56 ms·

Is a 0% return better than a -100% return for the equivalent rent?

fossuser 13y ago
I would suspect the general counter would be that the capital required for home ownership is substantially higher than that for rent. If you're going to have this money there are many better ways you could invest it than taking a 0% return from buying a home (and hopefully also overtake the cost of rent).
- chad_oliver 13y ago
  In my city (Christchurch, New Zealand), renting is more expensive than mortgage repayments for an equivalent house. I don't see how renting could be a good idea in this case. That said, I recognize that different cities have different conditions, and what makes sense in one city might not make sense in another.
  - Game_Ender 13y ago
    Rent is an all-inclusive expense usually, while a mortgage is not. Rent covers maintenance, taxes, cost of future renovations, and you usually don't have high transactions in getting or leaving an apartment. So you can't directly compare mortgages and rent amounts.
    - chad_oliver 13y ago
      Fair enough; that's a good point.
    - pmorici 13y ago
      A good rent vs. own comparison like the one on the NYT website will take expected maintenance costs into account http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...
  - datasage 13y ago
    Its very important to take the total cost of ownership into account and not just the cost of a mortgage. While you can theoretically sell your house later. Money put in into maintenance, taxes, association fees, may not ever pay off.
  - patrickdavey 13y ago
    Hah! I live in Christchurch too, and yes, rents have gone up, and yes, like everyone I've been thinking about buying. However! I'm also from Ireland where a _lot_ of my friends bought houses in the celtic tiger era and are now, on average, about 100K euro down on their "investments" My gut feeling is that Christchurch too is a bubble. Sure it's a bubble fuelled by a nasty earthquake reducing the supply... BUT supply will come back up again (and it'll be new housing with things like insulation!) Tricky things really. Currently my rent is cheaper than a mortgage for an equivalent - but only just. That said, I don' t have to pay rates, fees, hiked insurance etc. The other option of course is to leave for a while - easy enough to do as a decent developer.
  - toomuchtodo 13y ago
    What's the difficulty level of getting a mortgage in NZ?
    - chad_oliver 13y ago
      I've actually never got one myself, because I'm still at university. However, banks seem to be willing to lend up to 80% of the value of a house, for someone with an average income. I suspect the biggest problem is simply that houses are very expensive compared to most of the USA. I'm flatting in a really crummy house (as in, cracks in the wall) on a quarter-acre section, yet the property is valued at $500,000.
- walshemj 13y ago
  Not with the current interest rates renting is not cheaper than mortgage. Hi thesis also probably ignores the the fact that a mortgage is one of the few ways a normal person can use leverage and I most countrys property is a tax efficient way of handing capital to your descendants.
  - techsupporter 13y ago
    Where I live, there are lots of multi-family buildings, either "traditional" apartment complexes, urban apartment buildings, and a plethora of 2- and 4-unit buildings built on previously single-family residential lots. Almost all of these are solely for rent, not to purchase. That has kept rents somewhat stable but the price of buying actual land (that is, a single-family home or even a townhouse where the purchaser owns the dirt underneath the structure) has skyrocketed as people move in. Therefore, renting is cheaper than a mortgage for most properties in my area.
    - walshemj 13y ago
      where is this sounds like the landlord class has manged to corner the market. Certainly in the UK a mortgage is way cheaper than the equivalent rent when I looked at it recently.
- zokier 13y ago
  > If you're going to have this money there are many better ways you could invest it than taking a 0% return from buying a home (and hopefully also overtake the cost of rent). I'd love to see some numbers on this.
princess3000 13y ago
You know, when you pay rent you generally receive a place to sleep and keep your things. Just because you aren't making money on it as investment doesn't mean it's a loss.
- chad_oliver 13y ago
  Yes, but that's also true of purchasing a house. Just because the price might not appreciate over the long term doesn't mean it's a loss.
  - skorgu 13y ago
    It's a loss /as an investment/ if you can't sell it for more than you bought it for (modulo inflation). You still got value in the form of shelter for your expenditure in the form of a mortgage just as you would have if you had paid rent.
hannibal5 13y ago
If you pay your home in cash that's true. But if you have to borrow money for that 0% rent, it's not that simple.
amalcon 13y ago
Exactly. The reason homeownership can be a good investment is not because it appreciates in value, it's because: 1) For a given residential property in a high-demand market, you can reliably extract annual rent equal to 4-5% of the value of the property in a high-demand market. 2) If you just live in the property, your expenditures are reduced by a slightly higher amount because you avoid the inefficiencies of the rental market. Also, income is taxed, but reduced expenditures are not. 3) Homeowner's insurance is usually a much better deal than renter's insurance. This of course varies based on where you live, but on average (in the U.S. anyway) you'll get better rates for equal coverage if you own your home. It has nothing to do with some insane notion that property values always go up.

I would suspect the general counter would be that the capital required for home ownership is substantially higher than that for rent. If you're going to have this money there are many better ways you could invest it than taking a 0% return from buying a home (and hopefully also overtake the cost of rent).

chad_oliver 13y ago
In my city (Christchurch, New Zealand), renting is more expensive than mortgage repayments for an equivalent house. I don't see how renting could be a good idea in this case. That said, I recognize that different cities have different conditions, and what makes sense in one city might not make sense in another.
- Game_Ender 13y ago
  Rent is an all-inclusive expense usually, while a mortgage is not. Rent covers maintenance, taxes, cost of future renovations, and you usually don't have high transactions in getting or leaving an apartment. So you can't directly compare mortgages and rent amounts.
  - chad_oliver 13y ago
    Fair enough; that's a good point.
  - pmorici 13y ago
    A good rent vs. own comparison like the one on the NYT website will take expected maintenance costs into account http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...
- datasage 13y ago
  Its very important to take the total cost of ownership into account and not just the cost of a mortgage. While you can theoretically sell your house later. Money put in into maintenance, taxes, association fees, may not ever pay off.
- patrickdavey 13y ago
  Hah! I live in Christchurch too, and yes, rents have gone up, and yes, like everyone I've been thinking about buying. However! I'm also from Ireland where a _lot_ of my friends bought houses in the celtic tiger era and are now, on average, about 100K euro down on their "investments" My gut feeling is that Christchurch too is a bubble. Sure it's a bubble fuelled by a nasty earthquake reducing the supply... BUT supply will come back up again (and it'll be new housing with things like insulation!) Tricky things really. Currently my rent is cheaper than a mortgage for an equivalent - but only just. That said, I don' t have to pay rates, fees, hiked insurance etc. The other option of course is to leave for a while - easy enough to do as a decent developer.
- toomuchtodo 13y ago
  What's the difficulty level of getting a mortgage in NZ?
  - chad_oliver 13y ago
    I've actually never got one myself, because I'm still at university. However, banks seem to be willing to lend up to 80% of the value of a house, for someone with an average income. I suspect the biggest problem is simply that houses are very expensive compared to most of the USA. I'm flatting in a really crummy house (as in, cracks in the wall) on a quarter-acre section, yet the property is valued at $500,000.
walshemj 13y ago
Not with the current interest rates renting is not cheaper than mortgage. Hi thesis also probably ignores the the fact that a mortgage is one of the few ways a normal person can use leverage and I most countrys property is a tax efficient way of handing capital to your descendants.
- techsupporter 13y ago
  Where I live, there are lots of multi-family buildings, either "traditional" apartment complexes, urban apartment buildings, and a plethora of 2- and 4-unit buildings built on previously single-family residential lots. Almost all of these are solely for rent, not to purchase. That has kept rents somewhat stable but the price of buying actual land (that is, a single-family home or even a townhouse where the purchaser owns the dirt underneath the structure) has skyrocketed as people move in. Therefore, renting is cheaper than a mortgage for most properties in my area.
  - walshemj 13y ago
    where is this sounds like the landlord class has manged to corner the market. Certainly in the UK a mortgage is way cheaper than the equivalent rent when I looked at it recently.
zokier 13y ago
> If you're going to have this money there are many better ways you could invest it than taking a 0% return from buying a home (and hopefully also overtake the cost of rent). I'd love to see some numbers on this.

princess3000 13y ago

You know, when you pay rent you generally receive a place to sleep and keep your things. Just because you aren't making money on it as investment doesn't mean it's a loss.

chad_oliver 13y ago
Yes, but that's also true of purchasing a house. Just because the price might not appreciate over the long term doesn't mean it's a loss.
- skorgu 13y ago
  It's a loss /as an investment/ if you can't sell it for more than you bought it for (modulo inflation). You still got value in the form of shelter for your expenditure in the form of a mortgage just as you would have if you had paid rent.

hannibal5 13y ago

If you pay your home in cash that's true. But if you have to borrow money for that 0% rent, it's not that simple.

amalcon 13y ago

Exactly. The reason homeownership can be a good investment is not because it appreciates in value, it's because: 1) For a given residential property in a high-demand market, you can reliably extract annual rent equal to 4-5% of the value of the property in a high-demand market. 2) If you just live in the property, your expenditures are reduced by a slightly higher amount because you avoid the inefficiencies of the rental market. Also, income is taxed, but reduced expenditures are not. 3) Homeowner's insurance is usually a much better deal than renter's insurance. This of course varies based on where you live, but on average (in the U.S. anyway) you'll get better rates for equal coverage if you own your home. It has nothing to do with some insane notion that property values always go up.