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The “what else you could do with the money” argument is standard in finance/economics , in fact it’s the cornerstone of the famous Black-Scholes formula for pri

The “what else you could do with the money” argument is standard in finance/economics , in fact it’s the cornerstone of the famous Black-Scholes formula for pricing options which takes into account "risk-free" interest rate.

Enginerrrd 5y ago
Alternative investment is of course a thing. However, you're missing the point. People MUST live somewhere. Their only alternative investment is with regard to their down payment for money saved, or the amount of money that is (mortgage - equivalent rent), which is usually negative! The BULK (or entirety) of the money they spend on their mortgage is not money that would otherwise be available for alternative investment.
- FreezeInTheDark 5y ago
  In my experience in the recent market (in a HCOL city in the U.S.), rentals (even only compared to the costs in homeownership, i.e. ignoring principal payments) are much cheaper than mortgages for an equivalently sized house/unit. That's the assertion of the article, and it rings true. You're right that the bulk of the mortgage payments, especially towards the beginning, do not go towards building any capital, which makes the investment even less appealing.
  - shapefrog 5y ago
    In my experience in the recent market (in a HCOL city in the U.K.) rent is only marginally less than the interest on the equivalent mortgage. All the cost calculations should be based off interest only. The principle repayment is a cashflow issue - and a signifcant one at that.
  - sayonaraman 5y ago
    can confirm, monthly mortgage payment + taxes is about twice the monthly rent on similar property in HCOL US cities
shadowoflight 5y ago
The problem is that, in this case, "what else you could do with the money" is limited to one thing - a recurring subscription cost with no asset value acquired. It's a faulty argument that shows a lack of critical thinking on the author's part.

Enginerrrd 5y ago

Alternative investment is of course a thing. However, you're missing the point. People MUST live somewhere. Their only alternative investment is with regard to their down payment for money saved, or the amount of money that is (mortgage - equivalent rent), which is usually negative! The BULK (or entirety) of the money they spend on their mortgage is not money that would otherwise be available for alternative investment.

FreezeInTheDark 5y ago
In my experience in the recent market (in a HCOL city in the U.S.), rentals (even only compared to the costs in homeownership, i.e. ignoring principal payments) are much cheaper than mortgages for an equivalently sized house/unit. That's the assertion of the article, and it rings true. You're right that the bulk of the mortgage payments, especially towards the beginning, do not go towards building any capital, which makes the investment even less appealing.
- shapefrog 5y ago
  In my experience in the recent market (in a HCOL city in the U.K.) rent is only marginally less than the interest on the equivalent mortgage. All the cost calculations should be based off interest only. The principle repayment is a cashflow issue - and a signifcant one at that.
- sayonaraman 5y ago
  can confirm, monthly mortgage payment + taxes is about twice the monthly rent on similar property in HCOL US cities

shadowoflight 5y ago

The problem is that, in this case, "what else you could do with the money" is limited to one thing - a recurring subscription cost with no asset value acquired. It's a faulty argument that shows a lack of critical thinking on the author's part.