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Renting is Throwing Money Away, Right? (2015)

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

#381

Post by conanbatt »

IncRnd wrote: post #293
conanbatt wrote: post #124

Earlier quoted context omitted.

Rent can never be lower than mortgage payments for the same property because then the bank would never give out mortgages and would just buy up all the properties. Rent can be higher than the mortgage payment of a portion of the house, but not to the mortgage payment of the entirety of the house.

Rent can never be lower than mortgage payments for the same property because then the bank would never give out mortgages and would just buy up all the properties. That's not how things work. Banks give out mortgages based upon the repayment ability and credit-worthiness of each borrower. The mortgage amount won't be too far out of line of comparables. --- Rent can be higher than the mortgage payment of a portion of…

> That's not how things work. Banks give out mortgages based upon the repayment ability and credit-worthiness of each borrower. The mortgage amount won't be too far out of line of comparables.

The banks most trusted debtor is itself: if buying up property were so fruitful with no labor and above rent the bank would not need to invest a single dime into offering mortgages and would just buy the houses itself.

> Who says so? Even one tenant in a multi-family home can pay for the entirety of the mortgage.

Its just logical: if money is cheaper to borrow than to pay rent, then nobody pays rent and all borrow money. Fundamentally the one that can do this the most is the bank.

What is often not taken into account in terms of landlorship is that you have occupancy rates, brokers that have to find you clients, communication with tenants, etc etc. But even accounting for moderate work, if the mortgage had a lower rate than the cost of rent, and no cost of acquisition, there would be no renters.

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

#382

Post by VLM »

hvidgaard wrote: post #330
VLM wrote: post #316

Earlier quoted context omitted.

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.

I would agree with your evaluation and propose an even more accurate prediction would include the aspect that a 50 gallon water heater or a dishwasher costs the same regardless of 1500 sqft or 6000 sqft so the ideal formula is probably some linear equation with a fixed amount plus a sqft amount. $1500 plus $1/sqft per year maybe a good start.

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

#384

Post by conanbatt »

jonkho wrote: post #366
klipt wrote: 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…

Leverage still outperforms fixed interest payments. Rising home prices compound on previous years’ appreciation. Your leverage rides on the back of this compounding. In contrast, your interest payments are fixed on the value of the dollars the year the loan was written.

This was particularly true in the past, but i wouldnt bet much on this effect nowadays. Inflation is the true way to get this effect, but the dollar hasnt suffered inflation in decades.

The new effect we have is asset inflation: sure you payed 3% for this house, but this house cost a lot more. When interest rates raise, mortgages are more expensive but house values go down.

It is said that its better to buy in a high interest rate period at a low value, than a low interest rate at high value: in the former, you can re-fi later.

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

#385

Post by gonehome »

phamilton wrote: post #125
gonehome wrote: post #107

Earlier quoted context omitted.

I’m not following the leveraged point - why is a 3% increase equal to 15% growth? In the Bay Area HOA fees plus property tax add up to nearly my existing rent even before considering a mortgage which has made me nervous to buy. I’d be banking entirely on the upward trajectory of the market for it to be a better bet than renting with roommates.

> better bet than renting with roommates Why not both?

Mostly because I can’t afford to buy anything big enough where I could have roommates (I haven’t been able to convince friends to go in on a place with me and don’t have super rich family).

I’d also have to buy far from Palo Alto which makes the commute worse and roommate finding harder.

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

#386

Post by bluGill »

shusson wrote: post #327
code4tee wrote: post #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, landscapin…

> That of course also ignores all the non-financial benefits of owning. All I see is more maintenance :D

It is your personal point of view.

Some people want their flower garden arranged their way. Some people want a shed to hold their antique car in. Some people want plastic pink flamingos in front of their window. Some people want ...

On the other side some people want to move every year. Some people want nothing to do with maintenance. Some people need a bed and a shower and will not be home for anything else.

The above are all valid choices. What makes sense for you does not have to make sense for somebody else.

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

#387

Post by ghaff »

ApolloFortyNine wrote: post #371
VLM wrote: post #316

Earlier quoted context omitted.

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…

Though 1k is a pretty naive estimate, 12k a year is just not right. I'm having trouble coming up with any way to prove it wrong, besides common sense. Think of the price of appliances, and then think of how many you can get with 12k. Reshingling a roof tends to be around 5k, and lasts for 30 years. I can't even imagine a scenario where you spend 12k a year.

It does depend on the age and condition of the house. I bought a fixer-upper about 20 years ago. But just as an example, I spent $16K on a small bathroom remodel last year--which was partially aesthetics but there was definitely plumbing work that had to be done. Another $1K on carpeting that was really old and scruffy. $4K on major tree trimming/removal. That's more than a typical year but that's the sort of expenses I have.

This year I'll have some new windows put in to replace very old ones that look like complete crap.

Arguably some of that is optional but it's pretty typical for me. $1K/month seems like a reasonable estimate for me. I imagine that a newer house could well be less.

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

#388

Post by scarface74 »

moorhosj wrote: post #377
scarface74 wrote: post #286

Earlier quoted context omitted.

When it comes to making a trade off for convenience vs. cost, I usually choose cost within reason and I also got burned by the real estate meltdown. I was in no hurry to buy. But the rent where we were staying went from $1300 to $1800 within 3 years for a 3 bedroom, 1650 square foot apartment. We were able to buy a house, a brand new build 3000 square feet 5 bed/3.5 bath for $2000/month with only 3.5% down in a neigh…

$2000 mortgage $140 lawn care $58 warranty Instead of paying the $1,800/month, you are now paying $2,200/month.

Yes, but the rent will keep rising with market prices and we were living in the most sought after part of town -- the most affluent city in the state. The mortgage will never increase and is excellent inflation hedge. The property taxes may increase slowly but after 5-7 years, we can get rid of the approximate $300 a month in PMI.

We also have 1300 more square feet, a separate house with a yard instead of an apartment, 2 more bedrooms, 1-1/2 more baths, a separate office and we don't pay the mandatory $100 a month for crappy cable and capped internet from Comcast -- as part of the lease, you had to pay for cable. We pay $70 a month for gigabit internet from AT&T.

Heck I save $80/month by getting rid of my gym membership and converting one of the spare bedrooms to a gym.

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

#389

Post by conanbatt »

code4tee wrote: post #294
k__ wrote: 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.

Gotta say I always found this incredible. Rent control is so stupid that even it has to put rules on not being used.

Who is being harmed by a rent-controllee sub-leasing? Literally no one. Because the harm to the owner is already made in the form of rent control.

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

#390

Post by scarface74 »

gambiting wrote: post #364
scarface74 wrote: post #252

Earlier quoted context omitted.

Until your renter stop paying and if takes you three to six months to evict them or until they trash the place and you have to pay for repairs. Been there. Done that.

Isn't there insurance for this exact kind of thing?

Insurance for vacancies and dealing with non paying tenants -- no.
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