4 ms·

Rent vs. Buy: If You Have to Ask, You Should Probably Rent

27 points by joshrotenberg 11y ago

poulsbohemian 11y ago
This article and the "What your work truck says about you" article linked from it both miss an important point: taxes. Granted the author uses the example of Toronto, where I understand there isn't a mortgage interest tax deduction. In the United States though, that is the largest tax deduction available to John/Jane Doe and a significant incentive to buy a house in some tax brackets. With regard to the truck part - I guarantee more than one accountant has recommended their client buy a big truck as a tax offset. I appreciate the frugal advice offered in these posts, but they feel incomplete without the inclusion of tax implications into the discussion. (Disclaimer: I am not an accountant, seek professional advice.)
jordache 11y ago
myopic article.. the guy is taking a single set of specific requirements and extrapolating that to the general argument of rent vs buy...
- dsp1234 11y ago
  His conclusion is this: "The lesson? If you live in an area where houses cost more than $300,000, take a close look at the rent prices around the areas you currently drive. Budget your driving costs at at least a dollar per mile (80 cents/km in Canada to account for higher costs) because you absolutely must put a high value on your spare time to get ahead in life. Doing the math on life decisions like this was by far the biggest factor in my own early financial independence. Buying a house is a great thing to do when you’re settling down in a beautiful, affordable spot right near everything you need to do for the next ten years. And if your schedule and temperament allow some time for a good several hours a week of maintenance work. But for the rest of us, it’s worth having another look at Rent vs. Buy." Which seems to be good advice.
vskarine 11y ago
Try this experiment in SF.
rhino369 11y ago
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc... This calculator the NYT made is pretty good.
sintaxi 11y ago
I love reading MMM but how is this hacker news?
sytelus 11y ago
Article grossly overlooks an obvious advantage of buy option: Over almost any long enough duration, houses appreciate well in line with inflation over that period, where "long enough" is usually defined as 18+ years[1]. So you can effectively live in 2500 sq foot house absolutely free as long as the duration is long. It doesn't matter if you bought at the peak and sold at bottom as long as duration is long. There are sure some edge cases like Detroit or natural disasters like Katrina but overall this rule applies pretty well statistically[2]. If you were lucky enough to buy at bottom and sell at peak after 18+ years you can break a bank. But even without much luck, you will mostly break even, i.e., ~zero cost towards housing as opposed to 100s of thousands of dollars in rent checks during the same period. Another strong point for "buy": If your horizon is indeed 30 years then house is truely yours at the end of the loan. Most people would be planning to retire after 30 years and not having to have rent expense during this period is a huge deal. You can even move out to much less expensive area and use the difference to maintain your life style. Also note that rents almost always go up over long duration. If inflation happened to kick in high gear when you retire, you will be toast because your rent would skyrocket while you are living on a fixed income. The decision for rent vs buy is therefore very simple: If you think you are going to be living in given area for 18-30 years of time range, buy is no brainer provided that (1) your retirement savings remains same (2) you still have "rainy day" funds (3) there is reasonable income security and (4) you have recovery plan if natural disaster stricks. So those people doing long commute are not all fools and "drive until you can buy" is in fact the best strategy for them. There are some people arguing that you should buy even if you had time range as short as 5 years but then you will need to time the market and that's where most failures occur causing people to lose their life savings. Unfortunately lots of people are in this state and frankly it sucks to be in that state. You pay huge premium to be mobile and you don't know if you will ever use that mobility. [1] http://www.dce.harvard.edu/professional/blog/how-use-real-estate-trends-predict-next-housing-bubble http://www.dce.harvard.edu/professional/blog/how-use-real-es... [2] http://www.estateofmindsites.com/subscriber_new/map.php?user_id=1&share=y http://www.estateofmindsites.com/subscriber_new/map.php?user...
- itsybitsycoder 11y ago
  (1) is not a given, though. If buying has a higher monthly cost than renting, that money comes from somewhere in your budget. If you are viewing your home as a retirement investment (will pay off in 20 years, when you don't have to pay rent), that's most likely where it comes out of. In that case, when you take into account the appreciation on the house, you have to also consider the opportunity cost of not investing the extra money in an alternative investment.

27 points by joshrotenberg 11y ago

This article and the "What your work truck says about you" article linked from it both miss an important point: taxes. Granted the author uses the example of Toronto, where I understand there isn't a mortgage interest tax deduction. In the United States though, that is the largest tax deduction available to John/Jane Doe and a significant incentive to buy a house in some tax brackets. With regard to the truck part - I guarantee more than one accountant has recommended their client buy a big truck as a tax offset. I appreciate the frugal advice offered in these posts, but they feel incomplete without the inclusion of tax implications into the discussion. (Disclaimer: I am not an accountant, seek professional advice.)

jordache 11y ago

myopic article.. the guy is taking a single set of specific requirements and extrapolating that to the general argument of rent vs buy...

dsp1234 11y ago
His conclusion is this: "The lesson? If you live in an area where houses cost more than $300,000, take a close look at the rent prices around the areas you currently drive. Budget your driving costs at at least a dollar per mile (80 cents/km in Canada to account for higher costs) because you absolutely must put a high value on your spare time to get ahead in life. Doing the math on life decisions like this was by far the biggest factor in my own early financial independence. Buying a house is a great thing to do when you’re settling down in a beautiful, affordable spot right near everything you need to do for the next ten years. And if your schedule and temperament allow some time for a good several hours a week of maintenance work. But for the rest of us, it’s worth having another look at Rent vs. Buy." Which seems to be good advice.

vskarine 11y ago

Try this experiment in SF.

rhino369 11y ago

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc... This calculator the NYT made is pretty good.

sintaxi 11y ago

I love reading MMM but how is this hacker news?

sytelus 11y ago

Article grossly overlooks an obvious advantage of buy option: Over almost any long enough duration, houses appreciate well in line with inflation over that period, where "long enough" is usually defined as 18+ years[1]. So you can effectively live in 2500 sq foot house absolutely free as long as the duration is long. It doesn't matter if you bought at the peak and sold at bottom as long as duration is long. There are sure some edge cases like Detroit or natural disasters like Katrina but overall this rule applies pretty well statistically[2]. If you were lucky enough to buy at bottom and sell at peak after 18+ years you can break a bank. But even without much luck, you will mostly break even, i.e., ~zero cost towards housing as opposed to 100s of thousands of dollars in rent checks during the same period. Another strong point for "buy": If your horizon is indeed 30 years then house is truely yours at the end of the loan. Most people would be planning to retire after 30 years and not having to have rent expense during this period is a huge deal. You can even move out to much less expensive area and use the difference to maintain your life style. Also note that rents almost always go up over long duration. If inflation happened to kick in high gear when you retire, you will be toast because your rent would skyrocket while you are living on a fixed income. The decision for rent vs buy is therefore very simple: If you think you are going to be living in given area for 18-30 years of time range, buy is no brainer provided that (1) your retirement savings remains same (2) you still have "rainy day" funds (3) there is reasonable income security and (4) you have recovery plan if natural disaster stricks. So those people doing long commute are not all fools and "drive until you can buy" is in fact the best strategy for them. There are some people arguing that you should buy even if you had time range as short as 5 years but then you will need to time the market and that's where most failures occur causing people to lose their life savings. Unfortunately lots of people are in this state and frankly it sucks to be in that state. You pay huge premium to be mobile and you don't know if you will ever use that mobility. [1] http://www.dce.harvard.edu/professional/blog/how-use-real-estate-trends-predict-next-housing-bubble http://www.dce.harvard.edu/professional/blog/how-use-real-es... [2] http://www.estateofmindsites.com/subscriber_new/map.php?user_id=1&share=y http://www.estateofmindsites.com/subscriber_new/map.php?user...

itsybitsycoder 11y ago
(1) is not a given, though. If buying has a higher monthly cost than renting, that money comes from somewhere in your budget. If you are viewing your home as a retirement investment (will pay off in 20 years, when you don't have to pay rent), that's most likely where it comes out of. In that case, when you take into account the appreciation on the house, you have to also consider the opportunity cost of not investing the extra money in an alternative investment.