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A) Not inevitable (obviously, 3 million counter examples). But likely, considering when you rent you are giving 100% of that money to someone else, but if you h

A) Not inevitable (obviously, 3 million counter examples). But likely, considering when you rent you are giving 100% of that money to someone else, but if you have a mortgage at least some of that (with more over time) is your own. And the monthly payments generally aren't much different. B) No, 150k is not enough in most markets these days, but it's 150k/year income and that definitely is enough to finance a house.

pwinnski 4y ago
This thinking, about who ends up with the money, feels right, but the math doesn't always work like it seems it should. My counter-argument would be that when you rent, 100% of expenses for repairs and maintenance are borne by someone else, but if you have a mortgage all of those expenses are your own. Different cites have different ratios between rent and mortgage, with some similar, some higher rents, some higher mortgages. I don't know any cites in which rents require a 20% down payment, though. Finally, when comparing potential returns, and remember that neither the stock market nor future home equity are guaranteed, don't forget that down payment! Many people focus on the month-to-month after closing, and forget that if they put that lump sum into an index fund rather than into a down payment, they'd be able to (after 12 months) sell shares over time and take income from the index fund in a way they wouldn't from the house without selling it or taking out a HELOC loan.
- daveguy 4y ago
  Repair costs, local relative cost housing vs rent costs are both excellent points. Regarding down payment, that is still something you could likely recoup, and putting it in an index fund isn't necessarily more stable (especially over a 12 month period). Except for the very expensive markets like downtown NY or Silicon Valley, making 150k/year should be enough to finance a house (especially considering in those expensive markets rent is also very expensive). When you rent you're essentially paying someone else's mortgage with repairs priced in (mortgage is often less than renting). Repair, relative local markets, and interest rates are all very relevant reasons that renting may be better.
  - pwinnski 4y ago
    I'm not talking about 12 months. Ha! I'm talking about over years. My spreadsheet model focused on the 5-year and 10-year returns, where capital gains is factor. What I found was counter-intuitive, but looking at historical returns on index funds and housing, the stock market almost always delivered higher returns. If you have to hire a property manager and pay for repair services, that gap widens.
rco8786 4y ago
> it's 150k/year income and that definitely is enough to finance a house. I understand that. And it is most definitely not enough to finance a house in a lot of places. NYC, SF, LA, even Sea now...Following the 28% rule your monthly payment would need to be about $3,500 on a $150k income. At a 6% interest rate with $50k down (just pulling a reasonable number here) you can't reasonably afford anything over $500k, and with the taxes in those locales what they are you're really looking to max out around 400-450k. You simply cannot purchase anything at that price point in those cities.
- daveguy 4y ago
  That's true. Local market makes a big difference. Most markets $150k/yr is plenty to finance a house. But NY SF LA would definitely be out, and that very well could be most of those 3 million.

pwinnski 4y ago

This thinking, about who ends up with the money, feels right, but the math doesn't always work like it seems it should. My counter-argument would be that when you rent, 100% of expenses for repairs and maintenance are borne by someone else, but if you have a mortgage all of those expenses are your own. Different cites have different ratios between rent and mortgage, with some similar, some higher rents, some higher mortgages. I don't know any cites in which rents require a 20% down payment, though. Finally, when comparing potential returns, and remember that neither the stock market nor future home equity are guaranteed, don't forget that down payment! Many people focus on the month-to-month after closing, and forget that if they put that lump sum into an index fund rather than into a down payment, they'd be able to (after 12 months) sell shares over time and take income from the index fund in a way they wouldn't from the house without selling it or taking out a HELOC loan.

daveguy 4y ago
Repair costs, local relative cost housing vs rent costs are both excellent points. Regarding down payment, that is still something you could likely recoup, and putting it in an index fund isn't necessarily more stable (especially over a 12 month period). Except for the very expensive markets like downtown NY or Silicon Valley, making 150k/year should be enough to finance a house (especially considering in those expensive markets rent is also very expensive). When you rent you're essentially paying someone else's mortgage with repairs priced in (mortgage is often less than renting). Repair, relative local markets, and interest rates are all very relevant reasons that renting may be better.
- pwinnski 4y ago
  I'm not talking about 12 months. Ha! I'm talking about over years. My spreadsheet model focused on the 5-year and 10-year returns, where capital gains is factor. What I found was counter-intuitive, but looking at historical returns on index funds and housing, the stock market almost always delivered higher returns. If you have to hire a property manager and pay for repair services, that gap widens.

rco8786 4y ago

> it's 150k/year income and that definitely is enough to finance a house. I understand that. And it is most definitely not enough to finance a house in a lot of places. NYC, SF, LA, even Sea now...Following the 28% rule your monthly payment would need to be about $3,500 on a $150k income. At a 6% interest rate with $50k down (just pulling a reasonable number here) you can't reasonably afford anything over $500k, and with the taxes in those locales what they are you're really looking to max out around 400-450k. You simply cannot purchase anything at that price point in those cities.

daveguy 4y ago
That's true. Local market makes a big difference. Most markets $150k/yr is plenty to finance a house. But NY SF LA would definitely be out, and that very well could be most of those 3 million.