5 ms·

"You're either paying your own repair and maintenance expenses or someone else is." As someone who has been hit by a perfect storm of expensive repairs, I wish

"You're either paying your own repair and maintenance expenses or someone else is." As someone who has been hit by a perfect storm of expensive repairs, I wish I were still renting.

karmakurtisaani 4y ago
Consider it like this: if you paid on average $2000 per month for 10 years, you'd have paid $240,000 to the landlord and never see any of that money ever again. That should cover a couple of expensive repairs, no? Besides, repairs directly increase the value of your property, so there's that.
- jedberg 4y ago
  If you wanted to buy that same house, your mortgage would be about $2200/mo, PLUS property taxes. And in the first ten years of the mortgage, it's almost all interest. So instead of a landlord you're paying the bank to rent your property from them, but now you have to maintain it. And repairs almost never increase the value of your property -- usually they just return it to expected value. When you sell a house, it's assumed that the plumbing and electrical work, and that's baked into the price. If they don't work, you have to make them work. The only upside is that you get to keep the appreciation in the land value. Check this out: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... Basically, in the most expensive markets, financially it almost always makes sense to rent instead of own, assuming you invest the money you save by renting. Owning makes sense for non-financial reasons, like having more control over your living environment and a sense of place.
  - karmakurtisaani 4y ago
    Good point. One of my assumptions is that the rent would not be much cheaper than the mortgage payments (plus maintenance). Of course that might not be true, and in that case you'd indeed end up paying much more than you pay when renting. However, when renting, you have to cover the same maintenance cost + interest that the actual owner is paying - why else would they rent the place out? (Ok, maybe you can time the market or have another kind of fluke, but can you really count on that?) Thanks for the link! I need to give this a deeper look, as I'm currently considering my options.
  - dahfizz 4y ago
    Why would a landlord charge a rent of $2000 if he pays $2200 on his mortgage? The rent you pay covers all the landlord's costs, and then some.
    - pwinnski 4y ago
      In most cities, rents are lower than mortgage payments, because rent is a multiple of when the house was purchased, usually not the price to purchase the house this year. If I buy a house in 2009 when the market is depressed, and by 2023 the value of that house has gone up immensely, but my mortgage is still based on my 2009 purchase, I can charge less to rent it out than it would cost someone to buy it. Or I can charge the going rate, and hope I find someone willing to pay it. But if I'm on the other side of the table, it is usually cheaper and easier to rent a house from someone who bought it years ago than it is to buy a similar house myself.
      - dahfizz 4y ago
        But you see the same benefits if you buy. As a renter, your rent goes up every year, but a mortgage is locked in and safe from inflation, rate hikes, and market volatility for 30 years. Renting _this year_ may be cheaper than buying _this year_, but renting for a lifetime is always more expensive than buying unless you move constantly.
        pwinnski 4y ago
        You only have to move once or twice in 30 years for home ownership to not make a ton of sense. "Constantly" seems like hyperbole. This also assumes that you aren't facing high maintenance costs. One popular rule of thumb suggests setting side 1% of the total value of the home for maintenance every year, and if the value of the home is rising, that set-aside is also rising. By more or less than rent? Depends on many factors.
    - jedberg 4y ago
      > The rent you pay covers all the landlord's costs, and then some. That's not true at all. Most landlords are cash flow negative for the first 10 years. What a landlord can charge is based on what the market will bear, not their expenses. And market is made of all landowners, including the ones who have no mortgage and can afford to charge less. Also, in California, the landlord who has owned for 30 years pays about 10x less in property taxes than a new buyer, so they can give a discount for that too. In almost all cases, if you were to purchase the house you rent, you'd pay significantly more in mortgage+taxes+maintenance than when you were renting.
- syzarian 4y ago
  The calculation is much more complicated that you imply here. Everyone pays an average monthly cost to live in a “home”. Those who own their home still pay an average monthly cost in the form of maintenance, property taxes & assessments, insurance, and in most cases a mortgage. One should also factor in the opportunity cost of the money spent on loan origination, down payment, realtor fees, etc. There are obvious benefits to owning too and thus we see the calculation is not an easy one. If one knows they will be able to pay off their mortgage then they can look forward to relatively cheap living expenses in retirement provided they did proper maintenance.
  - dahfizz 4y ago
    Here's the thing though: Being a landlord is profitable. The rent you pay on a house covers all the costs of ownership (cost to buy the home, mortgage principal & interest, repairs, taxes, insurance) AND there is some left over as profit for the landlord. If you owned the house instead of the landlord, you are still paying the same costs, but you don't have to pay the extra profit to the landlord. That is the amount of money you save by owning over renting. There are edge cases, like people who want to move every year, but this is a useful heuristic. You can pay your landlord's salary or you can be your own landlord and keep that money for yourself.
    - pwinnski 4y ago
      Being a landlord is mostly profitable when two things are true: 1. You can maintain the property in question for less than the market rate. 2. You bought the property for less than the current market rate. I looked into this in detail, talking with a realtor who very much wanted me to buy a second home to rent out, and determined that while the rental might be profitable a few years down the road--assuming I could keep it fully occupied and didn't end up with any "problem renters," even then it almost certainly would be more profitable to put the same capital outlay into the stock market, with the added advantages of liquidity and no renter headaches. Most individual landlords are renting out houses they have already owned for a few years, so their mortgage is not based on today's price, and that is where their profit margin primarily comes from.
    - 4y ago
- xur17 4y ago
  But remember that the $2k / month you pay to the landlord covers: property taxes, hoa fees, interest costs, and investment losses due to not being able to invest the money in stocks. Property tax alone is quite significant in my area, and that's something you are ALWAYS going to pay. I actually have a spreadsheet that compares the total cost of ownership when buying and renting over a 10 year period. Believe me, it's really not as cut and dry as you and others are making it out to be. Quite honestly, for me a ton of it hinges on how much the house appreciates in value (since you're making a levered bet via a mortgage).
  - karmakurtisaani 4y ago
    I suppose those costs vary depending on where you are located. My understanding is that where I am (Switzerland), the taxation in fact works in your favour and people often take second mortgages for "repairs" when they're close to having paid out their first ones. The downside here is that you have pay 20% of your mortgage in order to get the rest, and when houses typically cost 1M or more, you can imagine it's not easy to actually buy a decent house. Another thing here is that you can be reasonably confident that the lot you buy will increase in value, so it also biases my point of view.
    - pwinnski 4y ago
      Those things are also true here! A "home equity line of credit" or HELOC is very common, especially when interest rates are incredibly low, as they were before last year. Also, most people understand that other than some edge cases like 2008, homes rise in value over time, consistently and dramatically. Most people know of situations where a retired couple bought a house for less than $100k many years ago, and now it's worth five to ten to twenty times that much! That's about where most people stop thinking. Clearly house values go up, I don't want to end up 30 years from now having paid rent and having nothing to show for it, I'm gonna buy a house. There's even one more factor, which is the US federal tax structure gives you a big break on any interest you pay on a home mortgage, so many people think: I get a tax break on my house payment, but not on rent. Of course, most people don't put together a spreadsheet to consider how much money that old couple might have had if they had put that $100k into a stock market index fund the same year they bought the house. Please understand, I'm not saying that buying a house is a bad investment. I'm just saying it's usually not the best investment. I don't think most people over-value buying a home, I think they under-value putting a home-sized chunk of money into an S&P index fund!

"You're either paying your own repair and maintenance expenses or someone else is." As someone who has been hit by a perfect storm of expensive repairs, I wish I were still renting.

karmakurtisaani 4y ago

Consider it like this: if you paid on average $2000 per month for 10 years, you'd have paid $240,000 to the landlord and never see any of that money ever again. That should cover a couple of expensive repairs, no? Besides, repairs directly increase the value of your property, so there's that.

jedberg 4y ago
If you wanted to buy that same house, your mortgage would be about $2200/mo, PLUS property taxes. And in the first ten years of the mortgage, it's almost all interest. So instead of a landlord you're paying the bank to rent your property from them, but now you have to maintain it. And repairs almost never increase the value of your property -- usually they just return it to expected value. When you sell a house, it's assumed that the plumbing and electrical work, and that's baked into the price. If they don't work, you have to make them work. The only upside is that you get to keep the appreciation in the land value. Check this out: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... Basically, in the most expensive markets, financially it almost always makes sense to rent instead of own, assuming you invest the money you save by renting. Owning makes sense for non-financial reasons, like having more control over your living environment and a sense of place.
- karmakurtisaani 4y ago
  Good point. One of my assumptions is that the rent would not be much cheaper than the mortgage payments (plus maintenance). Of course that might not be true, and in that case you'd indeed end up paying much more than you pay when renting. However, when renting, you have to cover the same maintenance cost + interest that the actual owner is paying - why else would they rent the place out? (Ok, maybe you can time the market or have another kind of fluke, but can you really count on that?) Thanks for the link! I need to give this a deeper look, as I'm currently considering my options.
- dahfizz 4y ago
  Why would a landlord charge a rent of $2000 if he pays $2200 on his mortgage? The rent you pay covers all the landlord's costs, and then some.
  - pwinnski 4y ago
    In most cities, rents are lower than mortgage payments, because rent is a multiple of when the house was purchased, usually not the price to purchase the house this year. If I buy a house in 2009 when the market is depressed, and by 2023 the value of that house has gone up immensely, but my mortgage is still based on my 2009 purchase, I can charge less to rent it out than it would cost someone to buy it. Or I can charge the going rate, and hope I find someone willing to pay it. But if I'm on the other side of the table, it is usually cheaper and easier to rent a house from someone who bought it years ago than it is to buy a similar house myself.
    - dahfizz 4y ago
      But you see the same benefits if you buy. As a renter, your rent goes up every year, but a mortgage is locked in and safe from inflation, rate hikes, and market volatility for 30 years. Renting _this year_ may be cheaper than buying _this year_, but renting for a lifetime is always more expensive than buying unless you move constantly.
      - pwinnski 4y ago
        You only have to move once or twice in 30 years for home ownership to not make a ton of sense. "Constantly" seems like hyperbole. This also assumes that you aren't facing high maintenance costs. One popular rule of thumb suggests setting side 1% of the total value of the home for maintenance every year, and if the value of the home is rising, that set-aside is also rising. By more or less than rent? Depends on many factors.
  - jedberg 4y ago
    > The rent you pay covers all the landlord's costs, and then some. That's not true at all. Most landlords are cash flow negative for the first 10 years. What a landlord can charge is based on what the market will bear, not their expenses. And market is made of all landowners, including the ones who have no mortgage and can afford to charge less. Also, in California, the landlord who has owned for 30 years pays about 10x less in property taxes than a new buyer, so they can give a discount for that too. In almost all cases, if you were to purchase the house you rent, you'd pay significantly more in mortgage+taxes+maintenance than when you were renting.
syzarian 4y ago
The calculation is much more complicated that you imply here. Everyone pays an average monthly cost to live in a “home”. Those who own their home still pay an average monthly cost in the form of maintenance, property taxes & assessments, insurance, and in most cases a mortgage. One should also factor in the opportunity cost of the money spent on loan origination, down payment, realtor fees, etc. There are obvious benefits to owning too and thus we see the calculation is not an easy one. If one knows they will be able to pay off their mortgage then they can look forward to relatively cheap living expenses in retirement provided they did proper maintenance.
- dahfizz 4y ago
  Here's the thing though: Being a landlord is profitable. The rent you pay on a house covers all the costs of ownership (cost to buy the home, mortgage principal & interest, repairs, taxes, insurance) AND there is some left over as profit for the landlord. If you owned the house instead of the landlord, you are still paying the same costs, but you don't have to pay the extra profit to the landlord. That is the amount of money you save by owning over renting. There are edge cases, like people who want to move every year, but this is a useful heuristic. You can pay your landlord's salary or you can be your own landlord and keep that money for yourself.
  - pwinnski 4y ago
    Being a landlord is mostly profitable when two things are true: 1. You can maintain the property in question for less than the market rate. 2. You bought the property for less than the current market rate. I looked into this in detail, talking with a realtor who very much wanted me to buy a second home to rent out, and determined that while the rental might be profitable a few years down the road--assuming I could keep it fully occupied and didn't end up with any "problem renters," even then it almost certainly would be more profitable to put the same capital outlay into the stock market, with the added advantages of liquidity and no renter headaches. Most individual landlords are renting out houses they have already owned for a few years, so their mortgage is not based on today's price, and that is where their profit margin primarily comes from.
  - 4y ago
xur17 4y ago
But remember that the $2k / month you pay to the landlord covers: property taxes, hoa fees, interest costs, and investment losses due to not being able to invest the money in stocks. Property tax alone is quite significant in my area, and that's something you are ALWAYS going to pay. I actually have a spreadsheet that compares the total cost of ownership when buying and renting over a 10 year period. Believe me, it's really not as cut and dry as you and others are making it out to be. Quite honestly, for me a ton of it hinges on how much the house appreciates in value (since you're making a levered bet via a mortgage).
- karmakurtisaani 4y ago
  I suppose those costs vary depending on where you are located. My understanding is that where I am (Switzerland), the taxation in fact works in your favour and people often take second mortgages for "repairs" when they're close to having paid out their first ones. The downside here is that you have pay 20% of your mortgage in order to get the rest, and when houses typically cost 1M or more, you can imagine it's not easy to actually buy a decent house. Another thing here is that you can be reasonably confident that the lot you buy will increase in value, so it also biases my point of view.
  - pwinnski 4y ago
    Those things are also true here! A "home equity line of credit" or HELOC is very common, especially when interest rates are incredibly low, as they were before last year. Also, most people understand that other than some edge cases like 2008, homes rise in value over time, consistently and dramatically. Most people know of situations where a retired couple bought a house for less than $100k many years ago, and now it's worth five to ten to twenty times that much! That's about where most people stop thinking. Clearly house values go up, I don't want to end up 30 years from now having paid rent and having nothing to show for it, I'm gonna buy a house. There's even one more factor, which is the US federal tax structure gives you a big break on any interest you pay on a home mortgage, so many people think: I get a tax break on my house payment, but not on rent. Of course, most people don't put together a spreadsheet to consider how much money that old couple might have had if they had put that $100k into a stock market index fund the same year they bought the house. Please understand, I'm not saying that buying a house is a bad investment. I'm just saying it's usually not the best investment. I don't think most people over-value buying a home, I think they under-value putting a home-sized chunk of money into an S&P index fund!