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Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

patrick.net

41–50 of 63 posts

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#41
This article is wrong. Admittedly, some problems occur due to its US-focus. In the UK, for example, residents pay property taxes, not just owners, so you pay the same property tax whether you own or rent the property, removing that advantage of renting.

The figures for the mortgage versus renting are bogus in any case. The writer has not compared like to like. An apartment with people walking around above you is not the same as a HOUSE. It is therefore no wonder the rent is 2.5 times cheaper than the mortgage.. it's on a property that's subjectively at least 2.5 times worse. Like for like, the mortgage on a similar apartment would be a lot less than $2500 a month.

Given increasing population, rents and property prices are unlikely to rise at just 0.4% above inflation over the next 30 years. While the mortgage payment can only go up based on interest rates (and it's not /that/ hard to lock into a fixed rate right now..), the rent will go up in absolute terms. Assuming a 3% rise after inflation, the unlucky renter will be paying $2303 per month at year 30, and very little will have been put into savings for the last 10 years. Worse, they won't have an asset - the homeowner will.

Buying a property with a mortgage gives you incredible leverage you'd struggle to obtain with other investments. The bank won't loan you $400,000 to invest in stock, but you can invest in a property this way.

Given that rising rents will cause the renter to barely be saving anything by year 20, that the renter will have no property and a less than exciting savings account come year 31, and that the renter has had to put up with all sorts of restrictions that come with rental properties (no modifications, often no pets, no guarantee you can stay there), I think the homeowner is a lot more wise if they plan on staying put for at least a few years.

Renting is a nightmare even if it proves to be cheaper in the /short-term/. If you're an automaton that doesn't mind uprooting whenever your landlords say so, perhaps it'll work for you. But for those of us with kids, pets and geographical attachments, owning a home gives us both an asset we're invested in using the bank's money for leverage, and a permanent base that only severe economic conditions can take away from us.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#42
post #24
post #22

Earlier quoted context omitted.

What makes you think it is rare? Genuine interest, I have no knowledge about it. I know cases were renters pay less than the monthly rates paying of the credit for buying the house. Wouldn't it be kind of zero-sum? Either you live in the house yourself, than the calculations apply, or you live somewhere else, but then (simplified) your rent equals the rent your renters pay, so it cancels out and the calculations woul…

Of course. I'm sure it's common in some parts that landlords make a loss in month to month terms, but then once the mortgage is paid off they own it and sell it, and it's gone up massively in price. Maybe that's their big pay day. I'm sure other landlords make a very good profit month to month also. But if landlords were making a loss in real terms over years, they would probably stop doing it.

What makes you think landlords don't take losses and don't stop doing it? Measuring only active landlords gives you a biased sample set.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#43
post #17

Surely arguing that renting is cheaper than owning implies that landlords make a loss - which I'm sure is very rare.

It's not that rare in Seattle -- a renter here is paying something like 30-50% less per month than an owner of an equivalent space.

This is one of the principal arguments that the local housing market is overinflated. You can't take out a mortgage to pay rent, so it tends to be better reflect economic fundamentals.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#44
post #6

Earlier quoted context omitted.

I agree, the article ignores many positive aspects of homeownership. However, some of the points you make are poorly founded. For instance, there's no guarantee a 400k house in Sacramento will be worth 800k in five years, solely because US is becoming more crowded. It's a bold claim. Also, the idea of being at the mercy of your landlords is weird. In markets with a lot of excess inventory, some landlords can't find t…

> For instance, there's no guarantee a 400k house in Sacramento will be worth 800k in five years Sure, but based on historical events with housing in "great" areas, this can and does happen. If you buy right before a bubble, it can even happen sooner -- in a couple years. A 6% fund is not going to even have the chance to do that. > In markets with a lot of excess inventory, some landlords can't find tenants. A given,…

Sure, but based on historical events with housing in "great" areas, this can and does happen. If you buy right before a bubble, it can even happen sooner -- in a couple years.

If you buy a good stock right before a bubble, you can double your money quickly, too (ask me about INTC or CSCO or AMZN in 1998). The point is, what's going to happen under likely circumstances? More importantly, what's going to happen in a rational market?

Home prices are coming down from the largest asset bubble in US history. If you've never thought about homeownership before 1995 or so, you might assume that home prices always increase by at least 5% per year. You'd be wrong, however. Homes in the US are historically an under-performing investment; over the long-term, their returns approximately match the rate of inflation.

There are exceptions to this rule, but I think that the parent comment is generally well-taken: it's not guaranteed that your home is going to double in value in five years. (In fact, in some parts of the country, there's a real chance that your home will be worth 50% less in five years' time.)

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#45
post #28

What the author seems to miss is that if you rent for 30 years, you still have to buy or rent a home for year 31. Whereas, if you own your home for 30 years, in year 31 your housing payment is $0 + maintenance, which I'll guarantee is less than the rent the author would be paying.

[deleted]

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#46

$400k for a 2 br place is expensive by national standards, which would make Sacramento a high-priced real estate market (not hard to believe, most of California is). He claims $949 a month is much higher than median for a 1 br. That does not seem to fit with what I've seen in high priced real estate markets. By comparison, in Ohio, a brand spanking new two bedroom detached condo (nobody builds 2 br homes in most part…

By comparison, in Ohio, a brand spanking new two bedroom detached condo (nobody builds 2 br homes in most parts of the country, so you couldn't find a newish one) in a great area would cost maybe $150-175k. But rent on a good one BR apartment is still $750/mo.

Where are you getting your numbers? I grew up in Columbus; most of my friends and family still live there. The cost of a condo there is anywhere from 30-50% more than what you cite, and the rent for a 1BR apartment is 20-30% less.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#47
post #43
post #17

Surely arguing that renting is cheaper than owning implies that landlords make a loss - which I'm sure is very rare.

It's not that rare in Seattle -- a renter here is paying something like 30-50% less per month than an owner of an equivalent space. This is one of the principal arguments that the local housing market is overinflated. You can't take out a mortgage to pay rent, so it tends to be better reflect economic fundamentals.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage.

Don't assume everyone has a new mortgage at full market prices!

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#48
post #28

What the author seems to miss is that if you rent for 30 years, you still have to buy or rent a home for year 31. Whereas, if you own your home for 30 years, in year 31 your housing payment is $0 + maintenance, which I'll guarantee is less than the rent the author would be paying.

I think the main consideration when talking about renting or buying is the time involved. In Texas, I've found that if you're going to live somewhere for at least 2 years (or so, depending on the market), and you set out to find a particular standard of housing (i.e., fix the square footage, etc), it's cheaper to buy. Under three years, unless you find a good deal, it's probably cheaper to rent.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#49
post #28

What the author seems to miss is that if you rent for 30 years, you still have to buy or rent a home for year 31. Whereas, if you own your home for 30 years, in year 31 your housing payment is $0 + maintenance, which I'll guarantee is less than the rent the author would be paying.

The real advantage to renting is it reduces the cost to move. Try running the numbers assuming you move every 3 to 7 years costing you 4% of the value of your home and see how the numbers look.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#50
post #43

Earlier quoted context omitted.

It's not that rare in Seattle -- a renter here is paying something like 30-50% less per month than an owner of an equivalent space. This is one of the principal arguments that the local housing market is overinflated. You can't take out a mortgage to pay rent, so it tends to be better reflect economic fundamentals.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage. Don't assume everyone has a new mortgage at full market prices!

Yes, but if they have significant equity they could make more money selling than renting in an overinflated market.
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