5 ms·

These articles come out every now and then and they all have the same financial and logical flaws. The “forced savings” argument is nonsense. If you’re renting

by JCM9 4y ago

These articles come out every now and then and they all have the same financial and logical flaws. The “forced savings” argument is nonsense. If you’re renting you are simply building equity and “savings” for someone else. Housing cost is a lot of monthly money going out the door to never see a penny of it again. People do dumb things like buy too much house, but it’s very hard to make a financially logical argument against sensible home ownership. Even in places were housing is super expensive it’s common for those that played their cards right to simply cash out later in life, buy some place in a less expensive part of the country and pocket all the equity. In the US the whole tax system is also rigged massively in favor of home ownership. If you own you’re paying mortgage interest and real estate taxes and both are tax deductible. If you rent you are almost certainly paying both of these (your landlord includes it in the rent) and get no tax benefits. The only realistic argument for renting is if you’re only living somewhere for a few years and the fixed costs of buying/selling outweighs the financial benefits of ownership.

senko 4y ago
> it's very hard to make a financially logical argument against sensible home ownership. No it isn't. Ben Felix has a great video talking about this: https://m.youtube.com/watch?v=q9Golcxjpi8 https://m.youtube.com/watch?v=q9Golcxjpi8 We can argue which is better in a specific situation, but there's definitely an argument for renting other than "people buy too big".
- aynyc 4y ago
  He also bought a house. Perfect example of "Do as I say, not as I do."
  - senko 4y ago
    If you know that much, you also know he considers his house purchase an emotional and not rationally optimal choice. I also own a house. I hate the maintenance part :p
    - aynyc 4y ago
      But the majority of his spill is about happiness and home ownership, so he's happy with a house he owned. I don't hate maintenance as I grew up working around the house with my dad. But I absolutely will not do lawn care work, ehehhe!
  - throw0101c 4y ago
    > He also bought a house. Which he regrets: * https://www.youtube.com/shorts/L5SAF0SHD1w https://www.youtube.com/shorts/L5SAF0SHD1w
    - foogazi 4y ago
      Did he regret it enough to sell ?
snarf21 4y ago
Agreed, the best argument for most people is the fixed payment for housing. As time goes on, your income will grow but your payment won't (minus taxes). Additionally, you are paying for tomorrow's housing at today's pricing. That is far more powerful than the argument about paying the landlord vs paying the bank.
mattferderer 4y ago
> If you own you’re paying mortgage interest and real estate taxes and both are tax deductible Side note - As I understand it, you cannot deduct either of those if you take the common standard deduction. In high cost of living places I am told that these deductions do outweigh the standard deduction.
candiodari 4y ago
It's the age old "people fail at X, because government and society conspire to sabotage them. But the exact POINT at which they fail, very rarely, is Y, so Y is to blame!". Y is always unpopular, and usually banks, homeowners, police, large companies, older people ... never popular or large government institutions like universities, the education system, tiny companies, racism and expectations in the general population ... that are of course the real culprits. Lack of homeownership is not what's making the US poor lose money. Lack of income is what's causing lack of homeownership. Lack of income is caused by society and government sabotaging these groups.
decafninja 4y ago
That last argument is something my wife and I are agonizing over. We own our current small one bedroom condo but want to upsize to something bigger, and preferably with a private entrance. Most likely either a SFH, townhome, or a duplex/triplex. At the same time we don't want to stay in our region (NYC area) forever - probably 5 years at most.
- 72deluxe 4y ago
  It would still seem to be a win-win situation to buy the current place you're in - if you sell it at profit you can keep the difference. If you sell it at a loss, you're still making the same payments (or less) as renting every month, but have a tangible asset to sell unlike renters.
  - decafninja 4y ago
    That's our current line of thinking too. As in, if the market goes, we'd get dinged on our down payment but still recuperate most of it when we sell 5 years later. Assuming it's not a catastrophic market crash. I know there's also a cost-benefit analysis involved surrounding all the various fees and taxes. The biggest "what-if" risk is probably liquidity.
flandish 4y ago
Exactly. Additionally - I like to reinforce the idea that your home is a home not an investment. Your second or third? Sure. But in my time on various zoning boards and appeals boards more often than not I am the dissenter when someone says “neighbor on their own land doing something legal will lower my prop value.” When I remind them “with investment comes risk” I am often looked at, by my own peers even, like I just said something crazy. Owning your home is owning a home and I think we need to focus on that idea more.
erikbern 4y ago
I don't really buy this argument that you can rent and pay $1000/month, or you can buy an equivalent home and pay $1000/month, but now you can deduct interest rate and build equity. Landlords can also deduct their interest expenses and so they benefit from leverage too (meaning they don't want to build up equity). In a reasonably efficient market, this means that the equivalent cost of homeownership would be higher than rent, to offset these things (the rate at which you're paying down the principal, and the deductability of interest rate expenses). This is obviously a very simplified argument, and there's a lot of other factors going into this.
- fnordpiglet 4y ago
  I don’t think this is right. An efficient market the costs are equal. I think you meant this - if you fully load the economic story the cost of ownership and renting should be equal. It’s true though that markets are rarely ideally priced. The ideal price is a mean reversion target but can randomly diverge due to a ton of other idiosyncratic factors. In fact housing prices and rents are rarely in balance. They just tend towards each other.
- Izkata 4y ago
  > I don't really buy this argument that you can rent and pay $1000/month, or you can buy an equivalent home and pay $1000/month, but now you can deduct interest rate and build equity. Back in 2013 I was renting an apartment for $1600/month, but my dad made me do the math and I ended up buying a condo about 10 minutes walk away, larger and far higher quality everything and the mortgage was only around $800/month. Even with the monthly assessment fee (for the management company to handle the property and facilities) it was lower than what I was renting for. Just had to get over the down-payment hump.
sifar 4y ago
People also forget the opportunity cost of returns on the downpayment amount that could have been invested if renting.
fortran77 4y ago
> If you own you’re paying mortgage interest and real estate taxes and both are tax deductible. "Tax deductible" != "Free"

by JCM9 4y ago

senko 4y ago

> it's very hard to make a financially logical argument against sensible home ownership. No it isn't. Ben Felix has a great video talking about this: https://m.youtube.com/watch?v=q9Golcxjpi8 https://m.youtube.com/watch?v=q9Golcxjpi8 We can argue which is better in a specific situation, but there's definitely an argument for renting other than "people buy too big".

aynyc 4y ago
He also bought a house. Perfect example of "Do as I say, not as I do."
- senko 4y ago
  If you know that much, you also know he considers his house purchase an emotional and not rationally optimal choice. I also own a house. I hate the maintenance part :p
  - aynyc 4y ago
    But the majority of his spill is about happiness and home ownership, so he's happy with a house he owned. I don't hate maintenance as I grew up working around the house with my dad. But I absolutely will not do lawn care work, ehehhe!
- throw0101c 4y ago
  > He also bought a house. Which he regrets: * https://www.youtube.com/shorts/L5SAF0SHD1w https://www.youtube.com/shorts/L5SAF0SHD1w
  - foogazi 4y ago
    Did he regret it enough to sell ?

snarf21 4y ago

Agreed, the best argument for most people is the fixed payment for housing. As time goes on, your income will grow but your payment won't (minus taxes). Additionally, you are paying for tomorrow's housing at today's pricing. That is far more powerful than the argument about paying the landlord vs paying the bank.

mattferderer 4y ago

> If you own you’re paying mortgage interest and real estate taxes and both are tax deductible Side note - As I understand it, you cannot deduct either of those if you take the common standard deduction. In high cost of living places I am told that these deductions do outweigh the standard deduction.

candiodari 4y ago

It's the age old "people fail at X, because government and society conspire to sabotage them. But the exact POINT at which they fail, very rarely, is Y, so Y is to blame!". Y is always unpopular, and usually banks, homeowners, police, large companies, older people ... never popular or large government institutions like universities, the education system, tiny companies, racism and expectations in the general population ... that are of course the real culprits. Lack of homeownership is not what's making the US poor lose money. Lack of income is what's causing lack of homeownership. Lack of income is caused by society and government sabotaging these groups.

decafninja 4y ago

That last argument is something my wife and I are agonizing over. We own our current small one bedroom condo but want to upsize to something bigger, and preferably with a private entrance. Most likely either a SFH, townhome, or a duplex/triplex. At the same time we don't want to stay in our region (NYC area) forever - probably 5 years at most.

72deluxe 4y ago
It would still seem to be a win-win situation to buy the current place you're in - if you sell it at profit you can keep the difference. If you sell it at a loss, you're still making the same payments (or less) as renting every month, but have a tangible asset to sell unlike renters.
- decafninja 4y ago
  That's our current line of thinking too. As in, if the market goes, we'd get dinged on our down payment but still recuperate most of it when we sell 5 years later. Assuming it's not a catastrophic market crash. I know there's also a cost-benefit analysis involved surrounding all the various fees and taxes. The biggest "what-if" risk is probably liquidity.

flandish 4y ago

Exactly. Additionally - I like to reinforce the idea that your home is a home not an investment. Your second or third? Sure. But in my time on various zoning boards and appeals boards more often than not I am the dissenter when someone says “neighbor on their own land doing something legal will lower my prop value.” When I remind them “with investment comes risk” I am often looked at, by my own peers even, like I just said something crazy. Owning your home is owning a home and I think we need to focus on that idea more.

erikbern 4y ago

I don't really buy this argument that you can rent and pay $1000/month, or you can buy an equivalent home and pay $1000/month, but now you can deduct interest rate and build equity. Landlords can also deduct their interest expenses and so they benefit from leverage too (meaning they don't want to build up equity). In a reasonably efficient market, this means that the equivalent cost of homeownership would be higher than rent, to offset these things (the rate at which you're paying down the principal, and the deductability of interest rate expenses). This is obviously a very simplified argument, and there's a lot of other factors going into this.

fnordpiglet 4y ago
I don’t think this is right. An efficient market the costs are equal. I think you meant this - if you fully load the economic story the cost of ownership and renting should be equal. It’s true though that markets are rarely ideally priced. The ideal price is a mean reversion target but can randomly diverge due to a ton of other idiosyncratic factors. In fact housing prices and rents are rarely in balance. They just tend towards each other.
Izkata 4y ago
> I don't really buy this argument that you can rent and pay $1000/month, or you can buy an equivalent home and pay $1000/month, but now you can deduct interest rate and build equity. Back in 2013 I was renting an apartment for $1600/month, but my dad made me do the math and I ended up buying a condo about 10 minutes walk away, larger and far higher quality everything and the mortgage was only around $800/month. Even with the monthly assessment fee (for the management company to handle the property and facilities) it was lower than what I was renting for. Just had to get over the down-payment hump.

sifar 4y ago

People also forget the opportunity cost of returns on the downpayment amount that could have been invested if renting.

fortran77 4y ago

> If you own you’re paying mortgage interest and real estate taxes and both are tax deductible. "Tax deductible" != "Free"