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Renting is Throwing Money Away, Right? (2015)

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Re: Renting is Throwing Money Away, Right? (2015)

#41

Post by phamilton »

These articles always ignore leverage.

Generally, with 20% down you are leveraged 5:1. So even if your home is just keeping pace with inflation of 3%, you actually experience 15% growth on your investment. To use the example in the article, if your investment doubled between 2009 and now, your $200k in a $1M home just became 1.2M. 6x growth beats out 3x growth in stocks in the same period.

Sure, you can be leveraged in other investments but (1) your interest won't be tax deductible, (2) your interest rates won't be nearly as low, and most importantly (3) you won't be able to borrow with no recourse (depends on the state law, but "no recourse" means your downside on a primary residence is limited to the equity in the home. If you default on the loan they can't come after your other assets.)

Does it mean renting is a bad idea? No. There are plenty of reasons it might make financial sense to rent. But articles like these should accurately discuss the financial upside of buying.

Re: Renting is Throwing Money Away, Right? (2015)

#43

Post by tim333 »

People often don't take property cycles in to account and they can be a huge factor in many markets and semi predictable. When stuff is cheap (price to wages) and going up buying is a no brainer. When it's expensive and topping out its questionable.

Re: Renting is Throwing Money Away, Right? (2015)

#45

Post by s0rce »

IncRnd wrote: post #42

Rent payments are set high enough to pay the owner's mortgage and give them a profit. If you already need to pay a mortgage, why not buy the house to get the interest deductions and equity?

Assuming you have the down payment (true in my case) then it mostly comes down to transaction costs.

Re: Renting is Throwing Money Away, Right? (2015)

#46

Post by Johnny555 »

There's another intangible benefit to owning if you know you're going to stay in the area long term -- you can't be forced out of your home.

I was forced out of one home I rented due to owner move-in, which led to a stressful 30 days of trying to find a new apartment in a tight housing market. We managed to find a place outside of the city, but close enough to transit for a manageable commute. And rent was about the same, though for an apartment half the size.

And then, as housing prices continued to rise, that apartment raised the rent 25%. Fortunately, they gave us 60 days notice, so we started looking around for an affordable home to purchase (even farther away, but still near transit), and found one where the PITI+HOA was less than the new rent would have been.

Rents have continued to rise (as have home prices, our home is now worth about twice what we paid for it 5 years ago, this market doesn't seem sustainable, but hopefully after the next crash we won't be underwater on the mortgage).

Re: Renting is Throwing Money Away, Right? (2015)

#48

Post by closeparen »

chrisseaton wrote: post #21
jimmy1 wrote: post #16

When the goal is to have a roof over your head, between renting or buying, the better option is to buy. If the goal is to invest wisely, of course buying a house is worse than say something like an index fund. But the problem is: I can't sleep in an index fund. A house isn't a depreciating asset. Renting is not an asset at all. Mortgages are fixed. Rent tends to frequently increase, skyrocketing at worse. This articl…

> owning is cheaper than renting This is the key thing! Obviously owning is cheaper than renting, as renters have to cover the costs of their landlord owning, and then some profit for them on top of that.

Your landlord is probably not buying at the same instant he signs a lease with you, and he could be benefitting from economies of scale that you don't have by purchasing capital, homes, and maintenance services in bulk.

Re: Renting is Throwing Money Away, Right? (2015)

#49

Post by IncRnd »

ouid wrote: post #12

Rent, in an arbitrage free economy, should be exactly equal to the interest on the mortgage plus wear and tear on the house.

Plus principal, taxes, insurance, profit for homeowner, percentage for property manager, renter deposits, upkeep from the last renters who broke the gas lines, scratched your hardwood floors and fled, etc.

You're going to have a tough time finding a homeowner who will let you live in their house for less than their costs.

Re: Renting is Throwing Money Away, Right? (2015)

#50

Post by IncRnd »

s0rce wrote: post #45
IncRnd wrote: post #42

Rent payments are set high enough to pay the owner's mortgage and give them a profit. If you already need to pay a mortgage, why not buy the house to get the interest deductions and equity?

Assuming you have the down payment (true in my case) then it mostly comes down to transaction costs.

Yea. I wasn't clear, so I reworded my comment a little at the end to better reflect what I meant.
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