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Realizing that buying a house is absolutely not a good investment and that the whole society is on a narrative to convince more and more people to blindly buy (

Realizing that buying a house is absolutely not a good investment and that the whole society is on a narrative to convince more and more people to blindly buy (realtors, lenders, other homeowners, the governments, parents,...) Doing the real math is the trick of the trade. The math for owning has been made so that it looks like a good deal while in reality it is not at all. Most people will literally compare mortgage to their rent, or "I sold my house I bought for 500k for 1M$, therefore I made 500k$". Treat owning as a luxury item. The same way you would own a sport car or travel on a private jet. Do the (real) math and realize Owning is costing you money. Also don't let yourself get emotional about buying a house. Society has made it look as if buying a house was a proof of success. A lot of research shows that once people buy they lose flexibility, feel more stuck, cannot access higher paying job in a different places etc. Renting has a ton of advantages. This calculator get most things right. As an exercise, you can try to retroactively put the numbers for the house you bought and the rent equivalent. The results might surprise you: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html

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nothercastle 1y ago
There are a couple good resources on this. The nyt rent vs own calculator is good but also there is a great podcast episode (tailored for Canada but mostly the same in the us) https://rationalreminder.ca/podcast/323 https://rationalreminder.ca/podcast/323
- hintklb 1y ago
  You are exactly right and I will add this to my post. This calculator get most things right. As an exercise, you can try to retroactively put the numbers for the house you bought and the rent equivalent. The results might surprise you: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html
nothrabannosir 1y ago
*> Most people will literally compare mortgage to their rent, or "I sold my house I bought for 500k for 1M$, therefore I made 500k$". I’ll bite: what’s the problem? If anything mortgage is even more favorable than rent because part of it goes to paying off the principal. Which is still your money, just in a different asset. But I guess you include this and still reach the opposite result? Are you talking about taxes or maintenance or something ? Which country / locality? What time span? How many places are there where you would’ve been better off renting than buying in recent memory… not where I’ve lived but you never know!
- hintklb 1y ago
  Because the mortgage and the rent are completely different numbers. The rent is the maximum you will ever pay for that period. The mortgage is the minimum you will pay and doesn't include the downpayment, repairs, HOA, Insurance and tax increases. It also doesn't include the closing costs, realtor costs, all the fees. This is why the math is so complex. People easily forget all those fees and costs to make the math look simple. This also takes into account that you invest into the US market and equity with all the cash that you would have had to spend on your house. I'm talking about the US, but this holds true in multiple countries. To answer your last question: In almost all HCOL (SF, Seattle, ...) you would have been way better renting than buying, except if you time it perfectly. If you look at today's market you would almost definitely be better renting than buying (But nobody knows the future...)
  - bigstrat2003 1y ago
    This is just plain wrong. Let's break it down: * Insurance and tax increases: real and you have to deal with them, but they don't go up as fast as rent does. Advantage: owning * HOA fees: don't buy an HOA home, problem solved. You should do that anyway just because HOAs suck ass. * Down payment: not a real cost, that money is yours in the form of equity * Closing costs and other fees: real but completely negligible when amortized over the life of the home. * Repairs: real, and they suck. This is the only place renting can stack up superior, but you can do a lot to mitigate this by doing your due diligence up front and not buying a dud house. Overall, unless you get unlucky you should come out ahead, but you can lose the die roll. * Realtor costs: greatly depends. When we bought our house we paid zero, because the seller pays the buyer's costs. This can be a serious cost if you're changing houses a lot, but... just don't do that (for multiple reasons). Overall, after buying my house 7 years ago I'm coming out ahead month over month (thanks to rent going up like clockwork every year, while my mortgage has stayed the same). By the time I die, I will be significantly ahead, and that's not even taking into account unrealized gains in the value of the property. Which I don't count for much, because my home is a place to live and not an investment vehicle. But maybe someday it'll do me good, or my heirs. Owning a home really is a great deal for the vast majority of people in the US. It's not some society wide conspiracy, it's not an ad to get others into the market so you can benefit, it's the truth.
vayup 1y ago
As I grew older (and hopefully wiser), I have internalized investment returns is a lot more than sanitized numbers. I did the numbers and as a result did not buy much real estate when I was yonger. It was pretty clear, if I put the same cash outflow into stocks, I would come out ahead... Way ahead! The things is, I didn't put the same cash outflow in stocks. For various reasons. But mainly, it was just not psychologically palatable to max out my investments on equity by streching my finances. With hindsight, given the buffer in most real estate investments (left with tangible assets, banks shouldering some of the risk etc.) it would have been a lot more psychologically palatable to investment my max in real estate. My point is not that real estate is "best". But merely, there is a lot more to returns than cold numbers. If you think you already understand it, and are under 30, you are likely underestimating the significance of that. I know I did.
- hintklb 1y ago
  This is the argument that buying a house serves as a subpar, forced investment for most people. But I don't know if I agree with you, I understood in my twenties that housing was generally a bad investment. We are now 10 years later and I invested everything in the stock market instead and came way ... way ahead than if I bough one or more houses. I personally find it way way more scary to buy an average 2M$ house that could crash and lose half of its value overnight than the whole American economy that is relatively diversified. What happens if there is a fire in your neighborhood? Or if your city is the next Detroit? We have been made to believe a house is a safe investment. I personally think it's the scariest least diversified investment you could ever make.
  - itake 1y ago
    The other factors beyond cost to consider are: 1/ with renting, you might outlive your landlord (forcing you and your kids to move / switch schools). 2/ control over the health of your home (installing water filters, air quality sensors, fixing mold immediately instead of waiting for a landlord).
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nikkwong 1y ago
This is of course true if your house is not income producing. If you rent out rooms of your house, the calculus changes considerably. …and now having viewed their calculator, I find it disingenuous that they haven’t added this as an additional configurable step, given how many bells and whistles their tool has. The takeaway from the tool is that you should never buy in HCOL areas, but renting out rooms in your unit is potentially a way to make it work out financially.
- hintklb 1y ago
  I don't know if I agree. On average renting a room out of your place is the same as buying a place as a rental investment with the difference you can claim you live there (which gives you some small tax advantage). In general, real estate rental investment are terrible subpar investment. How would this be different?
  - nikkwong 1y ago
    I don't know, I hear this advice all the time and I think people are just not looking hard enough. I invested in Seattle between 2017-2022 and have several properties here that are cash flowing. For example, for an $800k house you would have to generally put down 160k. If you picked the right property, with enough rooms, you can cash flow around $1-2k on this which will net you around 10-20k a year, and that's not counting the tax advantage of depreciating the house which is substantial. When you throw in the fact that the asset could/should appreciate, the fact that you can borrow against it, leverage aggressively to buy more—don't know, my reasoning could be wrong, but it doesn't seem to always be an inferior investment vehicle.
    - hintklb 1y ago
      is it really cash-flowing $1-2k a month after you account for repairs, taxes, fees, realtor fees, closing fees, bad tenants (which will always eventually happen) and all the time you spent managing this? The tax advantage are really marginal since 2016. 160k$ invested in the SP500 gives you on average 16k$ a year compounding fully liquid with zero management. Yes the place should appreciate at 3% a year historically. But even that doesn't make up for it.
esseph 1y ago
"Buying saves you $176,000 over ten years." Also the chart tells me that if your rent costs more than $1,000 a month, to buy. It also says if you stay longer than 5 years, to buy. I fucking signed up for this. Fuck. Now I get to go cancel...
- hintklb 1y ago
  Let me guess. You put 8$% of YoY house appreciation? 3% of YoY stock appreciation? 10% of yearly rent increase?
  - esseph 1y ago
    No it just didn't cost my much to buy my home, I got a good rate that's locked in, and I have a family. Moving is not really something in the calculus. Rent is crazy, housing prices are crazy.
  - tayo42 1y ago
    > 10% of yearly rent increase Why call that out, that was my last 3 rent increases
pepinator 1y ago
This is obviously not true. You don't have to do the math to realize: when you pay rent, every moth, an important part of your salary simply disappears, leaving nothing for the future. When you pay a mortgage, your paying the house you'll own. Of course, there are interests and fees and whatnot, but you'd need to pay huge amounts so that it becomes unviable; I can't imagine a single scenario where that occurs.
- hintklb 1y ago
  if you buy a house today, you are literally paying a "huge amounts so that it becomes unviable". Check the concept of opportunity cost.
  - esseph 1y ago
    The problem is you still have to live somewhere, and buying is a real asset. I would like to take the Opportunity to not pay a fucking landlord, thanks.
    - hintklb 1y ago
      you obviously include the price of the rent-equivalent of the place you would buy in the math. Cannot even believe I have to say this.
      - esseph 1y ago
        Recently I looked at what it would cost me to move. First, I would be giving up several acres of land, and my dog and cats would be very unhappy. Second, for me to get a house with the same bedrooms, housing cost would almost DOUBLE, and on average it looks like I'd lose around 800sqft. I've been here for more than a decade. Moving would cost us a TON of money for no gain. (If we went to buy another home) And that calculator also agreed (on rent not being viable, either!)
        LeonM 1y ago
aakast 1y ago
Did you account for leverage? I agree with you all the way, however, the top reason it can actually be beneficial to most people is the fact, that they can leverage their money. Putting it a bit simple, it would mean, that for most people, ncr_(real estate)^t > c*r_investing^t It all depends where in the world you are, but most places have easier access to loans for real estate than investment, and everything else being equal, the risk is also higher. There might be this line of thought in wake of the financial crisis, that real estate carries close to or as much as the same risk. It doesn't. It's just not zero, and that is the lesson learned.
- hintklb 1y ago
  All the calculators include leverage, yes. In fact leverage is absolutely required for real estate to even be considered an investment, and not even a good one. The fees, interest, etc are eating all the gains from the leverage. A leverage also goes both ways. Making the housing investment so much more risky if not well timed. Houses in Denver for example went down close to 10%. Now imagine you leveraged this...
  - aakast 1y ago
    Completely agree. I have always myself been a proponent of renting and investing in any other assets. I'm a dane, and we have a very unique mortage system, so I might not have as much feeling in that regard with the rest of the world. In this case, I just felt leveraging was left out of the equation in the discussions, so it was hard to follow.
- cloudbonsai 1y ago
  The best argument I've heard (and I'm somewhat sympathic to) is to compare home equity with real estate investment vehicles. 1) REIT is a diversified bet on a group of high-grade properties that has positive cash flow, levered with a commercial loan borrowed at 3-4%. It's as liquid as stocks, and managed by someone other than you. 2) Home equity is an undiversified bet on a single residential property that has no cash flow, levered with a retail loan borrowed at 5-6%. It's fundamentally illiquid, and managed by you. Here is a question: People normally consider it's dangerous to lever your REIT position. Doesn't it suggest that home ownership is actually risker than commonly perceived?
ropable 1y ago
I'd phrase this quite differently: realise that buying a house might not be the optimal investment strategy, depending on life circumstances, goals and economic conditions. Boiling it down to "not a good investment" is overly reductive IMO.
motorest 1y ago
> Doing the real math is the trick of the trade. The math for owning has been made so that it looks like a good deal while in reality it is not at all. Most people will literally compare mortgage to their rent, or "I sold my house I bought for 500k for 1M$, therefore I made 500k$". Can you try to offer some explanation for your reasoning? I mean, for blue collar or even white collar workers, lower monthly payments for a mortgage does increase disposable income. When you eventually pay off your mortgage your expenses drop to zero. > This calculator get most things right. I think you need to educate yourself. There are rent vs buy calculators that allow you to do parametric tests and eventually arrive at the rather obvious conclusion that renting is marginally advantageous only in short time windows (up to around <5years) whereas buying is advantageous beyond that point.
- hintklb 1y ago
  I spend more time than 99.999% of people on this subject and I'm quite educated in economics. I'm not arguing that buying a house is never right. I'm arguing that on average, especially in today's environment it is extremely difficult to make the number work in favor of owning as an investment. As a lifestyle luxury for the intangibles? Sure. But as an investment, this doesn't really make sense anymore. >> Can you try to offer some explanation for your reasoning? Those two numbers simply do not represent the same thing. A mortgage is an absolute minimum that dismisses the opportunity cost on the downpayment, doesn't include all the fees and definitely doesn't account for the increase in taxes, HOA and insurances. >> When you eventually pay off your mortgage your expenses drop to zero. Who pays for Taxes, Insurance, HOA, Repairs? Who pays the 6% realtor fees the day you sell? Based on those questions, I would invite you to similarly get educated.
NalNezumi 1y ago
Another positive is that you're morally clean. "A place to live is an financial investment" is a perverse idea to begin with. You won't be a passive participant of one ill in the society. HN is quick to debate often about how housing is one core issue in many socially bad phenomenas but look at that, when you question the fundamental premise causing that everyone comes out trying to dismiss that. It's easy to lament "societal" issue when it's some other group (society) but it's all justifications that comes out when money is involved and it's pointed out that it's the individual actions that causes it (yours). Which is kinda why we are at the point we are. "everyone needs a house right?!?" and someone realized (artificial) scarcity is a way to milk money out of that. Everyone bought it. Now every middle class person and their bank are in the game. "housing always increase in price" is a goal that is turned to a belief/principle. It was made a social issue by all the people who bought in to it Go to a place where housing is not considered a financial investment but a consumable,(such as Tokyo) and you'll realize the mode is not as bad or an unalienable truth as many think. It's rather a symptom of a inefficient use of wealth, as a society.
archagon 1y ago
While financially this is true, it does not account for aggressive landlords deciding to spike rent and/or deciding to sell and evicting. Housing stability can be worth a lot. (Of course, strong tenant protections help mitigate this issue.)
cco 1y ago
I just penciled out several home buying scenarios in HCOL, according to the calculators you posted, it only very recently became a questionable purchase if you don't plan on staying 7+ years in a home. At any other point in the last 20, maybe 30-40 years if you re-finance well, it was always better to buy if you intended on living in an area for any reasonable amount of time.
- deleted 1y ago
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pmg101 1y ago
Let's simplify by assuming you can choose between two scenarios: 1. The bank lends you £1m to buy a house, you pay them 5% interest for this service = £50,000 pa. 2. You rent a £1m house from a landlord and pay £50,000 pa for this service. Financially these are identical. And in either case if you stop paying you will lose your home - because it's not really yours, it belongs to the bank/landlord. However surely 1. is always preferable? * You can make any change you like to your living environment up to and including moving walls around * Assuming you do continue to pay you have the absolute right to live there and will not be forced to leave * Rents can rise out of your control, even to the point you can no longer afford it. Mortgage rates can change over time too but you get to choose your level of risk appetite explicitly by fixing for the period you prefer.
- hintklb 1y ago
  except that those are not the numbers we have today (in the US, I don't know in the UK). Rather, for a $1M house: 1. The bank lends me $800k to buy a house with a 6.5% interest. you need to put 200k$ as a downpayment. 2. The rent equivalent is 28000$ a year. The math is way more complex than this, but what really matter at this point is the gap between renting and buying a place.
- sladoledar 1y ago
  These are not financially identical at all, at least where I live. If heating breaks down, it is landlord's financial burden. Sooner or later you'll have to replace the roof. You don't have this type of financial burdens if you rent.
  - pmg101 1y ago
    Yes it'd be interesting to see all those kinds of decadal costs factored in. My head is still very much turned however by the fact that rents rise with or above inflation every year, meanwhile I'm still paying off my mortgage in 2012 pounds. But I'm quite willing to believe I'm behaving irrationally.
  - buttercraft 1y ago
    Those costs are factored into the rent.
alexey-salmin 1y ago
I find this logic shortsighted and I don't think the right chapter of math is being applied. You need the probability theory not calculus. Yes, renting is often better than owning on average. However, as any good poker player knows, having a positive strategy on average is nothing unless you control the standard deviation. You need to have reserves deep enough and to be able to play long enough for your average to consistently manifest itself. In lifetime investment choices the human lifespan is the major limitation. You won't be able to live long enough to absorb multiple economical collapses and surges — which indeed had always been profitable in the end, just not necessarily for you. You draw your card and you play your hand. In such circumstances a strategy with less gains but also less variability is usually preferable. A good analogy is insurance: having insurance is always worse on average than not having one, otherwise insurance companies won't exist. Buying insurance for something small, some loss you can absorb yourself, like your phone or bicycle, is in most cases a bad idea. However, buying insurance for your house or your health is usually a good deal. You pay money to tap into reserves that are bigger than yours, you get slightly negative mean expectation with near-zero variance. Even the insurance companies themselves do it when they judge their reserves are not deep enough for a given contract — and resell parts of it to other companies to spread the load.
- hintklb 1y ago
  I understand probability theories but I don't see how this applies here. I don't see either how the insurance concept applies for housing? There is a healthy rental market that will always exist, Are you arguing that you might get priced out and therefore you should buy (even if overpriced) to avoid that potential issue? Both housing and stocks will go down during an economical collapse. They are both correlated. You can actually make a point that housing being a highly leveraged asset is way worse during a downturn than being long on stocks.
  - alexey-salmin 1y ago
    Stocks, deposits and currencies can all crash to zero while your primary residence never goes below the value of housing your spouse and kids (which is pretty damn high as far as I'm concerned). Some rental market will exist almost always but that's not necessarily true for your job and your savings. My parents lived through times like this and so will my descendants eventually. The probability of this happening to my generation is low but non-negligeable so I find it necessary to hedge against.
solatic 1y ago
By and large, I agree with you. Especially if you are single, owning real estate represents a massive commitment, both financial and to the local place, that nobody forced you to take. People need to remember that the default for real estate is to fall into disrepair and turn back into the dust of the earth; as someone who owns real estate, you are responsible for fighting that entropy, as is everyone else in your neighborhood, as living in the only well-maintained house on a block full of abandoned blight isn't going to rescue your property value. With that said, sometimes you want to make that commitment, because it's a socially good choice, rather than a financially good choice. Children need stability. Moving houses, neighborhoods, schools is not good for them. Good parents make sacrifices for their children, including staying in jobs where they might make a little less compared to Yet Another Move. For most families who want to provide stability for their children, the choice is between purchasing a house, or a long-term rental of an apartment owned by a public housing authority that is bound by law or regulation to keep rent increases down and renters in-place, so long as they continue to pay their rent. In the US, most people do not have access to the latter, or the latter are only found in bad neighborhoods where the public housing authority was underfunded and mismanaged. That leaves purchasing real estate as the only option.
- lelanthran 1y ago
  > People need to remember that the default for real estate is to fall into disrepair and turn back into the dust of the earth; as someone who owns real estate, you are responsible for fighting that entropy, And that costs money. However, it still costs money as a renter, because whatever the house costs to keep, the landlord is going to pass that cost on to the renter. There is no landlord renting at a loss.
  - hintklb 1y ago
    You need to review your assumptions. > There is no landlord renting at a loss. there absolutely is. Again, most people don't do the math. It's no different for their rental property. They think it is "worth it". > the landlord is going to pass that cost on to the renter. Nope, there are a lot of studies on this. Rental prices are defined by offer and demand, not by costs for the landlord.
lelanthran 1y ago
> This calculator get most things right. It's paywalled. I also doubt it gets most things right. I've been pointed to so many and I have not yet found that that takes into account all the variables (and there's so few, so if they're leaving it out I'm suspicious!) > A lot of research shows that once people buy they lose flexibility, They lose that once their kids are in school. > feel more stuck, They're stuck anyway, once the kids are in school. > cannot access higher paying job in a different places etc. They cannot do that anyway, once the kids are in school. All of those disadvantages you list are not even noticed by people with kids in school, hence they don't count as disadvantages. The only advantage you realistically realise from renting vs owning is the ability to move within a month's notice. If you have kids in school or a spouse who is working in-person, not remote, you won't be moving on a month's notice anyway. IOW, why optimise for the use-case "Hey, we can move on a months notice!" when that use-case won't come up anyway? It's like a vegetarian optimising their life around access to meat-only burger joints. Or someone living 2000km from the nearest sea optimising their life for surfing. No one optimises their life for use-cases that won't come up.
- hintklb 1y ago
  I have kids in school and none of your example holds.
  - lelanthran 1y ago
    > I have kids in school and none of your example holds. Okay. Different question then, how many times have you yanked all your kids out of their peer groups, permanently?
  - alirezaxdehghan 1y ago
    So you're implying that you can move to another city in a month? How's that possible? I need at least a 6 months window to move!
specialist 1y ago
Yes and: Remodeling. So many regrets.

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nothercastle 1y ago

There are a couple good resources on this. The nyt rent vs own calculator is good but also there is a great podcast episode (tailored for Canada but mostly the same in the us) https://rationalreminder.ca/podcast/323 https://rationalreminder.ca/podcast/323

hintklb 1y ago
You are exactly right and I will add this to my post. This calculator get most things right. As an exercise, you can try to retroactively put the numbers for the house you bought and the rent equivalent. The results might surprise you: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html

nothrabannosir 1y ago

*> Most people will literally compare mortgage to their rent, or "I sold my house I bought for 500k for 1M$, therefore I made 500k$". I’ll bite: what’s the problem? If anything mortgage is even more favorable than rent because part of it goes to paying off the principal. Which is still your money, just in a different asset. But I guess you include this and still reach the opposite result? Are you talking about taxes or maintenance or something ? Which country / locality? What time span? How many places are there where you would’ve been better off renting than buying in recent memory… not where I’ve lived but you never know!

hintklb 1y ago
Because the mortgage and the rent are completely different numbers. The rent is the maximum you will ever pay for that period. The mortgage is the minimum you will pay and doesn't include the downpayment, repairs, HOA, Insurance and tax increases. It also doesn't include the closing costs, realtor costs, all the fees. This is why the math is so complex. People easily forget all those fees and costs to make the math look simple. This also takes into account that you invest into the US market and equity with all the cash that you would have had to spend on your house. I'm talking about the US, but this holds true in multiple countries. To answer your last question: In almost all HCOL (SF, Seattle, ...) you would have been way better renting than buying, except if you time it perfectly. If you look at today's market you would almost definitely be better renting than buying (But nobody knows the future...)
- bigstrat2003 1y ago
  This is just plain wrong. Let's break it down: * Insurance and tax increases: real and you have to deal with them, but they don't go up as fast as rent does. Advantage: owning * HOA fees: don't buy an HOA home, problem solved. You should do that anyway just because HOAs suck ass. * Down payment: not a real cost, that money is yours in the form of equity * Closing costs and other fees: real but completely negligible when amortized over the life of the home. * Repairs: real, and they suck. This is the only place renting can stack up superior, but you can do a lot to mitigate this by doing your due diligence up front and not buying a dud house. Overall, unless you get unlucky you should come out ahead, but you can lose the die roll. * Realtor costs: greatly depends. When we bought our house we paid zero, because the seller pays the buyer's costs. This can be a serious cost if you're changing houses a lot, but... just don't do that (for multiple reasons). Overall, after buying my house 7 years ago I'm coming out ahead month over month (thanks to rent going up like clockwork every year, while my mortgage has stayed the same). By the time I die, I will be significantly ahead, and that's not even taking into account unrealized gains in the value of the property. Which I don't count for much, because my home is a place to live and not an investment vehicle. But maybe someday it'll do me good, or my heirs. Owning a home really is a great deal for the vast majority of people in the US. It's not some society wide conspiracy, it's not an ad to get others into the market so you can benefit, it's the truth.

vayup 1y ago

As I grew older (and hopefully wiser), I have internalized investment returns is a lot more than sanitized numbers. I did the numbers and as a result did not buy much real estate when I was yonger. It was pretty clear, if I put the same cash outflow into stocks, I would come out ahead... Way ahead! The things is, I didn't put the same cash outflow in stocks. For various reasons. But mainly, it was just not psychologically palatable to max out my investments on equity by streching my finances. With hindsight, given the buffer in most real estate investments (left with tangible assets, banks shouldering some of the risk etc.) it would have been a lot more psychologically palatable to investment my max in real estate. My point is not that real estate is "best". But merely, there is a lot more to returns than cold numbers. If you think you already understand it, and are under 30, you are likely underestimating the significance of that. I know I did.

hintklb 1y ago
This is the argument that buying a house serves as a subpar, forced investment for most people. But I don't know if I agree with you, I understood in my twenties that housing was generally a bad investment. We are now 10 years later and I invested everything in the stock market instead and came way ... way ahead than if I bough one or more houses. I personally find it way way more scary to buy an average 2M$ house that could crash and lose half of its value overnight than the whole American economy that is relatively diversified. What happens if there is a fire in your neighborhood? Or if your city is the next Detroit? We have been made to believe a house is a safe investment. I personally think it's the scariest least diversified investment you could ever make.
- itake 1y ago
  The other factors beyond cost to consider are: 1/ with renting, you might outlive your landlord (forcing you and your kids to move / switch schools). 2/ control over the health of your home (installing water filters, air quality sensors, fixing mold immediately instead of waiting for a landlord).
  - deleted 1y ago
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nikkwong 1y ago

This is of course true if your house is not income producing. If you rent out rooms of your house, the calculus changes considerably. …and now having viewed their calculator, I find it disingenuous that they haven’t added this as an additional configurable step, given how many bells and whistles their tool has. The takeaway from the tool is that you should never buy in HCOL areas, but renting out rooms in your unit is potentially a way to make it work out financially.

hintklb 1y ago
I don't know if I agree. On average renting a room out of your place is the same as buying a place as a rental investment with the difference you can claim you live there (which gives you some small tax advantage). In general, real estate rental investment are terrible subpar investment. How would this be different?
- nikkwong 1y ago
  I don't know, I hear this advice all the time and I think people are just not looking hard enough. I invested in Seattle between 2017-2022 and have several properties here that are cash flowing. For example, for an $800k house you would have to generally put down 160k. If you picked the right property, with enough rooms, you can cash flow around $1-2k on this which will net you around 10-20k a year, and that's not counting the tax advantage of depreciating the house which is substantial. When you throw in the fact that the asset could/should appreciate, the fact that you can borrow against it, leverage aggressively to buy more—don't know, my reasoning could be wrong, but it doesn't seem to always be an inferior investment vehicle.
  - hintklb 1y ago
    is it really cash-flowing $1-2k a month after you account for repairs, taxes, fees, realtor fees, closing fees, bad tenants (which will always eventually happen) and all the time you spent managing this? The tax advantage are really marginal since 2016. 160k$ invested in the SP500 gives you on average 16k$ a year compounding fully liquid with zero management. Yes the place should appreciate at 3% a year historically. But even that doesn't make up for it.

esseph 1y ago

"Buying saves you $176,000 over ten years." Also the chart tells me that if your rent costs more than $1,000 a month, to buy. It also says if you stay longer than 5 years, to buy. I fucking signed up for this. Fuck. Now I get to go cancel...

hintklb 1y ago
Let me guess. You put 8$% of YoY house appreciation? 3% of YoY stock appreciation? 10% of yearly rent increase?
- esseph 1y ago
  No it just didn't cost my much to buy my home, I got a good rate that's locked in, and I have a family. Moving is not really something in the calculus. Rent is crazy, housing prices are crazy.
- tayo42 1y ago
  > 10% of yearly rent increase Why call that out, that was my last 3 rent increases

pepinator 1y ago

This is obviously not true. You don't have to do the math to realize: when you pay rent, every moth, an important part of your salary simply disappears, leaving nothing for the future. When you pay a mortgage, your paying the house you'll own. Of course, there are interests and fees and whatnot, but you'd need to pay huge amounts so that it becomes unviable; I can't imagine a single scenario where that occurs.

hintklb 1y ago
if you buy a house today, you are literally paying a "huge amounts so that it becomes unviable". Check the concept of opportunity cost.
- esseph 1y ago
  The problem is you still have to live somewhere, and buying is a real asset. I would like to take the Opportunity to not pay a fucking landlord, thanks.
  - hintklb 1y ago
    you obviously include the price of the rent-equivalent of the place you would buy in the math. Cannot even believe I have to say this.
    - esseph 1y ago
      Recently I looked at what it would cost me to move. First, I would be giving up several acres of land, and my dog and cats would be very unhappy. Second, for me to get a house with the same bedrooms, housing cost would almost DOUBLE, and on average it looks like I'd lose around 800sqft. I've been here for more than a decade. Moving would cost us a TON of money for no gain. (If we went to buy another home) And that calculator also agreed (on rent not being viable, either!)
      - LeonM 1y ago

aakast 1y ago

Did you account for leverage? I agree with you all the way, however, the top reason it can actually be beneficial to most people is the fact, that they can leverage their money. Putting it a bit simple, it would mean, that for most people, ncr_(real estate)^t > c*r_investing^t It all depends where in the world you are, but most places have easier access to loans for real estate than investment, and everything else being equal, the risk is also higher. There might be this line of thought in wake of the financial crisis, that real estate carries close to or as much as the same risk. It doesn't. It's just not zero, and that is the lesson learned.

hintklb 1y ago
All the calculators include leverage, yes. In fact leverage is absolutely required for real estate to even be considered an investment, and not even a good one. The fees, interest, etc are eating all the gains from the leverage. A leverage also goes both ways. Making the housing investment so much more risky if not well timed. Houses in Denver for example went down close to 10%. Now imagine you leveraged this...
- aakast 1y ago
  Completely agree. I have always myself been a proponent of renting and investing in any other assets. I'm a dane, and we have a very unique mortage system, so I might not have as much feeling in that regard with the rest of the world. In this case, I just felt leveraging was left out of the equation in the discussions, so it was hard to follow.
cloudbonsai 1y ago
The best argument I've heard (and I'm somewhat sympathic to) is to compare home equity with real estate investment vehicles. 1) REIT is a diversified bet on a group of high-grade properties that has positive cash flow, levered with a commercial loan borrowed at 3-4%. It's as liquid as stocks, and managed by someone other than you. 2) Home equity is an undiversified bet on a single residential property that has no cash flow, levered with a retail loan borrowed at 5-6%. It's fundamentally illiquid, and managed by you. Here is a question: People normally consider it's dangerous to lever your REIT position. Doesn't it suggest that home ownership is actually risker than commonly perceived?

ropable 1y ago

I'd phrase this quite differently: realise that buying a house might not be the optimal investment strategy, depending on life circumstances, goals and economic conditions. Boiling it down to "not a good investment" is overly reductive IMO.

motorest 1y ago

> Doing the real math is the trick of the trade. The math for owning has been made so that it looks like a good deal while in reality it is not at all. Most people will literally compare mortgage to their rent, or "I sold my house I bought for 500k for 1M$, therefore I made 500k$". Can you try to offer some explanation for your reasoning? I mean, for blue collar or even white collar workers, lower monthly payments for a mortgage does increase disposable income. When you eventually pay off your mortgage your expenses drop to zero. > This calculator get most things right. I think you need to educate yourself. There are rent vs buy calculators that allow you to do parametric tests and eventually arrive at the rather obvious conclusion that renting is marginally advantageous only in short time windows (up to around <5years) whereas buying is advantageous beyond that point.

hintklb 1y ago
I spend more time than 99.999% of people on this subject and I'm quite educated in economics. I'm not arguing that buying a house is never right. I'm arguing that on average, especially in today's environment it is extremely difficult to make the number work in favor of owning as an investment. As a lifestyle luxury for the intangibles? Sure. But as an investment, this doesn't really make sense anymore. >> Can you try to offer some explanation for your reasoning? Those two numbers simply do not represent the same thing. A mortgage is an absolute minimum that dismisses the opportunity cost on the downpayment, doesn't include all the fees and definitely doesn't account for the increase in taxes, HOA and insurances. >> When you eventually pay off your mortgage your expenses drop to zero. Who pays for Taxes, Insurance, HOA, Repairs? Who pays the 6% realtor fees the day you sell? Based on those questions, I would invite you to similarly get educated.

NalNezumi 1y ago

Another positive is that you're morally clean. "A place to live is an financial investment" is a perverse idea to begin with. You won't be a passive participant of one ill in the society. HN is quick to debate often about how housing is one core issue in many socially bad phenomenas but look at that, when you question the fundamental premise causing that everyone comes out trying to dismiss that. It's easy to lament "societal" issue when it's some other group (society) but it's all justifications that comes out when money is involved and it's pointed out that it's the individual actions that causes it (yours). Which is kinda why we are at the point we are. "everyone needs a house right?!?" and someone realized (artificial) scarcity is a way to milk money out of that. Everyone bought it. Now every middle class person and their bank are in the game. "housing always increase in price" is a goal that is turned to a belief/principle. It was made a social issue by all the people who bought in to it Go to a place where housing is not considered a financial investment but a consumable,(such as Tokyo) and you'll realize the mode is not as bad or an unalienable truth as many think. It's rather a symptom of a inefficient use of wealth, as a society.

archagon 1y ago

While financially this is true, it does not account for aggressive landlords deciding to spike rent and/or deciding to sell and evicting. Housing stability can be worth a lot. (Of course, strong tenant protections help mitigate this issue.)

cco 1y ago

I just penciled out several home buying scenarios in HCOL, according to the calculators you posted, it only very recently became a questionable purchase if you don't plan on staying 7+ years in a home. At any other point in the last 20, maybe 30-40 years if you re-finance well, it was always better to buy if you intended on living in an area for any reasonable amount of time.

deleted 1y ago
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pmg101 1y ago

Let's simplify by assuming you can choose between two scenarios: 1. The bank lends you £1m to buy a house, you pay them 5% interest for this service = £50,000 pa. 2. You rent a £1m house from a landlord and pay £50,000 pa for this service. Financially these are identical. And in either case if you stop paying you will lose your home - because it's not really yours, it belongs to the bank/landlord. However surely 1. is always preferable? * You can make any change you like to your living environment up to and including moving walls around * Assuming you do continue to pay you have the absolute right to live there and will not be forced to leave * Rents can rise out of your control, even to the point you can no longer afford it. Mortgage rates can change over time too but you get to choose your level of risk appetite explicitly by fixing for the period you prefer.

hintklb 1y ago
except that those are not the numbers we have today (in the US, I don't know in the UK). Rather, for a $1M house: 1. The bank lends me $800k to buy a house with a 6.5% interest. you need to put 200k$ as a downpayment. 2. The rent equivalent is 28000$ a year. The math is way more complex than this, but what really matter at this point is the gap between renting and buying a place.
sladoledar 1y ago
These are not financially identical at all, at least where I live. If heating breaks down, it is landlord's financial burden. Sooner or later you'll have to replace the roof. You don't have this type of financial burdens if you rent.
- pmg101 1y ago
  Yes it'd be interesting to see all those kinds of decadal costs factored in. My head is still very much turned however by the fact that rents rise with or above inflation every year, meanwhile I'm still paying off my mortgage in 2012 pounds. But I'm quite willing to believe I'm behaving irrationally.
- buttercraft 1y ago
  Those costs are factored into the rent.

alexey-salmin 1y ago

I find this logic shortsighted and I don't think the right chapter of math is being applied. You need the probability theory not calculus. Yes, renting is often better than owning on average. However, as any good poker player knows, having a positive strategy on average is nothing unless you control the standard deviation. You need to have reserves deep enough and to be able to play long enough for your average to consistently manifest itself. In lifetime investment choices the human lifespan is the major limitation. You won't be able to live long enough to absorb multiple economical collapses and surges — which indeed had always been profitable in the end, just not necessarily for you. You draw your card and you play your hand. In such circumstances a strategy with less gains but also less variability is usually preferable. A good analogy is insurance: having insurance is always worse on average than not having one, otherwise insurance companies won't exist. Buying insurance for something small, some loss you can absorb yourself, like your phone or bicycle, is in most cases a bad idea. However, buying insurance for your house or your health is usually a good deal. You pay money to tap into reserves that are bigger than yours, you get slightly negative mean expectation with near-zero variance. Even the insurance companies themselves do it when they judge their reserves are not deep enough for a given contract — and resell parts of it to other companies to spread the load.

hintklb 1y ago
I understand probability theories but I don't see how this applies here. I don't see either how the insurance concept applies for housing? There is a healthy rental market that will always exist, Are you arguing that you might get priced out and therefore you should buy (even if overpriced) to avoid that potential issue? Both housing and stocks will go down during an economical collapse. They are both correlated. You can actually make a point that housing being a highly leveraged asset is way worse during a downturn than being long on stocks.
- alexey-salmin 1y ago
  Stocks, deposits and currencies can all crash to zero while your primary residence never goes below the value of housing your spouse and kids (which is pretty damn high as far as I'm concerned). Some rental market will exist almost always but that's not necessarily true for your job and your savings. My parents lived through times like this and so will my descendants eventually. The probability of this happening to my generation is low but non-negligeable so I find it necessary to hedge against.

solatic 1y ago

By and large, I agree with you. Especially if you are single, owning real estate represents a massive commitment, both financial and to the local place, that nobody forced you to take. People need to remember that the default for real estate is to fall into disrepair and turn back into the dust of the earth; as someone who owns real estate, you are responsible for fighting that entropy, as is everyone else in your neighborhood, as living in the only well-maintained house on a block full of abandoned blight isn't going to rescue your property value. With that said, sometimes you want to make that commitment, because it's a socially good choice, rather than a financially good choice. Children need stability. Moving houses, neighborhoods, schools is not good for them. Good parents make sacrifices for their children, including staying in jobs where they might make a little less compared to Yet Another Move. For most families who want to provide stability for their children, the choice is between purchasing a house, or a long-term rental of an apartment owned by a public housing authority that is bound by law or regulation to keep rent increases down and renters in-place, so long as they continue to pay their rent. In the US, most people do not have access to the latter, or the latter are only found in bad neighborhoods where the public housing authority was underfunded and mismanaged. That leaves purchasing real estate as the only option.

lelanthran 1y ago
> People need to remember that the default for real estate is to fall into disrepair and turn back into the dust of the earth; as someone who owns real estate, you are responsible for fighting that entropy, And that costs money. However, it still costs money as a renter, because whatever the house costs to keep, the landlord is going to pass that cost on to the renter. There is no landlord renting at a loss.
- hintklb 1y ago
  You need to review your assumptions. > There is no landlord renting at a loss. there absolutely is. Again, most people don't do the math. It's no different for their rental property. They think it is "worth it". > the landlord is going to pass that cost on to the renter. Nope, there are a lot of studies on this. Rental prices are defined by offer and demand, not by costs for the landlord.

lelanthran 1y ago

> This calculator get most things right. It's paywalled. I also doubt it gets most things right. I've been pointed to so many and I have not yet found that that takes into account all the variables (and there's so few, so if they're leaving it out I'm suspicious!) > A lot of research shows that once people buy they lose flexibility, They lose that once their kids are in school. > feel more stuck, They're stuck anyway, once the kids are in school. > cannot access higher paying job in a different places etc. They cannot do that anyway, once the kids are in school. All of those disadvantages you list are not even noticed by people with kids in school, hence they don't count as disadvantages. The only advantage you realistically realise from renting vs owning is the ability to move within a month's notice. If you have kids in school or a spouse who is working in-person, not remote, you won't be moving on a month's notice anyway. IOW, why optimise for the use-case "Hey, we can move on a months notice!" when that use-case won't come up anyway? It's like a vegetarian optimising their life around access to meat-only burger joints. Or someone living 2000km from the nearest sea optimising their life for surfing. No one optimises their life for use-cases that won't come up.

hintklb 1y ago
I have kids in school and none of your example holds.
- lelanthran 1y ago
  > I have kids in school and none of your example holds. Okay. Different question then, how many times have you yanked all your kids out of their peer groups, permanently?
- alirezaxdehghan 1y ago
  So you're implying that you can move to another city in a month? How's that possible? I need at least a 6 months window to move!

specialist 1y ago

Yes and: Remodeling. So many regrets.