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> I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500) [...] It almost NEVER works out in favor

> I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500) [...] It almost NEVER works out in favor of buying I can't see how that's possible. Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot. For my house, Zillow estimates the monthly rent value at $2,400/month, which is almost exactly what my mortgage payment (including property tax) is. And in 10 years, that payment will become ~$570 once the mortgage is paid off and all that's left is property tax. Meanwhile, if I chose to rent instead, after 10 years, my rent would probably be well $3,500/month. Yeah, owning means I'm paying maintenance and repair costs, but those certainly don't add up to anywhere near what the rental payment would be. I fully reject any claims that in the long term, renting could ever possibly be better than buying from a purely financial perspective. A mortgage is constant (Unless you fell for the scam that is an ARM) and eventually goes away. Rents perpetually go up and don't leave you with an asset.

wnolens 5y ago
Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house costs more, but you get more. You'd have to rent out part of your home and be a landlord to trade that extra space for cash flow. I value my time and privacy at a non-zero dollar amount :) This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe. anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. [0] https://precondo.ca/canada-real-estate-statistics/#:~:text=The%20Canadian%20Housing%20Market%20has,yearly%20appreciation%20over%2015%2Dyears&text=These%20numbers%20are%20based%20on,Canada%20across%20all%20property%20types https://precondo.ca/canada-real-estate-statistics/#:~:text=T...
- Sohcahtoa82 5y ago
  > anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
  - leetcrew 5y ago
    you're missing the part where the renter is continually investing the difference between their current rent and the mortgage they would be paying. but yeah, if you're prescient enough to know ahead of time that you're going to live in the same building for 35 years, you'd be foolish to rent.
    - Sohcahtoa82 5y ago
      Yeah but as you said in another comment, in some locales, the rent and a mortgage payment are equal. There would be no difference to invest. And considering a mortgage payment is constant while rent continuously goes up, in a few years, rent would EXCEED the mortgage payment. When I bought my house in the end of 2015, I paid $338K. Mortgage + property tax was $1800/month. Zillow estimated the rent value at $1700/month. It's now early 2022, 6 1/2 years later. Zillow estimates the house is worth $615K and has a rent value of $2500/month.
leetcrew 5y ago
> Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot. this varies a lot locale to locale. in some places the rent is very close to the monthly mortgage payment. in some places, the mortgage is much higher. https://www.investopedia.com/terms/p/price-to-rent-ratio.asp https://www.investopedia.com/terms/p/price-to-rent-ratio.asp if you're damn sure you want to live somewhere long enough to pay off a 15 year mortgage, then yeah, odds are it's better than renting. most people can't be 100% sure of that, so to make it a fair calculation you also have to include the costs of buying and selling. in theory, you should also have to price in the risk of having so much money concentrated in a single asset, but it seems to be a matter of policy that housing prices are never allowed to go down.
- dragonwriter 5y ago
  > in theory, you should also have to price in the risk of having so much money concentrated in a single asset, but it seems to be a matter of policy that housing prices are never allowed to go down. And the benefits of having it tied up in an asset covered by things like, in certain jurisdictions, generous bankruptcy homestead exemptions and, in certain jurisdictions, financed by a mortgage in a no-recourse jurisdiction; there are downside risk protections attached to owner-occupied housing that aren't available elsewhere.

wnolens 5y ago

Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house costs more, but you get more. You'd have to rent out part of your home and be a landlord to trade that extra space for cash flow. I value my time and privacy at a non-zero dollar amount :) This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe. anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. [0] https://precondo.ca/canada-real-estate-statistics/#:~:text=The%20Canadian%20Housing%20Market%20has,yearly%20appreciation%20over%2015%2Dyears&text=These%20numbers%20are%20based%20on,Canada%20across%20all%20property%20types https://precondo.ca/canada-real-estate-statistics/#:~:text=T...

Sohcahtoa82 5y ago
> anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
- leetcrew 5y ago
  you're missing the part where the renter is continually investing the difference between their current rent and the mortgage they would be paying. but yeah, if you're prescient enough to know ahead of time that you're going to live in the same building for 35 years, you'd be foolish to rent.
  - Sohcahtoa82 5y ago
    Yeah but as you said in another comment, in some locales, the rent and a mortgage payment are equal. There would be no difference to invest. And considering a mortgage payment is constant while rent continuously goes up, in a few years, rent would EXCEED the mortgage payment. When I bought my house in the end of 2015, I paid $338K. Mortgage + property tax was $1800/month. Zillow estimated the rent value at $1700/month. It's now early 2022, 6 1/2 years later. Zillow estimates the house is worth $615K and has a rent value of $2500/month.

leetcrew 5y ago

> Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot. this varies a lot locale to locale. in some places the rent is very close to the monthly mortgage payment. in some places, the mortgage is much higher. https://www.investopedia.com/terms/p/price-to-rent-ratio.asp https://www.investopedia.com/terms/p/price-to-rent-ratio.asp if you're damn sure you want to live somewhere long enough to pay off a 15 year mortgage, then yeah, odds are it's better than renting. most people can't be 100% sure of that, so to make it a fair calculation you also have to include the costs of buying and selling. in theory, you should also have to price in the risk of having so much money concentrated in a single asset, but it seems to be a matter of policy that housing prices are never allowed to go down.

dragonwriter 5y ago
> in theory, you should also have to price in the risk of having so much money concentrated in a single asset, but it seems to be a matter of policy that housing prices are never allowed to go down. And the benefits of having it tied up in an asset covered by things like, in certain jurisdictions, generous bankruptcy homestead exemptions and, in certain jurisdictions, financed by a mortgage in a no-recourse jurisdiction; there are downside risk protections attached to owner-occupied housing that aren't available elsewhere.