Here in the bay area, you can Think of it as the cost of employment. When you work at Google and get paid X, roughly 50% goes to rent. But, as long as the rest of the 50% is enough to live comfortably and build large assets, then it's still a good deal. Then when you've built up enough assets, leave and retire somewhere.
Renting is Throwing Money Away, Right? (2015)
431–440 of 497 posts
Re: Renting is Throwing Money Away, Right? (2015)
#432Earlier quoted context omitted.
I think this is a good post and a good perspective to take, but its worth pointing out you bought an expensive washing machine, though if its more reliable, then that's probably the better purchase. On good days I do like my house hobby. I mainly bought a house because I kept having to move every year, renting flats in houses where they decided they wanted to sell, or move in themselves, etc. So now only the bank and…
Not so, I bought the cheapest washing machine I could get. I dropped about $1200 cash on a speed queen that'll last me maybe 20 years. Joe 6 pack finances a new LG every three years at 29.99% credit card interest for $600 and thinks I'm getting ripped off. Its just like the situation with hiking boots, I can only afford the $250 boots that last many years, I'm not rich enough to afford the $100 boots that only last o…
If you can't estimate the quality of things, buy the cheapest you get. Because nobody hinders someone selling you crap for double the price.
Re: Renting is Throwing Money Away, Right? (2015)
#433The “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…
but it varies quite a bit based on location. It all depends on the Rent to own ratio in that area, which can vary quite a bit.
Re: Renting is Throwing Money Away, Right? (2015)
#434Earlier quoted context omitted.
> 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 a…
>>You've gained 100k on your initial 40k You haven't really gained 100k. You have gained 100k multiplied by your percentage of equity , i.e. the amount you have paid so far into your mortgage principal. Assuming it's a 30-year mortgage, that will be around 30%, so around 30k. (And of course, the house price doubling in 10 years is a bit unrealistic unless you live in a booming area.)
That's not at all how selling a house works. When the price of your home changes, you pocket or lose the entire difference when you sell it. Your loan amount doesn't change with the housing market.
Re: Renting is Throwing Money Away, Right? (2015)
#435Earlier quoted context omitted.
they get approved for a new mortgage every time they move while the old one isnt even 10% paid off?
I don't know of many lenders that will give you a mortgage with 10% down.
There are tons of lenders who will give you a mortgage with < 10%. They're much more concerned with income than a down payment because you're paying PMI.
Re: Renting is Throwing Money Away, Right? (2015)
#436Earlier quoted context omitted.
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, $…
Your math ignored both maintenance and property tax on the home. Let's say maintenance costs 1% a year and property tax is 3.5% a year. I'm choosing both numbers lower than likely reality to give your position an advantage and let's say that advantage covers any income tax benefit of paying the property tax. After those 30 years you have a $1214 asset that you've put a bit over $1170 into - that's the original $100 plus about $238 in maintenance and about $833 in property taxes. So your $100 investment has grown by about $44 while the stock investment in your example, after deducting 20% in cap gains, has grown by about $114.
The house by itself is a bad investment, factoring in mortgage interest makes it even worse, then factoring in not paying rent makes it significantly better. How much worse or better it is in the final analysis depends on factors that are outside of many our controls - jobs, family, local market, etc. The decision is not quite as cut & dry as many on this thread make it out to be.
Re: Renting is Throwing Money Away, Right? (2015)
#437These 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…
[deleted]
Re: Renting is Throwing Money Away, Right? (2015)
#438These 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…
You are forgetting that you don't only get the leverage of the $1M, you also have to pay the loan for the full sum of $1M. There is a section in the article about 'opportunity cost' which covers this.
You don’t have to pay full. When you’re done, you can sell.
Buy for $500k, put down 100k as downpayment. Suppose it’s an interest only loan and you pay $1500 a month for all house costs. In 5 years you’ve paid 90k. If the house price doubles, you’re walking away with 410k.
Renting you’d be putting at least 2k a month, so total 120k. 190-120=70k.
For 70k in stock market to become 410k , that’s a 5.8X growth. Really hard.
In a booming market, with low interest rates, buying makes sense because of leverage.
Obviously you have to do the numbers for rent/buy scenarios and make a decision yourself. There is no right answer.
Re: Renting is Throwing Money Away, Right? (2015)
#439Earlier quoted context omitted.
Something always breaks. But that doesn't mean it's not predictable. If you treat it as a monthly payment to the repairs fund, you are probably good.
Very large and unexpected things do happen. About 10 years ago, I ended up with about a $60K bill to correct a chimney that was basically collapsing and pulling the house down with it. But I agree with your general point. In the case of my paid-off house, I figure it's about [EDITED] $1K per month (counting some big projects) for upkeep (depending on how you count things that are nice-to-dos rather than strictly nece…
That should be covered by homeowners insurance, at least in part.
That your old crumbling house was under-insured is no argument against homeownership in any way shape or form, just an unfortunate anecdote.
Re: Renting is Throwing Money Away, Right? (2015)
#440Earlier quoted context omitted.
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.
That's not possible, you're not getting a place for 2% of purchase value on the open market. There are no £1mn properties available for £1,666/month, or £500,000 places for £833/month, it's more than double that everywhere in London