Renting is Throwing Money Away, Right? (2015) • Hacker News Board

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

#401

Post by refurb » Mon, Apr 23, 2018, 3:23 PM UTC

clappski wrote: post #127

phamilton wrote: post #94

Earlier quoted context omitted.

> I've read that the mortgage interest rates are around 2-3% in Europe From what I understand, these aren't fixed rate 30-year. The rate can change year to year. The US is unique in offering one interest rate that will be consistent for 30 years.

You can get variable and fixed rate mortgages in the UK, fixed typically have higher interest rates but obviously variable can outpace it depending on markets.

Fixed rate for how long?

I know in Canada the longest mortgage term you can get is 10-years and you pay a substantial premium over 5 years. Mortgages are still amortized over 30.

What that means is if interest rates go from 2% to 6% over a 5 year period, you have to renew your mortgage at the much higher rate.

In the US, if you never move, your mortgage payment might never change for 30 years.

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

#402

Post by Bartweiss » Mon, Apr 23, 2018, 3:25 PM UTC

neffy wrote: post #285

loxs wrote: post #266

Earlier quoted context omitted.

No, he is not assuming that. Go read the article again

You're right, I didn't get that far... but what he does is actually worse. He assumes a 2% increase in rent (no, just no) - rents track real estate increases quite well too, the common link is the cost of the landlord's mortgage to buy the property, and an ROI of 8% on an MMF. Also no. All of this is linked back to monetary expansion - in periods of high inflation, when you also get high returns on MMF's, your rent i…

> He assumes a 2% increase in rent (no, just no)... and an ROI of 8% on an MMF. Also no.

I don't think the example was an MMF - isn't it a whole-market index fund? (The link under that phrase doesn't really clarify, it's just a driver for internal traffic.)

Even so, I just checked examples for those, and that class of fund has been earning about 6.5%. That's quite a difference from 8%

The 2% rate on rent isn't insane as a national average, but failure to break it down still invalidates large parts of the article.

In particular, the P/R section is ruined by that assumption. We're told that at P/R ~15 Owen and Rachel break even, and at P/R >20 Owen loses badly. But high P/R is basically inextricable from rapidly increasing rents. San Francisco, with national-high P/R of 45, has seen 10% average rent increases. Boston, with P/R of 28, has been averaging 4% rent increases.

Individual circumstances vary, of course, but the toy example is rendered seriously misleading by overstating market returns while ignoring the fact that rent growth is guided by home price growth.

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

#403

Post by refurb » Mon, Apr 23, 2018, 3:26 PM UTC

chrisseaton wrote: post #21

jimmy1 wrote: post #16

When the goal is to have a roof over your head, between renting or buying, the better option is to buy. If the goal is to invest wisely, of course buying a house is worse than say something like an index fund. But the problem is: I can't sleep in an index fund. A house isn't a depreciating asset. Renting is not an asset at all. Mortgages are fixed. Rent tends to frequently increase, skyrocketing at worse. This articl…

> owning is cheaper than renting This is the key thing! Obviously owning is cheaper than renting, as renters have to cover the costs of their landlord owning, and then some profit for them on top of that.

That's not true at all.

My landlord bought the condo I live in 10 years ago when it was worth maybe 30% of what it is today.

My rent right now is ~40% of what my mortgage would be if I bought the place.

We're both happy!

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

#404

Post by refurb » Mon, Apr 23, 2018, 3:29 PM UTC

flyGuyOnTheSly wrote: post #52

I know a handful of people in their 60s... The ones who made a point to buy instead of renting their entire lives are laughing all the way to the bank. The ones who are still renting are still working nearly full time and will probably be doing so until the day that they die. Buying and committing to a mortgage forces you to save money for your future, plain and simple.

You're ignoring the folks where that doesn't work out.

I had plenty of friends who lost $100K down payments during the housing crisis and are now starting all over again. The ones who rented had zero issues.

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

#405

Post by BeetleB » Mon, Apr 23, 2018, 3:33 PM UTC

VLM wrote: post #316

hvidgaard wrote: post #148

Earlier 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…

Sorry: $1K/month is ridiculous.

I've owned a non-new home for a few years now. I have all the records of repairs/maintenance. So far the average is less than $130/mo (that includes buying two microwaves and a washer)

My roof needs to be reshingled. That'll cost about $6K (got a bunch of estimates from roofers). Maybe $12K 20-30 years down the road for a full replacement. That'll likely be my biggest expense, which is not even $1K/yr, let alone a month.

My other appliances are old. Once I replace them, it will bump the average to at most $200/mo.

I don't do any repair work myself - always pay to get it done. You either have a huge house or live in a very expensive area (mine is above the national average).

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

#406

Post by spicymaki » Mon, Apr 23, 2018, 3:34 PM UTC

ShadowFaxSam wrote: post #306

maccard wrote: post #258

Earlier quoted context omitted.

A 6 year finance plan is quite a long term. I financed my first car over a 3 year term. You could equally have taken out a 72 month lease and been stuck in the same (possibly even worse) situation. > if you do exit early, you typically only have to make the next 6 months of payments. Two things here. 1) I doubt that most leases will let you terminate the contract that early, and 2) if you can, you still have 6 months…

A 3 year term would not have been possible at my then current salary to finance the car. The standard term period (when I was buying) was 5-5.5 years. In hindsight its easy to look back on what I could have done differently, but I guess that's point. When first graduating, I wouldn't recommend entering into even a medium term financial commitment as things can change so quickly within your first few years in the prof…

You could have also purchased a used vehicle at a 3 year term. I bought a new vehicle out of college and paid an high interest rate with expensive insurance over a 5 year term. It would have been great to reinvest that savings into the future.

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

#407

Post by zwischenzug » Mon, Apr 23, 2018, 3:39 PM UTC

crispyporkbites wrote: post #308

zwischenzug wrote: post #167

I'm fed up of having this argument in London. I rent, and pay about 2% of the value of the property in a year. I get around 8% on shares over the last ten years. Renting is an absolute no-brainer for me. People are shocked when I tell them how much return I get on my savings vs how much my rent is, especially when I tell them where I live (a 'premium' part of London).

Your numbers don't add up. You live in a premium location, I guess a nice part of zone 2? So let's say 1mn GBP for a 3 bedroom house. You pay 20k/year in rent (2%) = 1666/month for a 1mn property? Then you're getting an incredible bargain. You can only get a 1 bedroom flat for about that in a good part of London. A 3 bedroom house would be closer to 3k/month, so really you're looking at 4-5%/year. So the difference i…

Yes, exactly. Around 2% of purchase value.

You'd be surprised what you can get renting, area depending.

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

#408

Post by Bartweiss » Mon, Apr 23, 2018, 3:39 PM UTC

tobyjsullivan wrote: post #157

Another 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…

This is the biggest weakness of the article, I think.

Rent growth is included in the Rachel/Owen example, but it's set at 2%/year to get the 15 year equilibrium. And during the P/R discussion, that rate is implicit in the analysis of what's an acceptable P/R to buy at. But rent growth is obviously tied to housing price growth - the highest P/R markets range from 5% to 10% per year of rent increases, which is exactly what's driving renters to demand housing at high prices.

On a more theoretical level, we can observe that the article uses national averages to show that housing prices track inflation. That only holds where new housing stock is built to match rising populations. More accurately housing prices track (inflation + population growth - new stock), substantially changing a lot of these conclusions.

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

#409

Post by spicymaki » Mon, Apr 23, 2018, 3:41 PM UTC

BoorishBears wrote: post #241

ShadowFaxSam wrote: post #220

Earlier quoted context omitted.

True, but the average term of a lease is only 24-36 months while the length of term for financing a car is 60-84 months. (I had a 72 month plan). So you can get out of a lease much earlier, and if you do exit early, you typically only have to make the next 6 months of payments.

To be fair, not long ago 24 months was the common loan term. Now people are getting 7 year and even 9 year loans. We live in a time when you can finance a 400$ watch for 2 years. The renewed focus on chipping away at people’s monthly income is almost impressive.

That is not even the worst of it. There are people leasing vehicles (more expensive vehicles then they could buy) without saving the money they need to put down on a new vehicle after the term is up. Worse yet they drive the car past the mileage limits and then after the term is up they then roll the old lease into the financing for a new lease. It is a vicious cycle.

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

#410

Post by pc86 » Mon, Apr 23, 2018, 3:41 PM UTC

scarface74 wrote: post #252

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).

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.

This can certainly happen but it's definitely uncommon bordering on rare, especially for folks who keep paying (or with whom you're willing to work out a deal). And running credit and background checks on prospective renters goes a long way toward eliminating folks who are going to be prone to stop paying a lease halfway through.