental payment where they match 50% of your rent into a nice investment fund you can cash out anytime you like.
      - RHSeeger 5y ago
        You're simplifying it, though. - It's generally nowhere near 50% (of the cost of owning) going to principal - Buying ties you into the house, or at least ties other costs to moving. If you're likely to need to move again in under 5 years, that cost is high. - Related to the cost of moving, but... if you're moving to a new area and want to take some time to pick out where you're going to live for 20 years, then renting for a few makes sense. Honestly, there's just a lot of reasons that can make it financially reasonable to rent instead of own.
    - RHSeeger 5y ago
      Most of the homeowners I know have 30 year mortgages. As such, my comment that your numbers don't seem normal is fairly accurate given the people I know. Is it a lot more common to take a 15 yr loan among your friends / in your area?
- ramraj07 5y ago
  If your mortgage is lower than the rent that means your location appreciated very significantly. Given stagnant prices mortgage being lower than rent doesn’t make sense. Now the question for someone buying today is if they expect that to happen in the future. For me the answer is not positive enough to gamble buying a place.
  - dragontamer 5y ago
    It's a townhome, so the appreciation I got is far less than the larger single family homes in my area. Furthermore, I've ignored appreciation from my calculations above (since my property has appreciated considerably, its as if I've gained $60,000 in equity). Frankly, appreciation of assets is one of the biggest reasons to own rather than rent. Townhomes are like apartments but no worries about bothering people below your floors (or people above you annoying you when they move chairs). They also build equity at higher rates than renting. Bonus points: I have a dedicated driveway + garage while my neighbors are sharing their parking space with each other (and often run out). Also like, +1000 sq. feet. 3 stories of space helps a lot compared to the apartment sizes. ----------- Look, not everywhere is the crappy San Francisco housing market. There are plenty of locations in the USA where rent prices are terrible and ownership is much better financially. Any location that's constantly building new homes (pushing home ownership prices down, and therefore rent prices down) will probably have a market like mine where ownership is in fact the better financial decision.
  - FireBeyond 5y ago
    My mortgage is $3,000/month. My rent at the place I moved out of would have been $2,500/month. That's very little difference, ultimately, when it comes to the equity part of the equation. I've had some upfront costs in the first three months, but none were surprises (appliances, knew that the AC was past its usable life.
kelnos 5y ago
If your building has HOA dues, renting doesn't mean you aren't paying it; it just means your landlord built the cost of it into your rent. Same with property tax and the landlord's home insurance payment. After which, if you want to be safe, you then need to spend more to get renter's insurance. And I would expect a landlord would build estimated repair costs into the rent as well, at least to some extent. Of course that doesn't mean something unexpectedly expensive couldn't happen.
- refurb 5y ago
  I see this claim a lot - "you can't save on rent because your landlord has to cover their costs". But this is only true if your landlord purchased at the time you rented. I rented a $1.8M apartment for $3,000 per month (~1/3 of total ownership costs). That's because my landlord bought 20 years before when the apartment was worth $200k. His monthly costs were maybe $1,000.
  - mrep 5y ago
    I am extremely doubtful of the claim that an apartment that only nets 36,000 in rent per year is somehow worth 1,800,000. That's a 2% return before any associated costs. I literally just looked at another rental property that was netting 8k a month across all tenants and was listed at 1,150,000. There is no way that other owner could actually sell that place for 1,800,000.
    - refurb 5y ago
      Not sure what to tell you. The place two doors down that was smaller went for $1.5M. Of course the landlord couldn’t sell it for $1.8M with me in it (because of SF rent control). But when I moved out and it was empty? They absolutely could.
    - forgingahead 5y ago
      There are plenty of places that rent far below what they cost the landlord in mortgage/taxes/HOA/repairs/etc. Home ownership, especially buying a home as an "investment" is such an emotional thing that plenty of people buy property just to buy property, the math doesn't come into it. Most of the time, even with the appreciation of the property that they sell, the landlord would have been better off putting their money into other more liquid investments with higher returns. But, many people just buy property because they don't know any better.
FireBeyond 5y ago
Huh? My landlord wasn't eating the HOA costs out of the goodness of his heart, that's a lost cause whether you rent or own.

dragontamer 5y ago

But I'm not ignoring them. I'm currently paying a $1600 / month mortgage, of which $1000 is principal, $400 is interest and $200 is escrow (tax / insurance) in an area with $2000/month rent. So I'm really paying $600 / month for interest, tax, insurance. It's another $1400/month before I get to rent prices. And even with a new roof and new deck last year, I'm no where close to renters prices in terms of actual cost. Especially considering that I had no maintenance costs in 2019 (lucky year) And those $2000/month apartments are literally my next door neighbors. I get way more room than them, a private garage and lots of other benefits. (Those apartment dwellers occasionally ask me if they can park in my driveway when space runs out. That's how close they are.).

splitstud 5y ago
And 10 years from now inflation will have only increased the tax and insurance. In almost any locale, buying is inarguably the better option.
- deleted 5y ago
  [deleted]
RHSeeger 5y ago
> $1000 is principal, $400 is interest Your numbers don't seem normal. Looking at a mortgage calculator, given a new $370,000 home price, with 20% down, 3.92% interest... the P&I is $1,399. Of that, $967 is interest and $432 is principal. Those numbers are almost the reverse of yours. It wouldn't be until ~year 20 of the mortgage that the numbers would match yours.
- dragontamer 5y ago
  Try again: 15-Year mortgage 2.375% interest. Aka: current market conditions. With interest rates so low, your monthly payments are minuscule right now and make the 15-Year a good option. Any homeowner with good credit scores can right now switch off their current mortgage into a 15-Y 2.375% ish loan.
  - kbelder 5y ago
    I bought a house three years ago. It burned down one year ago. I am buying another house this month that is 40% more expensive, and will be paying less on a monthly basis. This is due to (1) rolling over money invested into the first house, and (2) stupidly low interest rates. If you can realistically afford a house, I don't see how renting could ever make sense, at least not when the prices are close. Basically, consider a mortgage payment as a rental payment where they match 50% of your rent into a nice investment fund you can cash out anytime you like.
    - RHSeeger 5y ago
      You're simplifying it, though. - It's generally nowhere near 50% (of the cost of owning) going to principal - Buying ties you into the house, or at least ties other costs to moving. If you're likely to need to move again in under 5 years, that cost is high. - Related to the cost of moving, but... if you're moving to a new area and want to take some time to pick out where you're going to live for 20 years, then renting for a few makes sense. Honestly, there's just a lot of reasons that can make it financially reasonable to rent instead of own.
  - RHSeeger 5y ago
    Most of the homeowners I know have 30 year mortgages. As such, my comment that your numbers don't seem normal is fairly accurate given the people I know. Is it a lot more common to take a 15 yr loan among your friends / in your area?
ramraj07 5y ago
If your mortgage is lower than the rent that means your location appreciated very significantly. Given stagnant prices mortgage being lower than rent doesn’t make sense. Now the question for someone buying today is if they expect that to happen in the future. For me the answer is not positive enough to gamble buying a place.
- dragontamer 5y ago
  It's a townhome, so the appreciation I got is far less than the larger single family homes in my area. Furthermore, I've ignored appreciation from my calculations above (since my property has appreciated considerably, its as if I've gained $60,000 in equity). Frankly, appreciation of assets is one of the biggest reasons to own rather than rent. Townhomes are like apartments but no worries about bothering people below your floors (or people above you annoying you when they move chairs). They also build equity at higher rates than renting. Bonus points: I have a dedicated driveway + garage while my neighbors are sharing their parking space with each other (and often run out). Also like, +1000 sq. feet. 3 stories of space helps a lot compared to the apartment sizes. ----------- Look, not everywhere is the crappy San Francisco housing market. There are plenty of locations in the USA where rent prices are terrible and ownership is much better financially. Any location that's constantly building new homes (pushing home ownership prices down, and therefore rent prices down) will probably have a market like mine where ownership is in fact the better financial decision.
- FireBeyond 5y ago
  My mortgage is $3,000/month. My rent at the place I moved out of would have been $2,500/month. That's very little difference, ultimately, when it comes to the equity part of the equation. I've had some upfront costs in the first three months, but none were surprises (appliances, knew that the AC was past its usable life.

kelnos 5y ago

If your building has HOA dues, renting doesn't mean you aren't paying it; it just means your landlord built the cost of it into your rent. Same with property tax and the landlord's home insurance payment. After which, if you want to be safe, you then need to spend more to get renter's insurance. And I would expect a landlord would build estimated repair costs into the rent as well, at least to some extent. Of course that doesn't mean something unexpectedly expensive couldn't happen.

refurb 5y ago
I see this claim a lot - "you can't save on rent because your landlord has to cover their costs". But this is only true if your landlord purchased at the time you rented. I rented a $1.8M apartment for $3,000 per month (~1/3 of total ownership costs). That's because my landlord bought 20 years before when the apartment was worth $200k. His monthly costs were maybe $1,000.
- mrep 5y ago
  I am extremely doubtful of the claim that an apartment that only nets 36,000 in rent per year is somehow worth 1,800,000. That's a 2% return before any associated costs. I literally just looked at another rental property that was netting 8k a month across all tenants and was listed at 1,150,000. There is no way that other owner could actually sell that place for 1,800,000.
  - refurb 5y ago
    Not sure what to tell you. The place two doors down that was smaller went for $1.5M. Of course the landlord couldn’t sell it for $1.8M with me in it (because of SF rent control). But when I moved out and it was empty? They absolutely could.
  - forgingahead 5y ago
    There are plenty of places that rent far below what they cost the landlord in mortgage/taxes/HOA/repairs/etc. Home ownership, especially buying a home as an "investment" is such an emotional thing that plenty of people buy property just to buy property, the math doesn't come into it. Most of the time, even with the appreciation of the property that they sell, the landlord would have been better off putting their money into other more liquid investments with higher returns. But, many people just buy property because they don't know any better.

FireBeyond 5y ago

Huh? My landlord wasn't eating the HOA costs out of the goodness of his heart, that's a lost cause whether you rent or own.