And in some places rent is way lower than paying mortgage for the same kind of dwelling. Mortgages can simply be not affordable, while rent is.
Renting is Throwing Money Away, Right? (2015)
321–330 of 497 posts
Re: Renting is Throwing Money Away, Right? (2015)
#322Earlier 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.
As of 2018 in the USA, the tax write off is much smaller now, given that the standard deduction is so high.
Re: Renting is Throwing Money Away, Right? (2015)
#323There 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, landscapin…
That's really the thing. At some point, many/most people want a place that's their own which they can modify to their liking. And many of them will want a house of the sort that's difficult to rent long-term. And eventually, when retiring or looking towards retirement, they're going to want to live somewhere that can't be sold out from under them or have rent raised to the point they can't afford to live there any longer.
This IMO is the real rent/buy calculation. Do you value being able to pick up and move across the country without having to deal with owning a piece of property? Or do you want to own something that you can make your own with a fairly predictable monthly bill--except when something breaks?
Re: Renting is Throwing Money Away, Right? (2015)
#324Another factor I found missing from this article was the inflation of rent prices over time. Back when I did my own rent vs. buy analysis, I found mostly as the author did. However, the key argument in favour of buying ended up being that rent increases seem to far-exceed inflation. I could only find US trends for the period of 1940-2000 but, over that time, rents increased 5.32% per year compared to inflation of app…
I bought my first house in 1999. It costs less for the remaining mortgage than renting a 1br apartment in my city and has for about a decade.
The interest is so low now I don't even get the write off and just use the standard deduction.
The house has more than doubled in "value" (based on comps) as well. I'd still have been paying the same money to rent, but it would have gone up an average of 5%/year.
The down side is I have had to pay to replace the roof, hot water tank, and HVAC, but that's all been recent fixes.
Not living in an apartment is also 1000x better.
Re: Renting is Throwing Money Away, Right? (2015)
#325Love that article, This is one of my favorite dinner conversation and I'm always shocked to see how most people never question the whole "buying a house" social construct. Once you do the math, you start to realize that most of it is a fallacy, and that in most cases you are way better off renting a place. Something else that people forget is that they tend to buy a house way bigger than what they actually need. Typi…
Show your work.
Re: Renting is Throwing Money Away, Right? (2015)
#326These 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…
> These articles always ignore leverage. Generally, with 20% down you are leveraged 5:1.
Don't forget that leverage works both ways; it magnifies the downside as well.
Re: Renting is Throwing Money Away, Right? (2015)
#327There 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, landscapin…
> That of course also ignores all the non-financial benefits of owning.
All I see is more maintenance :D
Re: Renting is Throwing Money Away, Right? (2015)
#328A deliberately-one-sided note of the downsides of home ownership:
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrib...
Re: Renting is Throwing Money Away, Right? (2015)
#329There'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…
This is an important piece that is often overlooked. My wife and I rented a house in 2010 from a builder who wasn't able to sell it after the property bubble burst. After our first year term was up, they agreed to renew the lease, only to call us back a week later and say that "although the mortgage was current on the property, the bank was calling up the loan" and that we needed to vacate in 30 days. (Our best guess is that the bank decided to seize the house due to non-payment of another mortgage held by the company.)
As a result we had to scurry to find another house available for rent, which put us in a terrible position to comparison shop or negotiate on the rent. We were fortunate enough to find something that would work for us, but I think we overpaid substantially for a few years.
Re: Renting is Throwing Money Away, Right? (2015)
#330Earlier 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,…
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 mor…
If you budget with $1k/yr for maintenance you're in for a bad ride. If you go with something like $2/sqft*year from the house is build, you're closer. But buy any 10-20 year old house and it will be far higher.