4 ms·

Taking the mortgage was the thing that leveraged you to begin with. Investing in the market rather than paying it off at an advanced rate merely serves to not f

Taking the mortgage was the thing that leveraged you to begin with. Investing in the market rather than paying it off at an advanced rate merely serves to not further reduce your leverage.

jacquesm 12y ago
You have to consider the rent-vs-buy situation of that particular market in order to really evaluate the decision of whether or not taking a mortgage is the right thing to do.
- markc 12y ago
  Bingo. For my recent move I made a spreadsheet to calculate the financial impact of rent vs. buy. I had to guess at a lot of factors, but in the end it was a no brainer. Do the calculation! Cost to Buy: estimated lost investment returns on down payment (after taxes), estimated lost returns on monthly payment (cumulative), financing costs after tax deduction, real-estate taxes after deduction, insurance, HOA fees, utilities, maintenance, estimated increase in value, cost to sell. Compare this against rent and utilities over the same time span, factoring in likely increases in both rent and utilities.
  - jacquesm 12y ago
    The utilities will be on both sides of that example so you don't need to factor them in until you start improving a property that you've bought with insulation and such.
    - xrange 12y ago
      >The utilities will be on both sides of that example In a "perfectly efficient" economic world it would seem almost all of those categories like taxes, insurance, mortgage interest, and maintenance are really on both side of the equation. The landlord will still have to pay taxes, etc., and pass them along to his renters. In essence, buying a house seems like it would be a getting rid of the middle man situation in the cases where you don't need the special advantages of short term usage that renting presents. Buying a house would just be a special situation of becoming a landlord and renting to yourself. So I'm wondering what specific instances there are where renting makes more long term sense than buying. I can think of a couple: - The unsophisticated landlord. A little old widow or someone who has inherited a rental property, and isn't charging the market rate. Is there a good way to identify these people, and get a cut of the increase in rent that they could be getting? Maybe they don't know how to advertise or evaluate market comparables? Or is there a way to identify them and get a commission for sending savy renters their way (saving the renters money)? - Rent Control. I'm not sure how this works in practice (or in theory for that matter). I'd think that this would reduce the availability of rental units, driving up the cost eventually. If you were renting at the onset of rent control, you got lucky, but for someone newly looking for a place, you maybe don't get the benefit? - Property tax ploys. In some jurisdictions, I'm under the impression that property taxes aren't adjusted to the current market prices (or there is a large time lag). Therefore those property owners have a tax advantage not available to new entrants to the market, so they can afford to compete on rents. The business opportunity here would seem to be identifying people in this situation, and convincing them to move to lower cost location and renting out their current homes. What other market inefficiencies are there which would tip the scales toward renting? Is there a business opportunity in allowing people to rent houses that private parties want to sell? What I mean is a service, where a renter goes out and finds any house for sale on the market they'd like to rent, then I'd step in and arrange the financing, the property management, etc.. They'd pay monthly rent and wouldn't have the burden of home ownership, but they would have housing options that wouldn't normally be available. Are there already companies that do this?

Taking the mortgage was the thing that leveraged you to begin with. Investing in the market rather than paying it off at an advanced rate merely serves to not further reduce your leverage.

jacquesm 12y ago

You have to consider the rent-vs-buy situation of that particular market in order to really evaluate the decision of whether or not taking a mortgage is the right thing to do.

markc 12y ago
Bingo. For my recent move I made a spreadsheet to calculate the financial impact of rent vs. buy. I had to guess at a lot of factors, but in the end it was a no brainer. Do the calculation! Cost to Buy: estimated lost investment returns on down payment (after taxes), estimated lost returns on monthly payment (cumulative), financing costs after tax deduction, real-estate taxes after deduction, insurance, HOA fees, utilities, maintenance, estimated increase in value, cost to sell. Compare this against rent and utilities over the same time span, factoring in likely increases in both rent and utilities.
- jacquesm 12y ago
  The utilities will be on both sides of that example so you don't need to factor them in until you start improving a property that you've bought with insulation and such.
  - xrange 12y ago
    >The utilities will be on both sides of that example In a "perfectly efficient" economic world it would seem almost all of those categories like taxes, insurance, mortgage interest, and maintenance are really on both side of the equation. The landlord will still have to pay taxes, etc., and pass them along to his renters. In essence, buying a house seems like it would be a getting rid of the middle man situation in the cases where you don't need the special advantages of short term usage that renting presents. Buying a house would just be a special situation of becoming a landlord and renting to yourself. So I'm wondering what specific instances there are where renting makes more long term sense than buying. I can think of a couple: - The unsophisticated landlord. A little old widow or someone who has inherited a rental property, and isn't charging the market rate. Is there a good way to identify these people, and get a cut of the increase in rent that they could be getting? Maybe they don't know how to advertise or evaluate market comparables? Or is there a way to identify them and get a commission for sending savy renters their way (saving the renters money)? - Rent Control. I'm not sure how this works in practice (or in theory for that matter). I'd think that this would reduce the availability of rental units, driving up the cost eventually. If you were renting at the onset of rent control, you got lucky, but for someone newly looking for a place, you maybe don't get the benefit? - Property tax ploys. In some jurisdictions, I'm under the impression that property taxes aren't adjusted to the current market prices (or there is a large time lag). Therefore those property owners have a tax advantage not available to new entrants to the market, so they can afford to compete on rents. The business opportunity here would seem to be identifying people in this situation, and convincing them to move to lower cost location and renting out their current homes. What other market inefficiencies are there which would tip the scales toward renting? Is there a business opportunity in allowing people to rent houses that private parties want to sell? What I mean is a service, where a renter goes out and finds any house for sale on the market they'd like to rent, then I'd step in and arrange the financing, the property management, etc.. They'd pay monthly rent and wouldn't have the burden of home ownership, but they would have housing options that wouldn't normally be available. Are there already companies that do this?