5 ms·

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

by nkozyra 11y ago

jessriedel 11y ago
The idea is that you are contractually constrained to invest into a long-term asset (the house) on a monthly basis. In principle people who rent are paying less each month and should on average do just as well if they invest that money elsewhere, but in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.
- nkozyra 11y ago
  That's probably true for most periods in history, but we're still within a much-receded housing economy. When I bought my house, my rent was a couple hundred bucks more and with insurance + taxes I ended up paying ~ $30 more a month for more than double the space and, of course, actual assets. There are places where this doesn't make sense, and there are times where it absolutely doesn't make sense, but present day is a lot different. My anecdote of paying less (or slightly more) in mortgage + associated versus rent is not all that uncommon these days. The real hidden cost, if you ask me, is the way it changes your sense of mobility.
  - Happydayz 11y ago
    Yes, but there is also the opportunity cost of your downpayment, the transaction costs of getting into and out of a house, and maintenance. Oh man, maintenance. Ref - transaction costs. You have to figure it will cost you around ~8% of the value of a property to both get into and out of it. This does not include the cost of movers. With a rental your transaction costs might be $50 for the apartment application fee.
    - gambiting 11y ago
      I wish - I'm currently renting a house for 1200 pounds/month(so...1900 USD per month) and the agency took $1000 just to take the property off the market("admin fee" - non-returnable, doesn't go towards the deposit, it's just money down the drain really), then 1 month rent as deposit, and 1 month rent in advance. So really, I spent nearly $6k just to start renting a place. I'm really considering a mortgage, but don't have money for the downpayment. Our mortgage payments would be actually less than what we pay for rent now.
    - fluidcruft 11y ago
      Rent pays maintenance costs, too it's just forcibly amortized and externalized. Higher-density housing like apartments and condos do have scale efficiencies reduce per-unit/occupant maintenance costs. But the difference between renting and buying is somewhat apples to oranges if you're comparing renting an apartment to buying a house.
- pkolaczk 11y ago
  Maybe in US it is cheap to rent, but at least in Poland, if you can get a mortgage, your mortgage monthly payment is often much lower than the rent payment for the same property. Renting here is only good if you don't plan to stay for long or if you actually can't get a good mortgage, because your income is low. The more you earn, typically the better interest rate you can get with mortgage (mine is currently 1.8% total), and with decreasing rate you're paying less and less with every year, contrary to more and more when renting.
  - toxican 11y ago
    It depends a lot on where you live in the US. In big cities, I'm sure it's definitely cheaper to rent. In more rural areas it's often less obvious which is the cheaper option and it really comes down to preference. And sometimes in rural areas it's cheaper to just own, depending on the cost of the houe.
  - ido 11y ago
    In Berlin, Germany it's (at least at first) a lot cheaper to rent. The place we're renting for 500 euro/m would be about 200k euro if we wanted to buy it, which would mean something like 600-650 euro/m for 30 years (with maybe 40-50k euro down-payment).
    - pkolaczk 11y ago
      Well, but after 30 years, when you retire the place is yours own and your monthly payment goes down. Even if you saved that 100-150 euro every month, you'd not afford buying it after 30 years, assuming it stayed at the same price-point. On the other hand, it is hard to believe you can rent a 200k€ place for 500€/m. In Warsaw, a 2-room 40-50 m² apartment in the city center costs about 400-500€/m to rent, but if you wanted to buy it, offer prices start below 100k€.
      - xyzzyz 11y ago
        While Berlin is a bit special case with its housing supply, renting is actually crazy expensive in Poland. You should compare the prices to e.g. Lithuania or Estonia, the difference in affordability is mindblowing.
- bradleyjg 11y ago
  >> in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets. They presumably spend the money on things they want. Forced savings means forced forgone consumption. Every marginal dollar into savings isn't always a net positive. It depends on a lot of different factors including: life expectancy, whether or not you have dependents, how much you already have saved, your income, your alternatives, and not least of all your intertemporal discount rate. There seems to be some sort of savings fundamentalism backlash against a culturally low savings rate. In a sound bite situation there may be no choice but to pick a simple message and go with it, but in a longer form discussion there's room for more nuance.
refurb 11y ago
Here is my take.... 1. People think they can afford to buy a place at $X 2. People find a place at $X+Y and say "it'll be tough, but I love this place" 3. People find out actually owning a house costs $X+$Y+$Z and they can barely make their house payments and supporting costs 4. Eventually (after enough mortgage payments) your principal payments become large enough to take on the form of "forced savings" I think this might work for some, but there are plenty of examples where people lose their homes because they underestimated the costs. Someone get sicks and goes on LT disability at 60% of their salary and end up missing mortgage payments.
- branchless 11y ago
  This is just nuts.
  - ha470 11y ago
    Agreed, this is an insane (and insanely stressful) way of saving.
- Cherian 11y ago
  Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years. Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price. [1] I hope we don’t cite recession here.
  - refurb 11y ago
    In the bay area over the last 5 years? Sure. Across much of the US? Probably not. Don't forget the average cost of selling a house is 6%. Buy a place for $500K and if the value of the house doesn't go up by at least 6% you've lost money. That doesn't include all the other costs associated with buying a new house (moving costs, etc).
    - 11y ago

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

by nkozyra 11y ago

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

jessriedel 11y ago

The idea is that you are contractually constrained to invest into a long-term asset (the house) on a monthly basis. In principle people who rent are paying less each month and should on average do just as well if they invest that money elsewhere, but in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.

nkozyra 11y ago
That's probably true for most periods in history, but we're still within a much-receded housing economy. When I bought my house, my rent was a couple hundred bucks more and with insurance + taxes I ended up paying ~ $30 more a month for more than double the space and, of course, actual assets. There are places where this doesn't make sense, and there are times where it absolutely doesn't make sense, but present day is a lot different. My anecdote of paying less (or slightly more) in mortgage + associated versus rent is not all that uncommon these days. The real hidden cost, if you ask me, is the way it changes your sense of mobility.
- Happydayz 11y ago
  Yes, but there is also the opportunity cost of your downpayment, the transaction costs of getting into and out of a house, and maintenance. Oh man, maintenance. Ref - transaction costs. You have to figure it will cost you around ~8% of the value of a property to both get into and out of it. This does not include the cost of movers. With a rental your transaction costs might be $50 for the apartment application fee.
  - gambiting 11y ago
    I wish - I'm currently renting a house for 1200 pounds/month(so...1900 USD per month) and the agency took $1000 just to take the property off the market("admin fee" - non-returnable, doesn't go towards the deposit, it's just money down the drain really), then 1 month rent as deposit, and 1 month rent in advance. So really, I spent nearly $6k just to start renting a place. I'm really considering a mortgage, but don't have money for the downpayment. Our mortgage payments would be actually less than what we pay for rent now.
  - fluidcruft 11y ago
    Rent pays maintenance costs, too it's just forcibly amortized and externalized. Higher-density housing like apartments and condos do have scale efficiencies reduce per-unit/occupant maintenance costs. But the difference between renting and buying is somewhat apples to oranges if you're comparing renting an apartment to buying a house.
pkolaczk 11y ago
Maybe in US it is cheap to rent, but at least in Poland, if you can get a mortgage, your mortgage monthly payment is often much lower than the rent payment for the same property. Renting here is only good if you don't plan to stay for long or if you actually can't get a good mortgage, because your income is low. The more you earn, typically the better interest rate you can get with mortgage (mine is currently 1.8% total), and with decreasing rate you're paying less and less with every year, contrary to more and more when renting.
- toxican 11y ago
  It depends a lot on where you live in the US. In big cities, I'm sure it's definitely cheaper to rent. In more rural areas it's often less obvious which is the cheaper option and it really comes down to preference. And sometimes in rural areas it's cheaper to just own, depending on the cost of the houe.
- ido 11y ago
  In Berlin, Germany it's (at least at first) a lot cheaper to rent. The place we're renting for 500 euro/m would be about 200k euro if we wanted to buy it, which would mean something like 600-650 euro/m for 30 years (with maybe 40-50k euro down-payment).
  - pkolaczk 11y ago
    Well, but after 30 years, when you retire the place is yours own and your monthly payment goes down. Even if you saved that 100-150 euro every month, you'd not afford buying it after 30 years, assuming it stayed at the same price-point. On the other hand, it is hard to believe you can rent a 200k€ place for 500€/m. In Warsaw, a 2-room 40-50 m² apartment in the city center costs about 400-500€/m to rent, but if you wanted to buy it, offer prices start below 100k€.
    - xyzzyz 11y ago
      While Berlin is a bit special case with its housing supply, renting is actually crazy expensive in Poland. You should compare the prices to e.g. Lithuania or Estonia, the difference in affordability is mindblowing.
bradleyjg 11y ago
>> in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets. They presumably spend the money on things they want. Forced savings means forced forgone consumption. Every marginal dollar into savings isn't always a net positive. It depends on a lot of different factors including: life expectancy, whether or not you have dependents, how much you already have saved, your income, your alternatives, and not least of all your intertemporal discount rate. There seems to be some sort of savings fundamentalism backlash against a culturally low savings rate. In a sound bite situation there may be no choice but to pick a simple message and go with it, but in a longer form discussion there's room for more nuance.

refurb 11y ago

Here is my take.... 1. People think they can afford to buy a place at $X 2. People find a place at $X+Y and say "it'll be tough, but I love this place" 3. People find out actually owning a house costs $X+$Y+$Z and they can barely make their house payments and supporting costs 4. Eventually (after enough mortgage payments) your principal payments become large enough to take on the form of "forced savings" I think this might work for some, but there are plenty of examples where people lose their homes because they underestimated the costs. Someone get sicks and goes on LT disability at 60% of their salary and end up missing mortgage payments.

branchless 11y ago
This is just nuts.
- ha470 11y ago
  Agreed, this is an insane (and insanely stressful) way of saving.
Cherian 11y ago
Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years. Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price. [1] I hope we don’t cite recession here.
- refurb 11y ago
  In the bay area over the last 5 years? Sure. Across much of the US? Probably not. Don't forget the average cost of selling a house is 6%. Buy a place for $500K and if the value of the house doesn't go up by at least 6% you've lost money. That doesn't include all the other costs associated with buying a new house (moving costs, etc).
  - 11y ago