7 ms·

It seems pretty simple, I can spend money to rent a place, and after 30 years (rent), have nothing to show for the money I put in, or I can buy a house (mortgag

• paulcole 5y ago
  I think people who parrot this line try to ignore the total cost of their mortgage being quite different from the purchase price of their home, property taxes, repairs, etc. As a lifelong renter, I’ve done quite well by keeping my rent low (my preference is studio/1-bedrooms in relatively dense urban areas) and putting extra money into the market. 30 years from when I started renting, I’ll have quite a lot to show for it! Housing is an expense to me, not an investment.
  • vlunkr 5y ago
    Well studio/1-bedroom isn't really an option for families, and rates go up quickly after that point.
  • A4ET8a8uTh0 5y ago
    It can be both, but in US real estate historically was seen as a good way to park money. I will venture to say that you are an outlier. I remember renting with my SO. The jumps in rent were getting onerous to the point, when it became cheaper for us to actually buy a place. But again, each situation varies. Before living with my now wife just like you I lived in a small apartment, because that was all I really needed at the time ( and it was very budget friendly ).
    • throwawayboise 5y ago
      Yes, as long as you start with a modest home that you can actually afford, it can work. The mortgage payment, including taxes and insurance, on my first home (a small 2-br bungalow) was hundreds of dollars less (monthly) than the 1-br shithole apartment I was renting (shithole because I was trying to save for a down payment). At that point, as long as home values do what they normally do, you can upsize every 5 years or so if needed until you are in a home that really fits, rolling the equity gain in the former house into a larger down payment on the newer house. Mistakes people make: starting with too big a house where they are in trouble immediately if they miss a paycheck. Refinancing and taking equity out to spend on other "things" that depreciate or are consumables like boats, new cars, extravagant vacations, expensive furniture, etc.
      • wayoutthere 5y ago
        Yeah this entirely. I had a 600 sq ft shoe box in a high-rise in a major city center for $1800/mo. My mortgage a mile and a half away on a 3000 sq ft house is $2000/mo. I don’t even use half the rooms in my house and it’s still a way better deal. And no less convenient as I still have everything I really need within a 3-4 block radius. And my mortgage will only get cheaper over time — especially if we get a ton of inflation.
    • deleted 5y ago
      [deleted]
  • willis936 5y ago
    Screw the apartment. You could save so much money living out of a van. I honestly don't understand this line of thinking. "Why do people even want [tangible good]?" If an explanation is really needed: it's nice to have a large, private space. People like cars in garages, a room for their work, a room to cook, a room to relax, a room to sleep, a room to store stuff, etc. Why do people bother with any of these things? Why isn't everyone a minimalist? Why do people even bother living? It's bizarre and alien to me. It also misses the point that people are supposedly free to pursue happiness.
    • deleted 5y ago
      [deleted]
    • bumby 5y ago
      I think this argument gets confused because some people refer to it as an investment/asset while others refer to it in emotional terms as a means to pursue happiness. They aren’t always the same thing.
      • willis936 5y ago
        For most people it's both. There's a reason home ownership is often a component of "the American Dream". Owning land and a house is a huge step in status and financial security. Owning a house is also a huge luxury. It's strange to deny either of these realities. Some people don't want luxuries, okay, but it should be clear that nearly everyone does.
        • bumby 5y ago
          Recognizing it is one thing, but thinking it’s a good “investment” is another. Often funding/chasing status is a fools errand IMO. Part of the problem is that homes being the largest asset that a person owns because they’re chasing the status of that American Dream. Can you think of any other illiquid asset that people would suggest piling a majority of your net worth into?
          • 5y ago
  • danhak 5y ago
    This is a reasonable take but the government really does everything in its power to put its finger on the scale toward homeownership: - up to $500,000 in tax-free capital gains for couples - cheap leverage via low interest rates courtesy of the Fed and further subsidized by renters via mortgage interest deduction - SALT deduction (albeit reduced as of 2017)
    • hogFeast 5y ago
      You also have government guaranteed mortgages. This is probably the most unusual aspect of the American home market in comparison to other markets...it is essentially publicly owned (the only place that has a similar structure is Denmark, and even then there is no Freddie Mac/Fannie Mac...just a large secondary market for resi mortgages) and makes mortgages very cheap with little rate risk (I am in UK, 30yr fixed mortgages are unheard of, the most you can get is 5yr fixed and it costs 200bps more than a 30yr fixed in the US). Just a broader comment: the main financial argument against home ownership is really the size of the deposit. If you are paying 25% down (this is now standard where I am in the UK, we went from 120% mortgages to 75% mortgages in the last ten years...and house prices kept rising, so the upfront cost of housing is way way way up) then it may be close for some people. But you add in the security, the potential for capital growth...it is attractive financially (and I wouldn't say this is true in the UK, downpayments are too high, mortgage rates are too expensive and come with massive interest rate risk...it isn't worth it on a pure financial basis). I can't see myself every buying a house because I just don't like having a lot of stuff, it tends to worry/distract me. But I think it is unfortunate that housing has become associated with this "I got mine" mentality. Germany is a nation of renters, it has led to levels of wealth inequality higher than the US because all that value from rising property prices has gone into the pockets of a few large corporations (the median net financial wealth of a German citizen is EUR20k, about the same as Greece...and they have one of the highest per capita rates of billionaires). Maybe we can tax rising property values more efficiently but the US model (essentially, publicly guaranteed mortgages) works quite well too.
      • nly 5y ago
        Habito One do longer fixed rates here in the UK. For 20% down: 21–25 years: 3.84% 26–30 years: 3.94% But yes, I agree that at current house prices (8-10x median local income) both the deposit size and the rates at prohibitive
  • kelnos 5y ago
    > Housing is an expense to me, not an investment. I wish more people (in the US, especially) would think of housing in this way. I think we'd have much more sane housing markets just with that change, even without fixing a lot of the other structural problems we have around housing.
  • djanogo 5y ago
    Ya, you saved because you are living single, and _assuming_ you have no kids as you live in 1 BR. Rest of the population have family's, and have to care where and how their children grow up.
  • refurb 5y ago
    Precisely. People really underestimate the costs of home ownership. You need to include everything like: 1) mortgage interest, 2) property taxes, 3) insurance, 4) maintenance, 5) opportunity cost of down payment, 6) transaction costs buying and selling. Clearly if you see major appreciation in the value of your house you'll clearly come out ahead of renting, but I've been in two situations (one while renting, one while owning) where I would have come out ahead renting. In one case the home values went up 20%, but the stock market went up 50% and adjusting for transaction costs, I made more money continuing to rent than buy.
    • sokoloff 5y ago
      Most homes are bought with 5x or more leverage. In a year where the stock market is up 50% and houses up 20%, recent homeowners probably did better than renters, not worse.
      • refurb 5y ago
        You just proved my point. Yes, the return is higher, but subtract all the costs and the stock market is ahead.
        • sokoloff 5y ago
          If you buy and sell the house every year, perhaps. Most renters don’t even move every year.
      • nly 5y ago
        Of course that leverage works against you if the market tanks. People just believe that this is impossible in the property market
    • jjav 5y ago
      > You need to include everything like: 1) mortgage interest, 2) property taxes, 3) insurance, 4) maintenance, 5) opportunity cost of down payment, 6) transaction costs buying and selling. Factor 1 to 4 are all included (with additional profit margin on top) in rent so you're always paying for those regardless. As an owner at least you don't pay the extra profit margin on it to the landlord. On #6, if you're moving very frequently then yes, you're better off renting. If you want to settle down, buy. So realistically that only leaves #5 as a consideration. In the short haul it favors the renter but over a lifetime, not so much.
• kelnos 5y ago
  It's not that simple. Right now the interest portion of my mortgage, plus my property taxes, plus my HOA dues, not to mention maintenance and upkeep, is more than what I was paying in rent right before I bought my house. That money is "thrown away" in the same sense as rent is; only money going toward mortgage principal gives me something to show for it. It absolutely would have been more economical to rent than buy. But I wanted to buy (see: your totally valid argument about having the freedom to do whatever I want to my home), and was lucky enough to be able to afford it, so I did it. Sure, you can make the argument that I can hopefully expect some capital gains down the road if/when I sell the place. But that's not guaranteed (consider all the people underwater on their mortgages, for example, after the 2008 financial crisis; I wouldn't be at all surprised if something like that happens again during my lifetime), and it may well be that putting that money in the stock market would net me better returns over time. But it really just depends on your local housing market. In some places it makes more financial sense to rent (rent < interest+taxes+upkeep), and in some places to buy (rent > interest+taxes+upkeep). And sometimes the financials aren't the #1 driver of the decision, anyway.
  • kesselvon 5y ago
    With rent, it's a guaranteed loss, with a mortgage on a property there's a high possibility of a return of investment, in addition to a return on investment.
  • jurassic 5y ago
    Interest is amortized in most mortgages so that this type of analysis on year 0 of homeownership is always going to look very unfavorable owing to the large interest payments in the early years of the mortgage. You have to consider what happens over the life of a 15 or 30 year mortgage to understand the financial benefits of ownership. As the years go by, you will be paying a larger fraction toward principal while inflation has shrunken the real cost of your debt and it feels cheaper to you over time. If your wages keep up with inflation (say 3% for example), in 10 years you'll be making about 35% more dollars but your housing payment stays the same. If your home value tracks inflation, it will also be up 35% after a decade, but your payment stays the same. And if you're lucky, there may have also been appreciation above inflation. Inflation melts your fixed rate debt and grows the nominal value of your asset, speeding the rate at which you build wealth in the form of home equity. Over that same period, a renter is certain to have experienced significant increases in their housing costs. They may have saved and invested more than the homeowner over the first few years of homeownership, but as you know this is a long-term game. I guess it comes down to what form of risk/investing you are most comfortable with and whether you value the intangible lifestyle things like getting to customize things to your liking. Getting to purchase an asset with between 5-33x leverage in the form of low fixed rate debt seems like a pretty unique opportunity for most people who would not be comfortable borrowing for other forms of investment.
• gassiss 5y ago
  This is what most people get wrong about home ownership. Mortgage and rent are two different, unrelated things. Rent is part of the value of a property. If you live in it, you're essentially paying its opportunity cost. That in itself has nothing to do if you borrowed money against it or not. The only way to not pay rent is to make someone else pay for you (eg live with someone else that doesn't charge you)
  • eloisant 5y ago
    Yes, they're different things. However you need a place to live so unless you already own a paid off house, you can choose between paying a rent or paying a mortgage. It's the bigger part of your "housing costs" in both cases.
    • gassiss 5y ago
      Yeah I know. The point is the comparison is not really mortgage vs rent. From a purely financial perspective you're paying mortgage + owning costs + rent opportunity cost + liquidity risk. If you can pay a mortgage most likely you can pay a rent, and it's going to be way cheaper if you factor everything in. And in both cases you can be evicted if you don't pay anyway.
• julosflb 5y ago
  Mortgage on your home residence also acts as life insurance. If tomorrow I die, my mortgage will be 100% reimbursed by the mortgage insurance. This was a motivation to buy in my case, to protect my kids.
  • nly 5y ago
    You're paying for that regardless of whether it's attached to a mortgage payment