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Can anyone explain to me what's wrong with this argument?
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.
Which makes it disingenuous to the initial headline.
> Renting Is Throwing Money Away Right?
Yes. Given a choice, you always want to own (or at least be building equity). That's the nature of the phrase in the headline. Having money act as an investment (growing/working) for you is preferable to not.
I'm fed up of having this argument in London. I rent, and pay about 2% of the value of the property in a year. I get around 8% on shares over the last ten years. Renting is an absolute no-brainer for me. People are shocked when I tell them how much return I get on my savings vs how much my rent is, especially when I tell them where I live (a 'premium' part of London).
A mortgage payment is a lot lower than current market rent, however. (I bought a 4 bedroom house in London and we pay about £1200 per month mortgage on that, although we actually overpay to decrease the principal faster). Part of the reason I was able to buy, of course, was that I had saved a bunch of money, some of it invested in shares. Most people renting probably don't save as much as I habitually do, mind.
How do you figure? Rents in London are substantially cheaper than a mortgage. In my current house, a mortgage with 10% down would be around 30% larger than the rent I'm paying. Unless you bought 5-10 years ago, but that's not really a fair comparison.
If you are renting, you are renting it from someone who owns the place. I am going to assume that whoever is the owner will at least break even, but more likely will make a profit off the rent income. Therefore, buying is cheaper than renting. Can anyone explain to me what's wrong with this argument?
This is a risk, you can basically price it.
Real estate and renting is usually thought as a very efficient market, so it quickly adjusts to new equilibria. But that just means it's flaws (differences from ideal market and from market clearing) are usually the same as the context (regulations, population flows, regional economy) they are embedded in.
If you are renting, you are renting it from someone who owns the place. I am going to assume that whoever is the owner will at least break even, but more likely will make a profit off the rent income. Therefore, buying is cheaper than renting. Can anyone explain to me what's wrong with this argument?
In that situation people buying to rent will make a profit after about ten years. It's therefore not worth it for the short term.
Also, buyers are responsible for maintenance on the building, and for some maintenance, which renters aren't.
So there are trade offs.
(Also, a landlord has to find renters, deal with some of them not paying, invest time and effort into managing their small business, etc)
If you are renting, you are renting it from someone who owns the place. I am going to assume that whoever is the owner will at least break even, but more likely will make a profit off the rent income. Therefore, buying is cheaper than renting. Can anyone explain to me what's wrong with this argument?
Why would it be such a special market that every seller is guaranteed to at least break even, when that doesn't hold in any other market?
The market rent isn't whatever it takes for every owner to make a profit.
In particular, not every owner will have the same cost of capital or the same expenses.
Imagine one owner who paid off the mortgage years ago and is able to rent a unit for $200 while another owes the bank 100% of the value at 5% interest and needs to charge $300 just to break even.
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.
Some of the countries with the lowest homeownership rates [1] are also amongst the most financially secure on the planet. In Switzerland only 43% of households own their home and swiss households are, on average, way more secure than their american counterparts. [1]: https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...