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If the homeowner gains $10 (or whatever) in equity over a certain period, that means he can break even renting the property he owns for $10 less than if he didn
by glenra 13y ago
If the homeowner gains $10 (or whatever) in equity over a certain period, that means he can break even renting the property he owns for $10 less than if he didn't have that gain. So competitive rental rates will tend to be somewhat cheaper than the cost of ownership. If it's cheaper by $10, renting and owning cost the same.
Your math example is silly on two counts. (1) you simply assume the rent and mortgage cost exactly the same, when they generally don't. (2) you ignore the downpayment. A renter doesn't have to make a huge downpayment, so if s/he has the money to make one, that is valuable flexibility - one can easily use that money in an emergency and can profit by investing that money in the meantime.
- clavalle 13y agoYou are correct. There are a lot of factors that can change the calculus. Buying is not always for everyone. People who move a lot where fees can eat up any benefits. Or people who do not have down payments or other cash flow problems (which can be a pretty effective market moat). Rent, though, is often pretty comparable to a mortgage + taxes. In my area rent is substantially more for the same house. So, liquidity is an important factor, no doubt about it. But I think one would be hard pressed to make a consistent investment profit that would make up for your 100% loss in rent compared to purchasing all other things being equal.