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Home ownership is still mostly renting

mattbruenig.com

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Re: Home ownership is still mostly renting

#41

Post by rdw »

WkndTriathlete wrote: post #25
AshleyGrant wrote: post #16

Earlier quoted context omitted.

Are you including taxes, insurance, and maintenance (both minor and major) in your comparison? That $1,500 rent wraps all of those costs up, while only part of those costs are in a mortgage payment. Over time, it's easy to see how the $3,600 per year difference can be eaten up by maintenance on things like broken/dead appliances/general & major home repairs. A new roof may only be necessary every 20 years or so, but…

The article's analysis missed one big thing in the comparison: rent (necessarily) includes a profit margin for the owners. In a mortgage this is the interest payment on the loan, but in a mortgage the owner gradually shifts from lender to buyer. (In fact, one way of looking at paying down a mortgage early is that the buyer is earning higher returns at the expense of the lender.) It wouldn't surprise me at all that a…

Rent does not necessarily include a profit margin for the owner. There is a rental market rate and if the landlord's expenses exceed that rate, they can and do rent out the unit at that rate. It's still better than leaving it empty. Loss-making business ventures are common, and if we're talking about owners who have a separate source of income than property ownership, loss-making side hustles are exceedingly common. (there's a lot of complexity that sometimes does incentivize big commercial-property landlords to leave office spaces empty in some cities, but, I think that's a different market yet again)

Re: Home ownership is still mostly renting

#42

Post by hash872 »

joshstrange wrote: post #35
hash872 wrote: post #30

Earlier quoted context omitted.

I'm a little confused. If you owned the home or condo, you'd have to handle getting anything fixed yourself, including your water seeping example. So you have to pay out of pocket for it, plus handle dealing with the contractor, etc. Why do you think that's a case against renting? If you have an unresponsive landlord, you can simply hire the handyman yourself, subtract the cost from your rent while emailing them an i…

> I'm a little confused. If you owned the home or condo, you'd have to handle getting anything fixed yourself, including your water seeping example. So you have to pay out of pocket for it, plus handle dealing with the contractor, etc. Why do you think that's a case against renting? In that case I would have actually had it fixed instead of having to wear shoes in my kitchen for months. Also I budget monthly for thin…

>Time and energy are not free and I have better things to do with my time than try to claw back what I'm owed from a scummy landlord in small claims court or similar

I think you missed what I said. No courts are involved- if your rent is $2000, and the handyman was $1000, you send the landlord $1000 for the month along with the handyman's invoice. What are they going to do about it?

Re: Home ownership is still mostly renting

#43

Post by FreezeInTheDark »

everdrive wrote: post #32
FreezeInTheDark wrote: post #28

Earlier quoted context omitted.

His central point is that the "rent" you pay via the costs of homeownership are often approximately equal to the costs of actually paying rent. Since principal payments are on top of those costs, that is money you _can_ do something else with if you were renting, in this analysis. Of course, that part of the analysis ignores the potential capital gain of the property value, which is often one of the appealing financi…

Except that in many places renting is even more expensive than monthly mortgage payments.

I can't speak to all markets, but in my experience in a HCOL city in the U.S., this is not true, at least anymore. Buying a place never broke even with renting an equivalently sized one, even in the long run. Yes, there are lifestyle advantages to homeownership, but at my current place and time, not financial advantages.

Re: Home ownership is still mostly renting

#44

Post by skyde »

he said mostly renting but then say 25% go to your principal. So it’s as if it’s 25% cheaper assuming you pay same monthly amount.

But I agree If you have HOA burning your money overpaying on useless stuff renting could actually be cheaper.

Re: Home ownership is still mostly renting

#45

Post by shapefrog »

joshstrange wrote: post #31
AshleyGrant wrote: post #16

Earlier quoted context omitted.

Are you including taxes, insurance, and maintenance (both minor and major) in your comparison? That $1,500 rent wraps all of those costs up, while only part of those costs are in a mortgage payment. Over time, it's easy to see how the $3,600 per year difference can be eaten up by maintenance on things like broken/dead appliances/general & major home repairs. A new roof may only be necessary every 20 years or so, but…

I'm including everything other than maintenance in those numbers. I had a 18 year old HVAC system I replaced earlier this year but I had been saving for it and knew it was coming. I had a new system installed within 3 days of calling out the company which I can almost promise would not have happened if I was renting. Can you get a good landlord? Sure, I know they must exist but I've not (nor have my close friends) ev…

> Can you get a good landlord? Sure, I know they must exist but I've not (nor have my close friends) ever found one.

I always wonder why the only 'financial geniuses' that are landlords are, to a person, such bad landlords.

Re: Home ownership is still mostly renting

#46

Post by kindle-dev »

dsizzle wrote: post #17
kindle-dev wrote: post #3

This totally misses the point that there is no where else you can get 20x leverage at < 3% interest. Even with modest appreciation, you're going to make a lot of money putting 5% down on a house.

Do you mean 5X? I believe 20% down is more common. If you do only put down 5% you'll also have PMI on top of interest. That said, your point stands that it's easy to get low interest leverage. Another related point that I think is implicit in your comment is that you win even if home values only keep up with inflation (what you'd expect with a healthy home supply).

I believe the average down payment on a house for first time buyers is around 5% these days (in the US): https://www.bankrate.com/mortgages/how-much-is-a-down-paymen...

Re: Home ownership is still mostly renting

#47

Post by FunnyLookinHat »

PaulDavisThe1st wrote: post #13

MB seems to make a simple error a couple of times here: > So, the financial case for homeownership is much weaker than I think most realize, especially when compared to alternative ways of investing the same money. > So these principal payments are generating a net return of 1.795 percent (2.295 – 0.5). These same dollars, if placed in a diversified stock/bond portfolio, would generate a much higher return than that.…

Add to that the added benefit of "as long as I make my payments, this place is mine forever" - which is certainly not the case with renting.

There's a whole slew of intangibles that come with "owning" your home that I think have made my quality of life significantly better (and certainly worth every penny): being able to make whatever changes I want, knowing that what I do to the property could outlive me (in the sense of taking care of the planet), and having a sense of accomplishment when I fix or upgrade odds and ends.

Re: Home ownership is still mostly renting

#48

Post by shapefrog »

simonh wrote: post #38

The sleight of hand here is presenting the breakdown in the first years of a mortgage, when the interest payment is at it's highest, as though it's representative of the mortgage as a whole. Suppose I presented the analysis based on the last year of a mortgage. The interest payment would be almost nothing, with most of that swinging over into the payment on the principal. Presenting that as being representative of mo…

> The other thing to bear in mind is that mortgage payments, including interest, can be half as much as the rent on a similar property.

It can also be twice as much. It can also be the same amount. It can be anywhere between negative a lot & positive a lot.

The point is to do the maths and not just parrot the bullshit line 'renting is wasting money' because it may or may not be true.

Re: Home ownership is still mostly renting

#49

Post by hash872 »

I basically agree with Bruenig. To put what I said in a couple of comments in one place:

The idea is that if renting is cheaper than owning in your city, you pocket the difference you would've spent on owning and put it in the market. So your total market gains will exceed (home appreciation minus repairs minus taxes/insurance/water&sewer minus real estate commissions and taxes to sell)

Over a long enough time span, 90+% of the building has to be replaced- everything from the roof down to the basement is essentially on a clock to obsolence from the moment you sign the deed. So even calculating what your expenses are in a given year doesn't cover every 5 or 10 year expenses (a new bathroom, say), or the tail risk of a new roof or new heating system.

Over multiple decades of ownership, you have to renovate the house- just to stay at the same level of quality. So yes you could theoretically sell your home you've owned for 30 years for a profit- but if you didn't replace the kitchen, bathroom, repaint, redo the roof, etc. etc.- the value's going to be pretty low. No one wants your kitchen from 30-40 years ago! So you probably renovated the house at least once- so subtract $50-200k renovation cost from your profit & loss.

Once you want to sell your house, you encounter even more expenses- even without a real estate agent, you say a few % just to the city/state/attorneys!

Yes, a landlord can make money on rent (and if you consider all the risks of being a landlord in a blue state, I'd argue that's an excessively risky business). But, they're paying income taxes on the rent, while my gains in the market are tax free

Re: Home ownership is still mostly renting

#50

Post by vel0city »

One big thing I often see missing in these comparisons of renting versus owning a home is the difference of the housing stock. Sure, I could rent an apartment less than my mortgage + insurance + taxes + maintenance savings, but then I'm most likely living in much less square footage, I probably don't have a private garage, I don't have private outdoor spaces, and I get much less say over the features of the space. My mortgage + escrow amount is a roughly $200 more per month than the last apartment I rented at, but with that I gained over twice the square footage, a two car garage, a pool, and a good bit of private yard. I can run cables in my wall for whatever I want, I can put amateur radio antennas throughout my attic and in my yard, I can install an electric vehicle charger in my garage, I can mount speakers and WiFi AP's on my ceiling, I can do practically whatever with my home without having to get approval from people. For a few hundred dollars a month more, I get significantly more. The apartment and my home are pretty much the same market, they're about 2mi away from each other.

The other aspect is home ownership helps hedge against housing inflation. That rent I paid a couple years ago at the apartment is now more than my mortgage + escrow. True, you still feel the effects of housing inflation through higher taxes and insurance premiums, but even MB's numbers show that to only be 30% of the overall costs of the house. You're going to feel the effects of housing inflation much more being a renter signing new leases every year rather than having a significant chunk of your costs completely fixed (P&I), and maintenance costs when truly budgeted right can be somewhat fixed.

Other than that I really do agree with MB in this. It always amazes me how people don't quite get the idea that your home price going up doesn't really mean great things for you unless you're planning on trading down. A house is worth what a house is worth, you're going to have a hard time really realizing those gains unless you plan on living under a bridge with your pile of money.

Finally, if all you're wanting to do is maximize returns on every dollar that passes through your hands, owning a home isn't necessarily the best choice. The best choice is to rent the cheapest, crappiest apartment with absolutely no amenities in the crappiest part of town and invest everything. But then you're choosing a vastly different lifestyle, so its really a question of what you value in life. Personally, I enjoy floating in my pool after a stressful day of work and find a lot of value in that but maybe you find looking at your Coinbase wallet more relaxing.

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