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Renting is Throwing Money Away, Right? (2015)

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

#81

Post by Simulacra »

monkmartinez wrote: post #78
code4tee wrote: post #54

The “pro renting” crowd has a lot of consistent falacies in arguments: - Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. - Calculations also often assume someone just pays the minimum mortgage payment for the full term of the loan. Even small additional principal payments (which most mortgages allow without penal…

I own my home in a relatively cheap COL area... I would rather rent. Houses nickel and dime you to death. The expenses pile up at both the front and back of the transaction... that is, when you buy and finally sell. Please show me how the small increases in property value multiplies my initial investment. The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment…

My renter pays for my mortgage which includes principal and interest, landlord insurance, and taxes. Not to mention an additional $380 a month and profit that I put towards the principal and my 401(k).

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

#82

Post by anonu »

phamilton wrote: post #41

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…

Was just about to mention leverage. I would also add that you'll be hard pressed to get a loan at mortgage-like rates if you wanted to put your money in the stock market.

The other important point is that buying a home is still very much the "American Dream" - it is the single best way for the middle class to create wealth simply because the entire system is geared (some people would use the word rigged) for home buying. Interest tax deductions, primary residence rules, etc.. etc... are all setup for you to take out this massive loan and buy a house. If you wait long enough, it will be worth your while.

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

#83

Post by wldcordeiro »

kazinator wrote: post #61

Article assumes that if you're a renter, you don't pay insurance. Which is true for a lot of renters; but they will lose everything if the place burns down. The landlord's policy will not cover the belongings of the renters. Comparing insured versus uninsured is stupid.

No it specifically mentions renter's insurance near the beginning but the number cited seems like a minimum policy.

> Rachel pays $307 per year in renter’s insurance.

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

#84

Post by rocky1138 »

Simulacra wrote: post #80

This is a really poorly written and exaggerate article. I purchased a home in 2015, I had to pay $3000 to close with no further down payment. After three years I had to move for work. I'm now renting that house out, and earning $380 a month in profit. That house is mine. Our use that profit to pay extra on the principal and contribute to my 401(k). Someday, that house will be paid for, and it will be all mine. Then a…

One of the very first things the article states is that this is not for people who are not living in the home as their primary residence.

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

#85

Post by phamilton »

libertyhouse wrote: post #76
phamilton wrote: post #41

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…

Your 15% leveraged return is only true if you have no borrowing costs. If you had a 4% mortgage you would actually be losing 1% the first year. A leveraged return L = (asset return - ((1- %down) x loan) rate)/%down. With a 4% mortgage that's (3% - ((1 - 20% ) x 4%))/20% = -1%

How does the utility derived from the asset factor in? There's an argument that the cost of borrowing is also paid by a renter (passed through from the landlord). The true cost of borrowing would then be interest paid minus the corresponding portion of comparable rent.

The real point of the article stands. "Run your own numbers"

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

#86

Post by Johnny555 »

cperciva wrote: post #59
Johnny555 wrote: post #46

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…

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. Well, you can. The city decides to put in a new subway line and your house is where they want to build a station. Or (depending on your local laws) the other members of your strata corporation vote to sell the building to a developer who wants to tear it down and build a tower.…

True, but I excluded unlikely events like an eminent domain takeover, asteroid strike, etc in my cost-benefit analysis.

An earthquake related eviction is probably most likely, but that'd be the case whether I own or rent.

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

#87

Post by Simulacra »

oostevo wrote: post #44

The New York Times has a fairly detailed rent-vs-buy calculator that makes it easy to see the effects of changing some of the variables the author talks about in the article. https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Very interesting. I put in all of my details. There is no way in hell I could find anything comparable for $500 or less a month.

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

#88

Post by [deleted] »

Simulacra wrote: post #80

This is a really poorly written and exaggerate article. I purchased a home in 2015, I had to pay $3000 to close with no further down payment. After three years I had to move for work. I'm now renting that house out, and earning $380 a month in profit. That house is mine. Our use that profit to pay extra on the principal and contribute to my 401(k). Someday, that house will be paid for, and it will be all mine. Then a…

[deleted]

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

#89

Post by Simulacra »

IloveHN84 wrote: post #53

What about self-modifying renting contracts? In Germany, some contracts increase 3% every year, not that cheap. And what happens when you're in retirement and your pension isn't as much as when you were working? Can you keep with the rent?

This is why I eventually bit the bullet and purchase the home. I didn't want to be 65 years old trying to deal with increasing rent on a fixed income in retirement.

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

#90

Post by ProAm »

klipt wrote: post #63
phamilton wrote: post #41

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…

> 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. But if inflation is 3%, you're probably paying 3% (or more) interest on your loan. So suppose your home costs X. You pay 0.2X downpayment and borrow 0.8X through your mortgage. The first year your home appreciates to 1.03X but you also pay around 3% o…

Your forgetting the tax write off of mortgage interest. Which needs to go into you equation no? That can be sizable.
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