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Throwing Money Away (Buying vs Renting)
- semiquaver 17y agoAt least no renter is upside down on their mortgage right now.
- ars 17y agoRenters didn't loose money on the down true, but they also didn't gain any on the up (and they may have paid more rent). For a single person it could be a big difference (some are up, some are down). But over the whole US it's a wash - the number of people who are upside down is exactly balanced by the number of people who made a lot by selling.
- biohacker42 17y agoBut over the whole US it's a wash - the number of people who are upside down is exactly balanced by the number of people who made a lot by selling. There's no such implied symmetry in markets. Trading is often very asymmetrical.
- ars 17y ago> Trading is often very asymmetrical. Explain please. Because if you paid too much on your house, and are now upside down, the person you bought it from has more money than before. It seems symmetrical to me.
- biohacker42 17y agoPerson A: Invest 10 borrow 90, sell for 120, profit 10. Person B: Invest 10, borrow 90, sell...oops market has turned, default on borrowed money. Bank folds, CDOs lose their AAA credit rating, investors lose their saving investing in CDOs. Total profit 10, total loses due to leverage: far far greater then 10.
- ars 17y agoAnd the person that you bought it from in step B made money, and you lost money. I still see a perfect symmetry.
- jbarciauskas 17y agoYes but many many landlords are, which cause some very sad stories of people being kicked out of their house or apartment because the bank foreclosed on the landlord. Renters have almost no rights in that situation.
- jraines 17y agoYeah, and sometimes the renters first notice is the deputy showing up telling them they've got 2 hours to get out before the locks are changed. Apparently there are cops in Vegas working 12 hour days just doing evictions.
- asciilifeform 17y ago> there are cops in Vegas working 12 hour days just doing evictions They had better hope that there will never be a revolution which results in class-traitors being correctly dealt with.
- nradov 17y agoThat is no longer correct. http://www.msnbc.msn.com/id/30891380/ http://www.msnbc.msn.com/id/30891380/
- vaksel 17y agoOne huge plus of buying vs renting, is that when you buy you can get a home equity line for emergencies. A huge line of credit at very low interest rate, that doesn't expire, or change due to future events.
- ars 17y agoIf you were renting you would have that money (that equity) in your pocket, and wouldn't need to borrow against your house to have access to it.
- anigbrowl 17y agoVaksel is wrong, but so are you. If you were renting you wouldn't have any equity to appreciate (in the form of title to your house and the difference between what you paid for it and the current market value) so it would never be in your pocket to begin with.
- ars 17y agoYou missed the point. If you were renting you would not have paid the money that otherwise went to principal - that money would still be in your pocket.
- anigbrowl 17y agoBut nor would you get any benefit if the value of the property you were renting had appreciated, though obviously this is balanced out by not having a millstone around your neck when property values crash during a recession. Having both bought and rented, I don't think there is an unambiguous financial benefit either way. Renting gives you more temporal freedom (as in being able to just walk away and move to a better place or another country), a sensible buy can give you more financial freedom (as in a large chunk of collateral).
- ars 17y ago> But nor would you get any benefit if the value of the property you were renting had appreciated If you want to invest in real estate you can. You don't have to live there.
- euroclydon 17y agoEncouraging buying instead of lending discourages a flexible labor market. Basically the government, with the mortgage tax break, is lining the pockets of developers and home builders, and making it difficult or expensive for families to move where there is a higher paying job or even better school district.
- axod 17y agoI think home ownership is a good aspiration to have. Just like 'working for yourself' is something a lot of people would like to achieve, 'owning your own home' features on the list. It's also good for society, giving people more of an incentive to look after their home, their surroundings and to take an active part in society. As well as removing some of the separation of society - land owners, and renters. Being less likely to move around has its good points as well as bad.
- yummyfajitas 17y agoIt also encourages boring lives. I recently had occasion to talk with several homeowners. My plans over the next year? Move to Kerala, learn Kalaripayattu and work on my startup. Several renters had similarly interesting plans. Every single homeowner (or homeborrower) had plans to remodel some room of their house. I'm firmly convinced that a home is nothing more than a ball and chain. [edit: changed 'similar plans' to 'similarly interesting plans'. A reply to this post made me realize it was unclear.]
- tptacek 17y agoThat's nice, because I'm sure if you talk to 100 renters, most of them also want to move to Asia and start companies. Sheesh.
- maukdaddy 17y agoI'm a renter and I hit at least one of those points ;) Moving to Asia - not so much!
- yummyfajitas 17y ago
- ars 17y agoIt's really not that complicated, maybe if I write it in code people will understand: if( {current value of house}*{interest rate} + {taxes} + {insurance} + {maintenance} < {rent} ) return 'buy'; else return 'rent'; _Ignore_ any change in the prices of houses! It has no bearing on the decision.
- ssharp 17y agoYou don't take into consideration the utility value of a house vs. a rental. Houses are generally nicer, offer more privacy, yard, etc.
- tallanvor 17y agoYes, but you can rent houses, and you can also buy apartments... And in many large cities, you probably won't be buying a house.
- igrekel 17y agoYou forget costs for insurance and maintenance of the house. Plus the costs of having your money tied up in a illiquid asset. And lets not forget that a house takes time and is something on your mind. Time is probably the asset I personnaly value the most. I purchased a house a few years ago (after many many years of renting by choice) and the cost in time is VERY annoying for me.
- ars 17y ago> You forget costs for insurance and maintenance of the house. I did. I just put them in.
- sokoloff 17y ago_Ignore_ any change in the prices of houses! It has no bearing on the decision. It most certainly does. Suppose you bought a 500K house now that you could rent for $3K per month. Paying $5000 in taxes (about what you'd pay in MA) means you should buy. A year from now, don't you think whether that house is worth $600K or $400K has a big driving factor on whether you should have bought or rented?
- param 17y agoI don't think the situation is so black and white. I have always preferred this approach above everything else: http://www.thesimpledollar.com/2007/02/27/renting-versus-buying-are-there-situations-where-renting-clearly-wins/ http://www.thesimpledollar.com/2007/02/27/renting-versus-buy...
- ssharp 17y agoI've always been an opponent of the "throwing money away" argument. In fact, the argument played right into the housing bubble. There was a sense of urgency that you HAD to buy a house now or else. Renting provides you near elasticity in where you want to live. Besides your lease (which could be month-to-month) you have nothing binding you to an area. You also don't face the risk of a declining asset. While housing typically increases in value, we've certainly seen the opposite happening a lot lately. When you're young, you probably don't want to be tied down to an area. Things change quickly at this stage in your life. Ironically, a lot of these people who were afraid they were "throwing money away" while renting got into situations where they literally were throwing money away to PMI and too large of interest rates. If renting was such a god-awful idea, it wouldn't exist. There are tons of reasons to rent instead of buy and anyone who insists that home ownership is the only way is foolish.
- ahoyhere 17y agoRenting in the US also means you are not responsible for: * leaky roofs * broken appliances: clotheswashers, water heaters, etc * maintenance of a/c, heat, etc. * maintenance of water pipes, electricity, etc., etc. * upkeep of lawn, sidewalks, driveways (except in rare cases) * building safety compliance * fixing damage from floods, storms, earthquakes, etc. * worry about termites, the foundation, the well, property line disputes from faulty surveys (the latter occur ALL THE TIME in the US) * building insurance (renter's insurance always a good idea tho) * personal liability for visitors hurting themselves on the lawn, sidewalks, driveway, inside stairs (anywhere outside your actual unit) I could go on and on... if you own a condo, you are subject to surprise "assessments" to care for the building/property amenities, but there's insurance for it. If you own a house, it comes out of your pocket. And if you make claims against accidents (tree falling, storm ripping off siding, etc.) on your homeowners insurance policy for damages, their habit of late is that they will drop you. (Lots of scandals about this.) Renting means very little exposure to this kind of risk, or surprise housing costs, in addition to flexibility to leave. Homeownership pr0n is really out of control.
- msluyter 17y agoI think his arguments are quite reasonable, but his example is a poor one. A Manhattan apartment is a fairly atypical sort of real estate investment, imho. I live in Austin TX, where real estate has managed to weather the storm much better than average over the last couple of years, and I'm much better off having bought than rented, even though I bought my condo in 06, at the height of the housing bubble. That's also an atypical example, I know, and so I wouldn't want to generalize from my case alone.
- wysiwtf 17y agoThe NYT has a good rent vs. buy calculator: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...
- nradov 17y agoFor the mathematically inclined here is another one that accounts for more factors. http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req.html http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req...
- deleted 17y ago[deleted]
- cturner 17y ago3. Leverage. Buying a house is the only way normal people can invest a huge amount of money on margin. That's a reason against it, not in favour. Would you borrow 300k so as to invest in a fixed term bond on residential real estate with hefty exit penalties? The cult of home ownership puts a respectable shine on brazen gambling practices. :)