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Renting is Throwing Money Away, Right? (2015)

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

#311

I recently did the math on this myself, I just sold my Condo and right now I am renting while looking for a house. I have all cash so I can ignore interest rates which makes it easier, I also have a pretty good wealth manager so I have a pretty good idea of what my return will be if I invest the money in stocks and bonds and rent rather than buying a house. For me, renting comes out ahead strictly looking at the doll…

Your wealth manager might be good, but you have no idea what your return will be from stocks or bonds.

The only more-or-less guarantee you can have is about half of the official rate of inflation, and you don’t get there with stocks and very rarely with bonds.

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

#312
post #284

Earlier quoted context omitted.

That's the simple logic of rent vs. buy, but as the article details, there are other considerations. Opportunity cost being one primary cost that you're not taking into account. To me the most important question is the most fundamental: "Am I a real estate investor?" - I am not, and the overwhelming majority of persons are not. And yet the moment we purchase a home, we become real estate investors. In my case the sim…

If you intend to live in a home for the rest of your life then you're effectively short one home (or half a home if you're going to share). So I see buying your primary home as more like covering your short than making a positive investment in real estate.

This is an incredible way of putting it. I'm not sure if I like what it implies, though, but I'll definitely be mulling it over. It's not a perfect analogy to securities shorting, because no one is going to lend you a house to immediately sell, so effectively all us renters would actually be naked short-sellers!

Maybe there is a business model in lending out houses so people can short the housing market? Again, not sure how that would work since houses aren't fungible in the same way that securities are.

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

#313
post #287

Earlier quoted context omitted.

Ah okay. I'm from Germany, where we have rent control everywhere. But I also know a guy from NY who rented a flat for a few hundred bucks decades ago and now subrents it to other people for thousands.

What he is doing is probably illegal then (if he’s rent controlled). You can’t profit like that.

If its NYC it is indeed illegal and without a doubt unethical. You are only allowed to pass rent-controlled apartments to family members and those family members must liver there two years prior to transitioning the lease to them.

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

#314

> You hold a 5 percent fixed-rate 30-year mortgage Wait, are you Americans paying 5% interest on mortgage, whitout even counting insurance? For real?! Edit: Having looked at other comments in this thread, it looks like interest are taxe-deductible, which makes it more affordable, but that's also really weird: it means the gouvernment subsidizes financial institutions to charge American consumers a lot more than the n…

In Russia, 12% annual interest is considered a very good deal for a mortgage with 20-30% downpayment.

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

#315
There are a lot of short term periods where renting certainly makes more sense than buying. However over a lifetime it’s extremely hard to make the numbers work out if you only ever rent vs someone that conservatively owns.

That of course also ignores all the non-financial benefits of owning. Many people just want to own their little part of the world and make it fit just for them—decor, style, renovation, landscaping, etc. and you just can’t get that from renting. Being a lifetime renter is just not a lifestyle most people want—-hence the aspirational nature of home ownership.

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

#316
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…

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,…

Expected maintenance, LOL. Just saying as an older guy if you're not factoring in HVAC replacements, roof replacements, driveway replacements, appliance replacements, even the expenses of major yard work, you will miss thousands per year on average. I'll see these estimates online where people laughably expect to spend less than $1K/yr on home maint, LOL I spend that much on the roof averaged by year, and I spent more than that on one clothes washer this month, and the average appliance is now carefully value engineered not to last more than a couple years. Try like $1K/month on average as an absolute minimum not the online typical $1K/yr which wouldn't even maintain the level of a crackhouse.

Also do not forget time. I only have 168 hours per week minus zillions of things, to enjoy life, and after all the subtractions often there isn't that much time left to enjoy. Yes if I need to replace the tiles in my bathroom I can save a little money doing it myself but even contracting out will be hours of work to design, decide, and coordinate, and who stays home to let the craftsmen into the house and its just a circus. When I rented a bachelor pad, ALL repair work consisted of verbally mentioning it to on site manager and magically things happened, I paid more rent than average for that privilege compared to people who have to sue their landlords for any little thing, but there is no escape from spending lots of time as a building superintendent if you own a house. Buying a house is getting a part time job as a landlord. Its not like the kitchen faucet magically knows its in a owned house so it'll never fail, vs a rental.

I mean, we have to realize the groupthink on HN is that cooking food for yourself is an intolerable waste of time compared to spending two hours in restaurants daily, so owning a house and having to dump many hours into the uncountable sufferings of home ownership must be completely unacceptable; rent a nice place and "invest" about five minutes a month into telling the manager what he needs to do.

The second to last measure is many lifestyles require real estate. Not everyone wants to live life with no capital goods other than a mobile phone. I'd be pretty unsatisfied with life without my table saw and lathe and garden and ham radio antennas and a couple other things that simply require land to be realistically practical, aka go buy a house and do your hobbies in it. For all practical purposes in the market I live in you can not have a dog while renting, for example.

A final measure not often mentioned is its just a fun experience to try; Its amusing to reread some of the complaints about home ownership rewritten to apply to having friends, or buying a pet, or having children, or traveling, or getting drunk. I didn't have kids because of an enormous amount of handwaving about how I'll be wealthy if they become child movie stars or historically kids in an agricultural setting were a net financial positive which should mean something in suburban 2010s or some equally ridiculous argument. Owning a house is a VERY expensive hobby, but if you have fun and can afford it and its not hurting anyone else, may as well try it...

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

#317
post #103

The answer in most cases is "yes". This post is full of the kinds of flawed arguments that usually accompany pro-rent arguments -- which do a real disservice in identifying those cases where the answer is "No". Breaking down the problems by section: Equity "Here’s the rub: Only a small slice of your mortgage payment builds equity. " There you go, the article defeats itself not even a full screen below the correct ans…

> In other words, at the end of 30 years, the rent may have made more money in some scenario of a perfect investor, but then they still have to rent to have a place to live. The homeowner now owns their property free and clear and can do all kinds of things with it, and their now future income is entirely liquid. Not perfect investor, any investor that put their money in an index fund. Vanguard had a trillion and a h…

> Not perfect investor, any investor that put their money in an index fund. Vanguard had a trillion and a half assets in 2010~ and those assets tripled while houses doubled.

You are still making the typical errors. Here, I'll put it in simple terms and maybe this will help the scales fall from your eyes about why real estate is a very popular investment strategy and real estate investors aren't all just a bunch of morons who should have pumped their money into Vanguard index funds.

As a renter, YOU ARE BUYING SOMEBODY ELSE'S PROPERTY FOR THEM.

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

#318
post #289

>Are you better off: > - Tying up your cash into a home > - Finding an alternative investment, coupled with a rent payment? This is the part I don't get. That would require renting to be cheaper per month than having a mortgage, yet it will always be more expensive for the same property because the landlord is paying the mortgage* plus marking up the price to make a profit. *Or at least charging the equivalent market…

Housing is very location-dependant so that may very well be the case in your city, but not all cities are like this. Renting in my city is cheaper than a mortgage (even without accounting for property taxes). There are multiples reason that can explain this, such as local laws, popular knowledge ("renting is throwing money away!"), no understanding of opportunity cost, anything not paid on rent would be spent elsewhere, and a general lust for house.

That is why it's very important to have a critical mind when evaluating a decision such a buying a property, as no two situations are the same. In some case it absolutely makes sense to buy, in others not. There's also non-financial reasons for buying, but discussions like this is strictly about financial reasoning.

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

#319
post #103

The answer in most cases is "yes". This post is full of the kinds of flawed arguments that usually accompany pro-rent arguments -- which do a real disservice in identifying those cases where the answer is "No". Breaking down the problems by section: Equity "Here’s the rub: Only a small slice of your mortgage payment builds equity. " There you go, the article defeats itself not even a full screen below the correct ans…

How can you expect anyone to take you seriously when you outright say you didn't read large portions of the article and then try to make a point on how those very points are flawed?

Because one can skim the arguments and know that they've seen their shape before and can then not read them in detail.

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

#320

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…

Everyone I know that's wealthy owns lots of real estate.

That's the difference between stocks and properties, at least property is real.

Why do drug dealers, foreign nationals, and the ultra wealthy park their money in big city properties? Tangible value.

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