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A Growing Problem in Real Estate: Too Many Too Big Houses

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Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#301

Post by jandrese »

sfkdjf9j3j wrote: post #212
maxsilver wrote: post #98

Earlier quoted context omitted.

I also hate maintaining a detached single family home with a yard. I also hate being responsible for the fixes. But that situation is still far better than renting. When we rented, we were subjected to eviction at any time, for nearly any reason, for basically no notice (60 days, which in the US is effectively zero notice). Your subjected to every whim the crazy wildly-irrational housing market throws at you (we've h…

Were you a month to month tenant? If not, why would you sign a lease that lets the landlord break it with 60 days notice? Doesn't that kind of defeat the purpose of having a lease in the first place?

Every lease I've seen has a provision that allows the Landlord to kick you out if you are deemed to be a nuisance.

IIRC there are renters rights in many areas that make this more difficult, requiring a court order typically, but not all areas have this and Landlords will put those clauses in the lease regardless just in case the tenants aren't familiar with the law.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#302

Post by treis »

mcguire wrote: post #290
treis wrote: post #279

Earlier quoted context omitted.

Even if we say that the owner is spending those several thousand dollars on maintenance that just means they're cash flow neutral. They are still making thousands through increased equity and appreciation.

Well, yeah, except 2008 kinda put a dent in that.

Only if you were forced to liquidate before the rebound. Even if you bought at the absolute peak in ~2008 you'd still be way ahead today.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#303

Post by nroets »

Animats wrote: post #176
LarryDarrell wrote: post #108

Earlier quoted context omitted.

The thing I've noticed is that in my area all the modest neighborhoods (2 bed, 1 bath, sub $200k) are being bought up by landlords. This leads to a neighborhood of renters, which is a lot different than a neighborhood of owners. The Havers can buy a lot more houses than the Have-Nots and I'm left wondering what the price of single family homes would be if renting them was illegal and they were all placed on the marke…

Yes. That's a "private equity" thing.[1] Blackrock can borrow at lower rates than homeowners. So they can buy up houses and rent them out at a profit. Plus they can keep raising the rent. And they outsource maintenance. [1] https://www.theatlantic.com/technology/archive/2019/02/singl...

The agency cost of any landlord is much larger than the savings in capital cost. For example, for a tenant there is an incentive to complain over the smallest problem instead of fixing himself or just living with the problem. Management agents charge a fortune to deal with these issues.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#304

Post by akcreek »

brightball wrote: post #231
hn_throwaway_99 wrote: post #93

One of the trends that I can only hope continues is getting rid of this idea that home ownership (especially single family home ownership) is the American dream. I live in and own a detached single family home (was a compromise with my spouse) and to be honest, I hate it. I hate having to take care of the yard, to deal with unreliable tradespeople when things break, to deal with the huge expense of minor home repairs…

I agree and disagree. On the one hand, yes, you're right that the repair expenses can be a big deal. If you don't want anything but the basics for the technology in your home, sometimes a home warranty can be a good option too but experiences vary significantly. On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still p…

>On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing.

You'll have property taxes as well, which could be meaningful depending where you live. I was talking to one of my neighbors the other day who has lived in his home here in Seattle for over 40 years and he told me he is taking out a equity line of credit against his fully owned home to pay the property taxes as they've increased beyond what his retirement income can cover.

Once the home gets older you get into more than just maintenance as well; you get into replacement. Replacing the appliances, roof, windows, mechanicals, etc can be lead to some very serious expenses. The same neighbor needs to replace his roof, which he also can't afford until he gets the credit line.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#305

Post by zcid »

LarryDarrell wrote: post #108
maxsilver wrote: post #98

Earlier quoted context omitted.

I also hate maintaining a detached single family home with a yard. I also hate being responsible for the fixes. But that situation is still far better than renting. When we rented, we were subjected to eviction at any time, for nearly any reason, for basically no notice (60 days, which in the US is effectively zero notice). Your subjected to every whim the crazy wildly-irrational housing market throws at you (we've h…

The thing I've noticed is that in my area all the modest neighborhoods (2 bed, 1 bath, sub $200k) are being bought up by landlords. This leads to a neighborhood of renters, which is a lot different than a neighborhood of owners. The Havers can buy a lot more houses than the Have-Nots and I'm left wondering what the price of single family homes would be if renting them was illegal and they were all placed on the marke…

We really need some stronger regulation on renting.

I'd like something along the lines of federal rent control. Limit the rent that can be charged to reduce the profitability of buying up house after house. This would be unpopular with the current owners of homes as it would lower property values, but over time they would remain much more stable.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#306

Post by thousandautumns »

i_am_proteus wrote: post #221
treis wrote: post #179

Earlier quoted context omitted.

It's another example of the high cost of being poor. The rent on my town home is several thousand more per year than what a mortgage (5% down), taxes, HOA fee, PMI, and home insurance would be.

Several thousand more per year doesn't sound too far off: if you own, you're responsible for home repairs: roof, HVAC, electrical, plumbing, appliances, siding, painting, etc. I budget $2,000 a year for repairs on a modest-sized home; most years it's under $1,000, but HVAC and roof are infrequent and fairly expensive.

Landlords absolutely incorporate home repair costs into rent. I'm shocked at the number of people who assume that landlords just eat the cost of maintenance. Just because you aren't forking over the money directly to the repairman doesn't mean you aren't paying.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#307

Post by bonniemuffin »

djakjxnanjak wrote: post #230
thorwasdfasdf wrote: post #203

Earlier quoted context omitted.

One way to think about it is the Spread between the cost of owning vs the cost of renting. For example, in SF, the spread is very small and hence favors the renter. Here's an example: In SF, your cost of ownership is roughly 2% per year (1.4% property taxes, 0.5% for Earthquake Insurance, 0.3% for repairs and depreciation and HOA), which comes to a total of 2.2%. The average Rent for an equivalent house is roughly 3%…

My earthquake insurance is more like 0.1% and I'm pretty sure the rates are set by the state - where are you getting your numbers? If the cost were 0.5% I don't think it would be worth paying, that would buy a lot of seismic reinforcement.

+1, my annual SF earthquake insurance premium is 0.06% of the appraised value of the house. It's not even worth mentioning in adding up the total cost of ownership.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#308

Post by thousandautumns »

anthonypasq wrote: post #283
AnimalMuppet wrote: post #164

Earlier quoted context omitted.

> we've had 12% yearly rental increases for a decade straight now That was part of the motivation for buying my first house. The rent was going up $50/month every 6 months, and the mortgage was going to cost only $100/month more than the rent. I figured in a year I'd break even, and in 2 years I'd be ahead.

lol at assuming mortgage is the only expense to owning a house

More like lol at assuming your rent doesn't cover the other expenses of owning a house. You think your landlord is just taking the loss? When you rent, you are paying, if not directly, for every expense associated with the house, plus extra for the landlords profit margin.

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#309

Post by jerf »

rifung wrote: post #250
brightball wrote: post #231

Earlier quoted context omitted.

I agree and disagree. On the one hand, yes, you're right that the repair expenses can be a big deal. If you don't want anything but the basics for the technology in your home, sometimes a home warranty can be a good option too but experiences vary significantly. On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still p…

> On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still pay a fortune over the life of the loan which makes the renting argument a lot closer. If you can assume historical returns, renting is a financially superior choice. Well, assuming my math was correct. Both are big assumptions admittedly. The reason is that whe…

From what I've seen, the assumptions tend to dominate this discussion. I'm absolutely cherry-picking to make a point, but if you took your down payment in 1965, thinking the market looks pretty darn good, and put it into a DJIA index fund while you rented, about 30 years later, your investment would finally be worth again what you put in [1], while the person who bought the house would have some sort of equity in it.

To cherry-pick in the other direction, if you could either buy or rent starting in 1980 or so, in 30 years you'd see ~7x return (no inflation adjustment). There are homes you could buy in 1980 that would exceed that, but not very many places, and it's tricky to know what those are without hindsight. (Investing is pretty easy in hindsight, in general.)

To the extent that the stock market is modeled by an exponential curve, it has deviations from that curve on the order of your entire working lifespan.

Discussions about the utility of the stock market for retirement revolve around you investing in it continuously. In that chart, even though a point investment in 1960 may not turn out well, the money someone is putting in every year will start to do pretty well in the 1980s. The analysis around buying in a bit every year is different, but in the previous paragraphs, I'm talking about a point-in-time investment of a particular sum, so we can just follow the chart across. If you can finagle a rent that is significant lower than a mortgage, then you can also include in your model putting that difference into the market. (Though, for that to be "valid", note you actually have to, you know, do that.) But while rents and mortgages tend to be close to each other for various reasons, at different times and places they trade off which is more expensive, so that's not an assumption you're justified with in the general case.

So if you've got a mortgage cheaper than rent in 1960, you're going to pretty handily beat the guy investing in 1960 for quite a span of time. If you can get rent cheaper than a mortgage in 1980, and invest the difference over time as well, you're going to handily beat the guy buying the house.

What about if you buy a house, say, right now? Well... that's the million dollar question, isn't it?

[1]: https://www.macrotrends.net/1319/dow-jones-100-year-historic...

Re: A Growing Problem in Real Estate: Too Many Too Big Houses

#310

Post by ska »

jandrese wrote: post #297
rifung wrote: post #250

Earlier quoted context omitted.

> On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still pay a fortune over the life of the loan which makes the renting argument a lot closer. If you can assume historical returns, renting is a financially superior choice. Well, assuming my math was correct. Both are big assumptions admittedly. The reason is that whe…

> over the long term on average home prices don't increase. I assume you mean adjusted for inflation here? Even then that hasn't been true. The problem with renting is that you're still paying the mortgage, only in the renting case you're also paying the middleman who then pays the mortgage. This is why rent per month is higher than mortgage per month for the same house. So the returns from that downpayment you inste…

That analysis is overly simplified for a number of reasons, two of the big ones are 1) You often aren't comparing the same properties and 2) while it's true that you are potentially indirectly paying a mortgage, it doesn't have the same terms as what you could negotiate yourself for buying the same property today.

These and other reasons contribute to why rental costs and TCO for residential properties are not in lock-step.

So the real answer is (unsurprisingly) "it depends". Sometimes you are better off financially to rent, sometimes to buy - very dependent on location, dwelling needs, frequency of moving, etc. In the USA the balance is often tipped towards buying by tax incentives, which are politically if not economically popular.

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