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Renting is Throwing Money Away, Right? (2015)

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

#91

Post by wldcordeiro »

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…

Odd I read the article and got the sense that it wasn't necessarily painting one side better than the other but tried to give an overview of the full financial picture. It missed details sure but the overarching point was "run your own numbers and look at your own situation and see what makes sense for you."

> But articles like these should accurately discuss the financial upside of buying.

I think the reason it didn't is because buying is the default "good" choice in most people's eyes and even if they don't understand some of the details you mentioned (I didn't know all that myself) the goal was to open a layperson's eyes to the broader landscape.

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

#92

Post by alanbernstein »

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…

> The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess.

But the investment is what allows moving up, no?

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

#93

Post by cozzyd »

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.

In the case of renting a SFH from a random person, that might be kind of true (but not all landlords make money off renting anyway), but consider:

- Your landlord may have a lot more capital to buy homes with no mortgage and the and ability to maintain homes cheaper than you can or remodel homes cheaper than you can.

- Your landlord might be a large apartment complex where the economics are different from SFH.

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

#94

Post by phamilton »

codedokode wrote: post #60

> You hold a 5 percent fixed-rate 30-year mortgage. Is that really so? I've read that the mortgage interest rates are around 2-3% in Europe (by the way, in Russia they start from 9%-11% and can be as high as 15%). > A house in 1897 cost the same as a house in 1997, adjusted for inflation. It is hard to believe, given new technologies that are supposed to make it cheaper. Also what the author didn't take into account…

> I've read that the mortgage interest rates are around 2-3% in Europe

From what I understand, these aren't fixed rate 30-year. The rate can change year to year. The US is unique in offering one interest rate that will be consistent for 30 years.

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

#95

Post by throw_away »

ProAm wrote: post #90
klipt wrote: post #63

Earlier quoted context omitted.

> 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.

Note that this will be capped at interest on a value of $750k for houses bought starting this year, so less than before. I think the leverage angle is ignoring the fact that your equity can be wiped as well in a downturn. It's unlikely my index fund will go to zero (and if it does, we'll probably have bigger problems on our hands).

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

#96

Post by jacobr1 »

codedokode wrote: post #60

> You hold a 5 percent fixed-rate 30-year mortgage. Is that really so? I've read that the mortgage interest rates are around 2-3% in Europe (by the way, in Russia they start from 9%-11% and can be as high as 15%). > A house in 1897 cost the same as a house in 1997, adjusted for inflation. It is hard to believe, given new technologies that are supposed to make it cheaper. Also what the author didn't take into account…

>> A house in 1897 cost the same as a house in 1997, adjusted for inflation.

>It is hard to believe, given new technologies that are supposed to make it cheaper.

I'm not sure if this is really true but it wouldn't surprise me. A "house" actually has more stuff these days. Structurally engineered lumber that will last longer. Inspections to ensure it will survive the disasters in $localArea. Larger square footage. Granite counter tops. Fancy HVAC systems that are increasingly more complex and higher efficiency. I bet on a per-square-foot basis house. Not to mention most the price of house purchase is the land-value, which is probably even higher than historical norms in desirable areas.

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

#97

Post by code4tee »

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…

People tend to move up as they establish and grow a family but then sideways or down in retirement. That equity stays even if you move up into a bigger house.

It’s not uncommon for someone say in an extensive Northeast community to retire to a warmer climate down south, sell their house, use the proceeds to buy something much nicer (in a low COL area) and cash out a nice payday from their equity.

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

#98

Post by kgwgk »

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…

> Small increases in property value are multipled relative to your initial investment.

But don’t forget that leverage works both ways. Small declines can wipe you out.

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

#99

Post by mantas »

vcanales wrote: post #65
codedokode wrote: post #60

> You hold a 5 percent fixed-rate 30-year mortgage. Is that really so? I've read that the mortgage interest rates are around 2-3% in Europe (by the way, in Russia they start from 9%-11% and can be as high as 15%). > A house in 1897 cost the same as a house in 1997, adjusted for inflation. It is hard to believe, given new technologies that are supposed to make it cheaper. Also what the author didn't take into account…

> But if you own a house then you can live there even if your income drops. This is assuming you payed off the mortgage, no? Otherwise, at least by the 10 year example given on the article, you’re busted since you can’t make mortgage payments...

In some countries "mortgage vacation" is mandated by law. You can just stop paying it for 6-12 months if shit hits the fan. Some banks allow re-financinng to prolong mortgage and lower monthly payments too. There're insurances that cover your mortgage if you loose your incomes for legitimate reason (injury, company downsizing etc). Neither of those exist when renting..

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

#100

Post by Overtonwindow »

It really depends on your situation. If you can afford to buy, and plan to live at least in the short term in that property, I think buying is a good thing. If you need flexibility and want to move around, or you can’t afford to buy, then renting is better. Personally I think buying is the best thing in the long term, and by long-term anything longer than five years. Rent keeps going up. A mortgage doesn’t really change that much.
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