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> Instead of building generational wealth through homeownership, Lowman has been thwarted at every turn by out-of-state investors Can someone explain to me how

• throwaway98797 4y ago
  your mortgage will be 5k/month in 10 years, that rent will increase outside of property taxes homeownership better stability of expenses
• deleted 4y ago
  [deleted]
• dmreedy 4y ago
  It mostly sublimated sometime around 2008
• manimino 4y ago
  If you rented out that house, what would you charge? Would you charge 3k, and lose 2k / month? That doesn't make sense; so how are landlords surviving in your market then?
  • zeroonetwothree 4y ago
    They probably bought it when it was cheaper or own outright. Sometimes people will rent at a loss hoping for appreciation, though 2k is a bit steep.
• piuantiderp 4y ago
  It's about location, location, location but you're right, a lot of people should not mess with it. How will cost of repairs look like if inflation keeps up and demographics keep worsening?
• anonuser123456 4y ago
  Home ownership is a forced saving mechanism. Your peers with 3k rentals are blowing their extra cash (on average).
  • njarboe 4y ago
    Until you take out a home equity loan.
• jonfw 4y ago
  Most of your 5K “expenses” are not really expenses, you’re buying equity in your home, which is worth money. When you die or move, somebody will sell your house and get a bunch of cash When the renter moves or dies, they’ll cross their fingers they get their security deposit back Big difference
  • smileysteve 4y ago
    Principal; of a $5k mortgage payment, $1.5k is likely going towards the principal; meaning, they are paying $3.5k versus $3k rent; Add in that the $3.5k is interest or property tax expenses, and will save 25% ($875) on a significant portion of that. So, after doing the math; $5k is actually costing $2.625k versus renting $3k.
  • itake 4y ago
    $450/mo property taxes (paid bi-annually) $2800/mo interest on my 5.5% $600k mortgage $1000/mo repairs. $500/mo insurance. $200/mo equity on the loan. I'm spending $57,600 to buy $2,400 of equity.
    • jonfw 4y ago
      If it costs 2k/mo just to insure, maintain, and pay taxes on your property, how is somebody renting something comparable for 3k? the landlords in your neighborhood are only taking 1000 a month to service their loans, their overhead, and then take profit? Sounds like a tough business
• TuringNYC 4y ago
  >> I bought a 4br house last year. My monthly costs are $5k. Renting a comparable home is about $3k/mo. 1. Your rents will not be $3k/mo in 10yrs and almost definitely wont be in 20yrs. Your mortgage, assuming fixed rate, will be locked for 30yrs. After that, you'll still have property taxes, but no mortgage at all. 2. You'll be forced to save each month. Post interest, you are "building equity" though that is highly variable in the short term. 3. You'll get tax benefits on the mortgage payment that you do not get for rents 4. You'll get tax benefits on your property taxes (tenuous given SALT changes) that you would not get on renting 5. You're forced to form bonds locally since it isnt easy to move as a homeowner (txn costs eat thru a lot of $). You'll invest in your community, relationships, schools, Parent Teacher Organization, etc. None of this is universal of course. If you own a house with huge issues that becomes a money pit, the equation turns against you.
• adoxyz 4y ago
  You bought at the current peak. (and even still, very likely, though not 100% guaranteed, you'll be ahead in 5-10 years) Real estate is a long term play to come out on top. If you bought a house 20 years ago, you're sitting on a hefty profit right now. Maybe not generational wealth, but def 3-4X your original investment. And if you had the funds to purchase multiple properties between 2009-2011, you could very easily be sitting on enough wealth to comfortably retire and never work a day in your life again. Which is what was happening around that time. I remember trying to buy my first starter home and getting outbid for over a year straight by investors and all-cash buyers.
• wing-_-nuts 4y ago
  I'm now solidly in team 'buy' after spending a decade on team 'rent', but one has to recognize that there are certain markets in high priced cities where it makes a lot more sense to rent and invest in the stock market than it does to buy. Housing usually keeps up with inflation. We seem to have forgotten that in the last decade or so, but eventually gravity will pull the housing market back down to earth. It's not an investment, it's a place to live.
• berkeleyjunk 4y ago
  I used to think like you but there are quite a few things that justify this * Out of the 5K some fraction, say 2K, is going towards the principal (i.e. it is building your wealth). So now we are down to the same 3K you were paying for rent * The government encourages home ownership with tax breaks. Out of the 3K left some part becomes tax deductible (mortgage interest and property taxes) until a cap. Say this is ~800 per month. So now you are already down below 3K * The amount you pay is fairly fixed over long periods (10, 15, 30 years) based on your mortgage while the rent keeps going up. * Finally, you get to pass this on to your heirs without paying any taxes on the gains (hence building generational wealth)
• tech_ken 4y ago
  It’s because every dollar you pay off your mortgage is a dollar you get back when you sell the house. All of that 3K you paid renting is lost every month, but a sizeable chunk of the 5K you’re paying is effectively going into a high-yield investment account which you will “withdraw” by liquidating the asset (ideally). Even if the home value doesn’t grow incredibly, so long as it doesn’t lose value you’re still saving a ton of money over a long-term horizon.
• bmelton 4y ago
  Just ballparking the value of the house at around $1.5mil (you said last year, which I'm averaging out an interest rate of 4.5% and then rounding down. Assuming a 30 year mortgage) then in 30 years time, you'll have an asset with a value likely to be greater than $1.5 million. Assuming you eventually have children, they may inherit this asset. That is wealth, and that wealth will transcend your generation. That covers the literal definition. On the other hand, the people who are lifetime renters will have spent (assuming rates stay static, which is unlikely) just over a million for which they have received no assets. Your assumption is that they're pocketing $500k, and are ahead, but even if we ignore that their rents are likely to rise, while your mortgage is likely to stay the same, and the most likely outcome is that rental rates increase over time. Likely double. At which time they'll have spent the same, or more, or maybe slightly less, but still have nothing. Meanwhile you'll likely make improvements, perhaps refinance if and when rates are lower, and the value of your home will almost certainly increase as well. No doubt that it'll fluctuate in the meantime, and for sure there are plenty of maladies that can occur between now and 30 years from now, but at the end of the day, comparatively you are building wealth and stability for someone to inherit (or for you to capitalize into dollars, which is also inheritable) while lifelong renters are not. Assuming no meaningful changes (a big assumption) you will likely end up $3 million ahead of the renters on this timescale.
  • itake 4y ago
    If you rent, the extra money is saved doesn't just evaporate. That money would go towards a IRA, 401k, or trust that can also be inherited. Property taxes, mortgage, home repairs, depreciation is money evaporating.
• rockbruno 4y ago
  How much of that 5k is you paying amortization though? If you're just patiently waiting for your mortgage to naturally end itself after 20+ years instead of actively making extra payments to reduce how much money you'll pay to the bank in the long run then yeah, it's just renting with extra steps. (Note: This might differ greatly depend on where you live. I'm in the EU, not sure how this scenario works in the US.)
  • dougmoscrop 4y ago
    I live in Canada, things don't quite work like the US in terms of ownership incentives, but generally nobody is renting a house here for less than what it costs to finance and maintain it, so rather than "renting with extra step", an entire generation of people are being told they can not afford to own the home, but they can go ahead and pay the bills of the person who does. Buying a house ten years ago has added about $450,000 to my net worth, without me making any extra payments. Had we stayed renting an apartment, saving the difference would have produced about $57,000 at 8% annualized, and had we rented a house that was comparable, would have yielded nothing. Buying a house here can be highly leveraged - you start off only having to pay 5, 10, 20 percent of the price, but until very recently houses appreciated more than the interest on the mortgage, furthermore, as you pay your mortgage off, you can take a loan out against a certain portion of the value of the house and use that money to invest in other things, while tax deducting the interest from that loan. Never actually paying your house off is a thing for both the rich and the poor, but with very different outcomes.
• inkcapmushroom 4y ago
  You pay $5k monthly in mortgage and other expenses, I assume you include home maintenance in this. 30 years later the mortgage part no longer factors in, and you only pay a much smaller portion of that (just the tax and maintenance). I don't know what the proportion of it is typically but principal and interest payments are usually the majority of the mortgage, so at that point your payments should shrink. So there's wealth in a few areas. One, once your mortgage rate is locked in it's usually not going to randomly go up, while with rent you can be sure the rent will always go up over time. Two, after your mortgage is paid off you have significantly lowered your living expenses, and any inheritor who continues to live on the same property will receive that benefit as long as they live there. Three, if/when you or your inheritor no longer want to live there, you have a house you can sell to someone else for a large chunk of cash. Owning a high value asset that's easy to sell is basically the definition of building wealth. If the difference between home buying and renting is as big as you describe, then maybe it doesn't make sense. But it isn't always such a big difference; usually rent is more like 0.8x-0.9x the mortgage payment. >The people before me 3x their money over 20 years, but they also did 2 renovations, including adding extra rooms. Where is this generational wealth I’m supposedly building by paying $2k extra per mo than if I rented? With the numbers given, over 20 years the renters will have saved $480k compared to the buyers. But they also don't own anything by the end of it. So if your house you bought is worth more than $480k at the end then you effectively made money by buying the house. Then for every year after that, the deal only gets better for you, as your payments plummet and the rent only continues to climb. This is simplifying things a lot of course, the renters could invest the money they saved, their rent will go up over time, your house could go up in value or it could burn in a disaster, etc. But it's a good starting point for evaluating where it becomes worth it.
  • jandrewrogers 4y ago
    > With the numbers given, over 20 years the renters will have saved $480k compared to the buyers. Your math is wrong. After 20 years the renters will have more like $1.5M, inflation adjusted, depending on how you model it. Basically, financial outcomes will roughly track the value the house, the only difference is in how the assets are invested. The idea that renters are "losing" anything is fundamentally misunderstanding finance. This is not a surprising outcome since financial markets are relatively efficient.
• charlesu 4y ago
  In your case, it won't. You would be better off renting and investing the extra $2k in assets that are productive rather than speculative. This should be obvious, but the West as a whole has bought into the housing as a form of wealth and can't let the music stop now without ruining millions of lives. Housing as a form of generational wealth is a trick that works for the population as a whole for a generation or two. The majority of rentals come from regular people who bought long before you and have significantly lower mortgages or no mortgages at all, or large firms who have access to lower rates and more accounting tricks like depreciation. In either case, what they can afford to accept as rents is a lot less than what you can afford to accept as rent. The best you can hope for is significant appreciation or significant rent increases in the face of stagnant wages. High demand markets like NYC and SF can sustain ever increasing prices for a long time, but most markets cannot.