4 ms·

Having to pay rent likely makes retiring early, or even retiring itself impossible. Somethings like marriage, kids, buying home just have be done in life as ea

by kamaal 2y ago

Having to pay rent likely makes retiring early, or even retiring itself impossible. Somethings like marriage, kids, buying home just have be done in life as early as you can. Note money is just a number at the end. The idea is not to have max($money), rather max($free_time, $health). Optimise for $free_time and $health, and then you have a very different life strategy to work towards.

eru 2y ago
You are still ignoring opportunity costs. If you have $x, you can buy a house and save on $y rent. But you could also buy eg bonds, and make $z return per year. If z > y, going for the bonds is better. Free time and health don't even come into the picture here. [0] (Of course, taxes and regulations can make this more complicated. And there are systematic and idiosyncratic risks to take into account.) It's not automatic that buying owner-occupied property is always the best way to invest your wealth. [0] Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine. But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home.
- somenameforme 2y ago
  [0] is so unbelievably true having lived through a major natural disaster. People don't realize how much, in general, you're on your own you are after something like that. Really life and perspective changing. BUT I think you're also misunderstanding his point about buying - it's not about maximizing your wealth which in the end doesn't even matter, but rather about minimizing the things you need to worry about. Even bonds can be stressful because they're not guaranteed money as they might seem due to 'guaranteed returns.' If rates/inflation go up you're left with money losing pieces of paper. See Silicon Valley Bank [1] for the obvious example. Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases. The one case where I think buying doesn't really make sense is for people who enjoy traveling long-term. You can still theoretically rent or sell the place, but now you're back to increasing life stresses especially in the rental cases because you have a lot of obligations there that would require employees if you're remote and so on. And then moving money internationally, especially between currencies, and all of this stuff. Just ugh, no no no. [1] - https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Ban...
  - eru 2y ago
    Yes, even bonds can be stressful. But also: an owner occupied house is a single lumpy, undiversified asset. And in many cases it's bought on so much leverage, that its value is bigger than the buyer's entire net-worth. > Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases. Yes. Though depending on government policies, you can also lose use of your house (or even lose your house). Depending on where you live and how you set up your holdings, investing in international stocks and bond can be more stable. To summarise: owner occupied housing does make sense for a lot of people. But it's far from being automatically always being the best choice.
- kamaal 2y ago
  Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in. >>Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine. Paid by your money. >> But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home. I get a feeling if one is fairly rich they don't have to worry about money. When you are that rich, it doesn't matter whether you rent or own.
  - eru 2y ago
    > Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in. Yes, definitely. That's why I am saying that whether it's better to invest in owner occupied housing or in something else and using the returns to pay rent, depends on yields and prices and personal preferences. It's not automatic that buying a house to live in is better. > Paid by your money. Yes, definitely. Just like when I go to a restaurant, all the ingredients and the chef's labour is paid for by my own money. Owning a house is a bit like having an extra part-time job with all the things you have to worry about and work on.
- tanewishly 2y ago
  Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years. If you bought it, you're paying off the old price. If you're renting, rent increases every year to keep more or less in line with the accruing value. So while renters and buyers may both start out paying (eg) 20% of their income on housing, for buyers, this will typically go down (due to inflation --> higher wages), while for renters, it will stay the same and might even increase. You're right about considering opportunity costs, but around here, it just turns out far, far worse for renters.
  - consp 2y ago
    > 20% of their income on housing Wha a world that would be. More in the 35-45 range.
  - eru 2y ago
    For a proper comparison, you need to pay up the guy paying off the mortgage with someone who eg invests similar amounts in an index fund. To be even more proper, you'd need to allow the stock market investor to use leverage, just like the guy with the mortgage does. Or, if you want to avoid the mortgage/leverage complication, we can compare someone buying a house outright with someone investing the same amount in stocks, and uses the returns to pay rent. > Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years. Total returns on eg the S&P500 over the last few decades have been pretty good, too. And it's a much more diversified and liquid investment than a single house in a single location. For some people in some places, buying a house might be better than buying stocks, for some others it might be worse. Results also depend on taxes and jurisdiction and personal preferences. But it's not automatic that buying a house is better than renting.
    - pjc50 2y ago
      > Results also depend on taxes and jurisdiction If things were different, then the results would be different; but, being as they are, for most people in most Western jurisdictions the rules favor homeowners.

by kamaal 2y ago

eru 2y ago

You are still ignoring opportunity costs. If you have $x, you can buy a house and save on $y rent. But you could also buy eg bonds, and make $z return per year. If z > y, going for the bonds is better. Free time and health don't even come into the picture here. [0] (Of course, taxes and regulations can make this more complicated. And there are systematic and idiosyncratic risks to take into account.) It's not automatic that buying owner-occupied property is always the best way to invest your wealth. [0] Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine. But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home.

somenameforme 2y ago
[0] is so unbelievably true having lived through a major natural disaster. People don't realize how much, in general, you're on your own you are after something like that. Really life and perspective changing. BUT I think you're also misunderstanding his point about buying - it's not about maximizing your wealth which in the end doesn't even matter, but rather about minimizing the things you need to worry about. Even bonds can be stressful because they're not guaranteed money as they might seem due to 'guaranteed returns.' If rates/inflation go up you're left with money losing pieces of paper. See Silicon Valley Bank [1] for the obvious example. Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases. The one case where I think buying doesn't really make sense is for people who enjoy traveling long-term. You can still theoretically rent or sell the place, but now you're back to increasing life stresses especially in the rental cases because you have a lot of obligations there that would require employees if you're remote and so on. And then moving money internationally, especially between currencies, and all of this stuff. Just ugh, no no no. [1] - https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Ban...
- eru 2y ago
  Yes, even bonds can be stressful. But also: an owner occupied house is a single lumpy, undiversified asset. And in many cases it's bought on so much leverage, that its value is bigger than the buyer's entire net-worth. > Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases. Yes. Though depending on government policies, you can also lose use of your house (or even lose your house). Depending on where you live and how you set up your holdings, investing in international stocks and bond can be more stable. To summarise: owner occupied housing does make sense for a lot of people. But it's far from being automatically always being the best choice.
kamaal 2y ago
Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in. >>Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine. Paid by your money. >> But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home. I get a feeling if one is fairly rich they don't have to worry about money. When you are that rich, it doesn't matter whether you rent or own.
- eru 2y ago
  > Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in. Yes, definitely. That's why I am saying that whether it's better to invest in owner occupied housing or in something else and using the returns to pay rent, depends on yields and prices and personal preferences. It's not automatic that buying a house to live in is better. > Paid by your money. Yes, definitely. Just like when I go to a restaurant, all the ingredients and the chef's labour is paid for by my own money. Owning a house is a bit like having an extra part-time job with all the things you have to worry about and work on.
tanewishly 2y ago
Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years. If you bought it, you're paying off the old price. If you're renting, rent increases every year to keep more or less in line with the accruing value. So while renters and buyers may both start out paying (eg) 20% of their income on housing, for buyers, this will typically go down (due to inflation --> higher wages), while for renters, it will stay the same and might even increase. You're right about considering opportunity costs, but around here, it just turns out far, far worse for renters.
- consp 2y ago
  > 20% of their income on housing Wha a world that would be. More in the 35-45 range.
- eru 2y ago
  For a proper comparison, you need to pay up the guy paying off the mortgage with someone who eg invests similar amounts in an index fund. To be even more proper, you'd need to allow the stock market investor to use leverage, just like the guy with the mortgage does. Or, if you want to avoid the mortgage/leverage complication, we can compare someone buying a house outright with someone investing the same amount in stocks, and uses the returns to pay rent. > Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years. Total returns on eg the S&P500 over the last few decades have been pretty good, too. And it's a much more diversified and liquid investment than a single house in a single location. For some people in some places, buying a house might be better than buying stocks, for some others it might be worse. Results also depend on taxes and jurisdiction and personal preferences. But it's not automatic that buying a house is better than renting.
  - pjc50 2y ago
    > Results also depend on taxes and jurisdiction If things were different, then the results would be different; but, being as they are, for most people in most Western jurisdictions the rules favor homeowners.