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Renting is Throwing Money Away, Right? (2015)

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

#201

Post by PeterStuer »

(I wrote the payment plans calculator for asset based finances for a major financial services company, so I'm not unversed in the matter)

Having been a renter for a long time and a home owner for the last decade, I can tell you that the latter is far better than the former.

- The best thing: No Landlord! to tell you what you can or cannot do, fight over for repairs, or be at the whim of eviction (this will depend on the jurisdiction, but in most cases a landlord that wants you out e.g. to go live there herself will manage to evict you)

- Investing always carries risk. Any investor will tell you that the very best thing you can invest in is the thing that you enjoy, as that is always a gain no matter what the financial outcomes of the investment. That said, you should match your wants to your means. I would say go for a payment plan you are fairly guaranteed to be able to make, rather than gambling on getting substantially more income in the future than you are making now. You can do this by selecting a conservative formula (went for a fixed payment, variable capped run-time myself)

- I don't see why the author feels the need to be so derogatory to his readers with his frankly childish 'special snowflake' diatribes

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

#202

Post by phamilton »

dash2 wrote: post #153
phamilton wrote: post #104

Earlier quoted context omitted.

> leverage angle is ignoring the fact that your equity can be wiped as well in a downturn I call that out when talking about "no recourse". If you leverage 5X in the stock market and invest $1M in index funds and the market drops by 30%, you are on the hook for the $100k beyond your $200k you lost. If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you m…

> If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation. But that seems dishonest.

I absolutely agree it seems dishonest. But at the same time, it's in the contract. I'm aware of it, the bank is aware of it. They won't hesitate to foreclose on me if it's in their best interest according to the terms of the contract. Should I hesitate to take the action that is in my best interest?

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

#203

Post by Twisell »

mhomde wrote: post #176

People often fail to take into account that risk has a value. I did some quantitative analysis (most of that is BS but that's another story) for a gig and it was big eye opener. People talk like: "Well property praises will always go up. It's a good investment yada yada" but there is a risk that they won't (which often is a sore point). There's even a risk they'll crash. Many people (at least in Sweden) is so over le…

Also renovation work... That’s often an under-accounted risk but if you own a flat you could well be forced at some point to cash out vast amounts of money so that your equity just don’t loose value.

If you rent you just wait for the landlord to pay or you move to a better flat if bad maintenance become unbearable.

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

#204

Post by phamilton »

garmaine wrote: post #134
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…

> 6x growth beats out 3x growth in stocks in the same period Was that a typo? Average market returns are much higher than that.

The article states that since 2009 the stock market has tripled while housing markets have doubled. I'm just reassessing that example with 5x leverage.

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

#205

Post by phamilton »

mhomde wrote: post #176

People often fail to take into account that risk has a value. I did some quantitative analysis (most of that is BS but that's another story) for a gig and it was big eye opener. People talk like: "Well property praises will always go up. It's a good investment yada yada" but there is a risk that they won't (which often is a sore point). There's even a risk they'll crash. Many people (at least in Sweden) is so over le…

> so over leveraged that it wouldn't take that much for the bank to require a mortgage holder to put in more money to cover the decreased value of the property

That's an interesting contract. For a primary mortgage that would be very unusual in the US. (For a secondary line of credit against the home, the bank would likely freeze the line of credit if the value dropped too far.)

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

#206

Post by phamilton »

simonsquiff wrote: post #136
imbur wrote: post #26

Home buyers often overlook the cost of selling their home when considering if renting is cheaper. That is 6% in realtors fees and another 2-3% in closing costs. Renting is a great deal if you are not going to live somewhere for 5+ years before moving

6% for realtors fees is outrageous! I had no idea it was anything like that in the US. Here in the UK, it’s about 1.5%. That can often be haggled down to 1% if you have an expensive house that’s desirable enough to sell itself. And even that is getting majorly distributed by online agents, who are offering a flat fee service rather than % of property, which can be an enormous saving. At 6% it seems a market with a hu…

How are buying agents compensated in the UK?

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

#207

Post by rlpb »

dash2 wrote: post #153
phamilton wrote: post #104

Earlier quoted context omitted.

> leverage angle is ignoring the fact that your equity can be wiped as well in a downturn I call that out when talking about "no recourse". If you leverage 5X in the stock market and invest $1M in index funds and the market drops by 30%, you are on the hook for the $100k beyond your $200k you lost. If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you m…

> If you leverage 5X in a personal residence and the market drops by 30% (and you live in a no-recourse state), then you mail the keys to the bank and walk away. Very unique situation. But that seems dishonest.

> But that seems dishonest.

It's not. The bank has calculated and accepted the risk and factored it into your interest rate and other charges. Considering it to be dishonest is financially equivalent to considering a (not fraudulent) insurance payout to be dishonest.

Think about it this way. The bank has effectively bought an insurance policy to protect itself against this event and is paying the premium out of your interest charges. Now does it seem dishonest?

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

#208

Post by neuxenian »

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…

Leverage cuts both ways, though. As someone who just sold their house, the costs are a percent of the sale. You don't get taxed on the sales (generally) but you will probably have to pay real estate sales costs. So yes, if your home increases by 3%, you've gained 15% growth on your investment, but if the sale cost is 5% of the the sale price, then things aren't so clear anymore.

The real calculation is the total monthly cost of ownership plus any sale prices on the buying and selling ends over the period, relative to the total costs of renting.

Over the 10 years we've owned our home, yes, it's been worth it to buy, because we can recoup money that would have gone to someone else.

However, over a short period, the sales costs would dwarf any returns we would get.

The sales costs are largely fixed on both ends, as a percent of home value, and diminish as a total percent of gains over the period of ownership. So the period of ownership is relevant.

This in turn is relevant because your mobility becomes relevant.

The previous market we were in too, was so overpriced relative to the rental cost that we actually saved money over the period by renting rather than buying. Then the Great Recession happened.

Either strategy makes sense depending on your mobility risk and the market. I don't think it's clear that one or the other is generally better.

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

#209

Post by sigi45 »

PeterStuer wrote: post #201

(I wrote the payment plans calculator for asset based finances for a major financial services company, so I'm not unversed in the matter) Having been a renter for a long time and a home owner for the last decade, I can tell you that the latter is far better than the former. - The best thing: No Landlord! to tell you what you can or cannot do, fight over for repairs, or be at the whim of eviction (this will depend on…

It feels much saver to be in his/her own home.

No money? Than don't repair stuff. it sucks but is still better and cheaper than being evicted.

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

#210

Post by dagw »

Ajedi32 wrote: post #118
Simulacra wrote: post #81

Earlier quoted context omitted.

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).

This is perhaps the biggest argument in favor of ownership. Unless your landlord is _losing_ money on the deal, the price of rent takes _all_ other costs of ownership into account and then adds more on top of that. If you're renting, you most certainly _are_ losing money on the deal vs. what you'd pay if you owned _exactly_ the same property.

If you're renting, you most certainly _are_ losing money on the deal vs. what you'd pay if you owned _exactly_ the same property.

Assuming you could have made the same down-payment and gotten the same deal on a mortgage as the landlord.

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