Renting = paying 'premium' to stay flexible. The reason I don't care about buying is that I don't even know which country I want to live in next year. Also i prefer to not have dept, for whatever reason.
Renting is Throwing Money Away, Right? (2015)
271–280 of 497 posts
Re: Renting is Throwing Money Away, Right? (2015)
#272There'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 other intangible benefits too. Buying a house is enforced saving. When people have money spare they typically spend it. If as the author suggests people instead invest in the stock market there is constant temptation not to put the money in there in the first place or take the money out because you want to buy something shiny.
You can use owning a home as a way of bringing stability. So instead of making plans for a year at a time you can make 5 year plans based on living where you are.
However there's a quote from 'Rich Dad Poor Dad' [0] that your primary residence is a liability. So where as it makes sense to buy there's no point in buying a massive expensive house because it doesn't bring in any income. Buy one that fits your needs with possibly some minimum room for expansion.
That's one of the further benefits of having bought - if you find the perfect area but your family expands you can modify the house that you're in and stay in exactly the same place.
[0]: http://www.richdad.com/Resources/Rich-Dad-Financial-Educatio...
Re: Renting is Throwing Money Away, Right? (2015)
#273In the housing market there is a useless but with big influence 3rd party that became so ordinary that nobody questions it anymore.
In eastern europe after comunist regimes fall houses were very cheap and nobody needed a loan to buy one, they could collect the money in just a few years, this has changed after eu banking entered the markets and loaning become something ordinary to buy a house just like in the west this lead to an average of 10x increase in prices.
If banks will be allowed only to loan money to businesses then the supply and demand alone will adjust the housing market to real buying power, this will also lead to more money being pumped into economy instead of keeping artifical economic bubbles.
Walls became the new gold for "investment" banks to keep their money, this mechanism is enforced through artifical goverment scarcity and bank loaning.
Re: Renting is Throwing Money Away, Right? (2015)
#274Earlier quoted context omitted.
What all professionals do, and what all potential home buyers should do, is run the actual numbers of expenses that is purely property taxes, interest, fees, expected maintenance, bills such as heating and electricity, and other related expenses not specifically reducing the amount of debt. That is the price of living in the house - compare that to renting a place. The difference between owning and renting expenses,…
But with renting there is no reward. EDIT: In addition to mobility cited by a reply to this comment, another advantage is the saved opportunity cost of investment in real estate vs other markets.
That is true, but that is covered in the very last sentence. Renting is significantly less volatile, assuming the contract is reasonable for both sides. Buying a house is a risk/reward analysis of the value compared to the price difference, positive or negative, to renting.
That is not to say this is the only thing to consider. Often people know where they want to live and what size of property/house they need, and for many people that is only achievable by buying.
Re: Renting is Throwing Money Away, Right? (2015)
#275renting is paying a premium for the right to move easily.
for a freelancer that moves from country to country that's important.
Re: Renting is Throwing Money Away, Right? (2015)
#276Earlier quoted context omitted.
You have $100 - you buy a house worth $500. House goes up 3%, it is now worth $515. You invested $100, and have $115 in equity. Growth 15%. (that is ignoring other costs, obviously - just an attempt to explain the maths). That is the power of leverage - you grow on the bit you own as well as the bit you owe.
But the house usually does not go up 3% if you take inflation into account
Yes, but the purchase and loan are in nominal dollars. Taking GP's example numbers, a $500 house, bought with a $100 downpayment, in a house and general inflation environment of 3%pa, and an interest-only mortgage (to make the math napkin friendly)
You start with $100.
You buy a $500 house. $0 cash, $500 in asset, -$400 in liability.
A year passes. $0 cash, $515 in asset, -$400 in liability.
A year passes. $0 cash, $530.45 in asset, -$400 in liability.
After 30 years, $0 cash, $1213.63 in asset, -$400 in liability.
Contrast that with an unleveraged investment that also rose exactly with 3% inflation.
You start with $100.
You buy a $100 bond. $0 cash, $100 in bond.
A year passes. $0 cash, $103 in bond.
A year passes. $0 cash, $106.09 in bond.
After 30 years, $0 cash, $242.73 in bond.
Re: Renting is Throwing Money Away, Right? (2015)
#277Earlier quoted context omitted.
What all professionals do, and what all potential home buyers should do, is run the actual numbers of expenses that is purely property taxes, interest, fees, expected maintenance, bills such as heating and electricity, and other related expenses not specifically reducing the amount of debt. That is the price of living in the house - compare that to renting a place. The difference between owning and renting expenses,…
But with renting there is no reward. EDIT: In addition to mobility cited by a reply to this comment, another advantage is the saved opportunity cost of investment in real estate vs other markets.
Having been burned badly in the real estate meltdown, there is a lot more freedom in renting than buying. I'm just now getting slightly inclined to consider buying again, but it would have to be a whopping deal. I've enjoyed renting since at least 2010. I especially like the ability to call the landlord and tell them that the sink is leaking and they need to get it fixed. Or the water heater stopped working, come out and fix it... Nothing out of pocket for me.
Re: Renting is Throwing Money Away, Right? (2015)
#278Earlier quoted context omitted.
You say just rent it out like renting doesn't have its own downsides like finding decent tenants, dealing with repairs, having to carry the mortgage when you have vacancies, dealing with evictions when they don't pay. Even in a landlord friendly state it can take 2-3 months to evict someone for non payment. In some states I've heard that it can take a year. I've been a landlord, never again.
This is also the downside of renting -- the other tenants can be lousy. Banks know this and will not lend in buildings without a minimum rate of owner occupied units. I'd guess that one of the reasons home prices in 'nice' neighborhoods are so high (or HOAs charge high dues) is a sort of signaling, similar to nuptial gifts in animals, that you have your act together and are invested in being a good neighbor.
I could never see myself buying anything that's not a detached house. It seems like you have too many of the downsides of renting. When I was living in an apartment, a never once said, "if only I could buy this place and have to deal with people on each side of me".
But as far as buying in a high priced area or even renting in a high priced area, price does provide a filter.
Re: Renting is Throwing Money Away, Right? (2015)
#279As soon as someone quotes the Dow Jones I stop reading because I know they have nothing worthwhile to say.
Re: Renting is Throwing Money Away, Right? (2015)
#280The “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…
> Please show me how the small increases in property value multiplies my initial investment.
You're leveraged 5x (say), so you get 5x as much growth. Just pulling numbers out of nowhere, let's imagine you buy a $200k house with 40k down; after ten years the house is worth a nominal $400k which is $300k in today's dollars. You've gained 100k on your initial 40k, whereas if you'd invested the $40k in the stock market at the same rate of return you'd only have made 20k.
You'd achieve the same thing by taking out a loan for $160k and putting it in the stock market (per the article, property and stocks grow at the same rate), but a) you can't - a bank won't lend you that much money to buy stocks, certainly not at the same low rates of interest, and b) if they did you'd be on the hook for the risk, with ordinary loans you don't have the non-recourse protection of a mortgage.
> The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment prowess.
What's the connection? If you plan on buying a $600K house when you're 50 that will consume $600K, but that's true whether you rent or buy your current house.
> Renters don't always pay the taxes. There are several rentals in my neighborhood that are less than the mortgage.
It's pretty rare though, and seems like the market would generally adjust either way. Occasionally in a given market renting will be cheap enough to be worthwhile. But generally renting will be more expensive since you're competing with people who can't afford to buy.
> We could get into many ways to beat the tax system... but lets suffice to say that homeownership isn't really "beating" the tax system.
It's playing the system as intended rather than "beating" it, but the bottom line is: the government is willing to pay you $x (in tax deductions) to buy instead of renting. Tax incentives are one of the few sources of free money out there in investing: when you have the opportunity you jump at it.
> That "savings" on tax isn't savings... it is rent on top of rent... let that sink in.
What are you talking about?