4 ms·

If you clicked the link, you would see it accounts for inflation, appreciation, and opportunity cost of your investment compared to other investment alternative

by itake 3y ago

If you clicked the link, you would see it accounts for inflation, appreciation, and opportunity cost of your investment compared to other investment alternatives. > if you can rent for less than the interest than the interest, This is completely false. If I owned my home, my home value could fall when the stock market goes up (see 2022-2023). In this situation, it would have been better for my money to be invested in SNP500 instead of my home. Before you claim 2022-2023 and 2008-2009 are exceptions, not the rule. Houses typically appreciate 2-3% where as stock appreciates 8-12%.

carlosjobim 3y ago
Of course I clicked the link and examined the calculations. >This is completely false. If I owned my home, my home value could fall Yes, and it could go up as well. You can't take that into consideration when comparing renting to buying. But I re-examined the calculator, and I find it incredibly misleading and wonder why somebody would bother to make such bad page. It's basically calculating all housing cost as lost money, whether it's rent or mortgage, completely ignoring the fact that you are building your own equity when paying a mortgage and not when paying rent. Or to put it in crystal clear terms: You can sell a house that you've been paying a mortgage on. You can not sell a house that you've been renting.
- itake 3y ago
  In simple terms, even without factoring in the mortgage: - Buying a home costs about 4% of its value (closing costs). - Selling a home costs about 6% of its value (real estate agent fees). - Ongoing expenses like repairs, property taxes, insurance, and possibly HOA fees amount to around 1% of the home's value annually. (Ignoring the time cost of dealing with repair people) These costs occur about three times in a person's life as they buy and sell homes. However, homes typically appreciate by about 4% per year. Comparing these expenses and gains to investing in the S&P 500, which averages an 11% annual gain, shows that homeownership expenses are substantial. Home investments only come out ahead in these situations if they have a mortgage (and this 5x leverage on the 4% appreciation).
  - carlosjobim 3y ago
    If you are paying rent you don't have any money to invest in the stock market, because that money is being paid in rent. If you can pay that money into a mortgage instead, at least you're paying into your own equity. If you already have a lot of money or huge income, it definitely can be a better idea to rent and invest the surplus in the stock market. Or purchase your home outright. Repairs on your own home means you are paying into your own equity, increasing the value of the real estate. HOA fees and property taxes are lost money yes, that you have to pay as a homeowner. If you are renting you will always pay those fees and ongoing expenses as well, either outright or baked into the rent. Just as you have to put gas in a car whether you own it or rent it. The landlord is going to make sure that the renter foots every and any bill. That is why, as I mentioned earlier, you can only compare the interest part of a mortgage with the rent. And I agree that there are very special situations when renting is better than buying with a mortgage. For example if your income is very high compared to rent prices where you live. Then you can have a sustainable surplus to invest in more lucrative ventures such as the stock market. Or in another case where home prices are going down faster than rent. Ie, the price of a home equivalent to the home you are renting is falling more each month than you're paying in rent. Or you expect that it will have fallen in price more by the time you want to purchase, than what you will loose in rent during that time.
    - itake 3y ago
      I am randomly choosing this property in San Francisco: https://www.zillow.com/homedetails/1915-Washington-St-San-Francisco-CA-94109/15074135_zpid/ https://www.zillow.com/homedetails/1915-Washington-St-San-Fr... The Rental Estimate is $16,970/mo. The cost of home ownership: The Property taxes are $4,573 /mo. Insurance is $1,628/mo. Interest portion of the loan is $20,522/mo. In summary, the cost to own the home $26,723/mo (NOT INCLUDING PAYING INTO EQUITY, DEPRECIATION), which is $10,000 more per month than it would be to rent this same home. As a renter, you take that extra $10k/mo you are not spending on property taxes, insurance, interest, transaction fees, and investing that into the SNP500.
      - carlosjobim 3y ago

by itake 3y ago

carlosjobim 3y ago

Of course I clicked the link and examined the calculations. >This is completely false. If I owned my home, my home value could fall Yes, and it could go up as well. You can't take that into consideration when comparing renting to buying. But I re-examined the calculator, and I find it incredibly misleading and wonder why somebody would bother to make such bad page. It's basically calculating all housing cost as lost money, whether it's rent or mortgage, completely ignoring the fact that you are building your own equity when paying a mortgage and not when paying rent. Or to put it in crystal clear terms: You can sell a house that you've been paying a mortgage on. You can not sell a house that you've been renting.

itake 3y ago
In simple terms, even without factoring in the mortgage: - Buying a home costs about 4% of its value (closing costs). - Selling a home costs about 6% of its value (real estate agent fees). - Ongoing expenses like repairs, property taxes, insurance, and possibly HOA fees amount to around 1% of the home's value annually. (Ignoring the time cost of dealing with repair people) These costs occur about three times in a person's life as they buy and sell homes. However, homes typically appreciate by about 4% per year. Comparing these expenses and gains to investing in the S&P 500, which averages an 11% annual gain, shows that homeownership expenses are substantial. Home investments only come out ahead in these situations if they have a mortgage (and this 5x leverage on the 4% appreciation).
- carlosjobim 3y ago
  If you are paying rent you don't have any money to invest in the stock market, because that money is being paid in rent. If you can pay that money into a mortgage instead, at least you're paying into your own equity. If you already have a lot of money or huge income, it definitely can be a better idea to rent and invest the surplus in the stock market. Or purchase your home outright. Repairs on your own home means you are paying into your own equity, increasing the value of the real estate. HOA fees and property taxes are lost money yes, that you have to pay as a homeowner. If you are renting you will always pay those fees and ongoing expenses as well, either outright or baked into the rent. Just as you have to put gas in a car whether you own it or rent it. The landlord is going to make sure that the renter foots every and any bill. That is why, as I mentioned earlier, you can only compare the interest part of a mortgage with the rent. And I agree that there are very special situations when renting is better than buying with a mortgage. For example if your income is very high compared to rent prices where you live. Then you can have a sustainable surplus to invest in more lucrative ventures such as the stock market. Or in another case where home prices are going down faster than rent. Ie, the price of a home equivalent to the home you are renting is falling more each month than you're paying in rent. Or you expect that it will have fallen in price more by the time you want to purchase, than what you will loose in rent during that time.
  - itake 3y ago
    I am randomly choosing this property in San Francisco: https://www.zillow.com/homedetails/1915-Washington-St-San-Francisco-CA-94109/15074135_zpid/ https://www.zillow.com/homedetails/1915-Washington-St-San-Fr... The Rental Estimate is $16,970/mo. The cost of home ownership: The Property taxes are $4,573 /mo. Insurance is $1,628/mo. Interest portion of the loan is $20,522/mo. In summary, the cost to own the home $26,723/mo (NOT INCLUDING PAYING INTO EQUITY, DEPRECIATION), which is $10,000 more per month than it would be to rent this same home. As a renter, you take that extra $10k/mo you are not spending on property taxes, insurance, interest, transaction fees, and investing that into the SNP500.
    - carlosjobim 3y ago