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Home ownership is still mostly renting

mattbruenig.com

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Re: Home ownership is still mostly renting

#51

Post by shapefrog »

FreezeInTheDark wrote: post #37
Enginerrrd wrote: post #27

Earlier quoted context omitted.

Alternative investment is of course a thing. However, you're missing the point. People MUST live somewhere. Their only alternative investment is with regard to their down payment for money saved, or the amount of money that is (mortgage - equivalent rent), which is usually negative! The BULK (or entirety) of the money they spend on their mortgage is not money that would otherwise be available for alternative investme…

In my experience in the recent market (in a HCOL city in the U.S.), rentals (even only compared to the costs in homeownership, i.e. ignoring principal payments) are much cheaper than mortgages for an equivalently sized house/unit. That's the assertion of the article, and it rings true. You're right that the bulk of the mortgage payments, especially towards the beginning, do not go towards building any capital, which…

In my experience in the recent market (in a HCOL city in the U.K.) rent is only marginally less than the interest on the equivalent mortgage.

All the cost calculations should be based off interest only. The principle repayment is a cashflow issue - and a signifcant one at that.

Re: Home ownership is still mostly renting

#52

Post by rich_sasha »

hash872 wrote: post #39
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.…

But the point is that renting is significantly cheaper than owning a home- so you take the difference and put it in the market every month. That's the key point- that the monies invested in the market over time will beat however much your house appreciated (minus the costs of owning a home in that timeframe, minus the costs of selling, which are usually very significant). If you're in a market where renting is more e…

Depends on the location. In the UK IIRC mortgage payments are typically lower than rent payments, assuming you can find the initial deposit.

Re: Home ownership is still mostly renting

#53

Post by UnpossibleJim »

hash872 wrote: post #33
dahfizz wrote: post #23

Earlier quoted context omitted.

> That sounds awesome, but that's about a 7% rate of return, which is quite a bit less than if he had simply put his money in an S&P 500 index fund. Yeah, he made a 7% return on the real estate itself. BUT, he was also collecting rent on the house the 10 years you were living there. That's a lot more than what he would have gotten from the S&P.

But then you have to subtract all of the costs of owning the physical property over a long time span- everything that broke. Plus the taxes, insurance, water & sewer etc., as Bruenig notes. I previously worked in a commercial real estate brokerage for apartment buildings, got to know a lot of landlords, and saw the finances of their properties personally. Over a long enough time span, 90+% of the building has to be r…

Granted, but look at it from a purely analytical point of view. The land lord has invested in the property, whatever property it may be. He/she is now renting out that property to you to make a profit and has factored in the cost of upkeep, taxes, labor and wages for not only their staff but also themselves. That's renting. If you're renting a single house from a landlord who rents out a couple of houses, that margin is smaller, but they are still going to want to pay for those houses, costs and make a small profit.

No one gets into these things to lose money. If they start to lose money, they fix up the property and hope for a good market, I would think.

Re: Home ownership is still mostly renting

#54

Post by joshstrange »

hash872 wrote: post #42
joshstrange wrote: post #35

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? 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?

> What are they going to do about it?

File eviction papers? Refuse to renew your lease? (though I understand this would probably not be an issue in this situation since you wouldn't want to renew) Ignore all future maintenance requests? Stop upholding other parts of the contracts? Try and tank your credit? The list goes on...

I used to think like you appear to on this issue, but it's a different story when you are actually in the thick of it. Just like how people say "well that's against labor laws" or "your employer can't do that legally", it doesn't really matter for the person who needs that job to survive, they can only find a new job or put up with it, they don't have the money/time/energy to fight it. It's very similar to dealing with a bad landlord. I don't care about being right, I just want to be happy. Renting leads to unhappiness for me, it doesn't make how right I am, I still have to deal with the landlord's BS. At the end of the day "legality" is cold comfort if you have a toxic landlord.

Re: Home ownership is still mostly renting

#55

Post by silicon2401 »

What I've learned is that when people have to make a decision on whether to take on a 6-figure loan to own a whole home and maybe even land with it, they'll get very emotional about their decision. Some people are fervently anti-owning, some people fervently anti-rent. Both options have their ups and downs and depend on many factors.

I've chosen not to buy a house yet and I'm glad. I've been able to move at the drop of a hat, have any issue inspected and fixed with a ticket submission, and have had access to excellent amenities. I would never go back and change these years renting. At the same time, I'm getting to a point where I want land, quiet, privacy, and control, so I'm planning to buy a house in the next year or two (if all goes well). This plan works great for me, probably not for everyone.

Re: Home ownership is still mostly renting

#56

Post by PaulDavisThe1st »

FreezeInTheDark wrote: post #28
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.…

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…

His analysis is that roughly 75% of his ownership costs are equivalent to a rent. To be able to invest the other 25% of his cost of ownership into something else, he would have to be able to find an equivalent property that he could rent for 75% of his total cost of ownership (or accept a reduction in the size and/or quality of his home).

I don't know how realistic that is across many different areas, but it's certainly not possible in many locations.

Re: Home ownership is still mostly renting

#57

Post by throwmamatrain »

On an excel spreadsheet level I would agree, but this ignores a couple parts of renting reality that are awful:

- You can have the property sold out from under you, and you have to scramble to move. This one is the worst in my mind.

- Rulesets for rentals are often more restrictive compared to home ownership. Pets, parking, HOA rules, etc.

- Quality is often lower in rentals. Sometimes by more than you would expect. Appliances are a great corner to cut by rental properties. The owner occupied places I've bought had vastly better quality appliances, and I can tell the difference. To get equivalent level in my city, you'll be paying much more.

- You determine the quality of work in your place. Renting insulates you from the cost, but often this means your landlord sends someone with duct tape to fix a window instead of weather stripping or replacing the window.

It's hard to compare like for like, but these are very real problems. I've had a few friends forced to move, and for some it's been more moves than years. Fine if you live out of a backpack+laptop, but the logistics of renting are a huge pain. Recently, I've noticed an uptick in this behaviour last two years due to landlords flipping their properties, and the subsequent owners out of state. This is definitely worse, I see a pattern of task rabbits and other bottom tier services replacing local work.

Leverage is the magic in mortgages, and everyone along the way is getting their cut, the city, the real estate agents, etc. There are a ton of misc expenses in the transaction. Property tax is kind of rent junior edition.

There are negatives to owning, parking a bunch of capital, can't escape longer term negative neighbourhood problems, you're responsible for fixes.

For all the investing advice you see, you cannot live in a bitcoin/stock account, etc. You have to live somewhere, why not have more control over it.

Re: Home ownership is still mostly renting

#58

Post by throwmamatrain »

hash872 wrote: post #42
joshstrange wrote: post #35

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? 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?

Good landlord, you're fine.

Bad landlord, they say you over inflated it, and are now behind on rent. This gives them the opening to evict, or you have to take to small claims, or your local tenant's rights group.

Not fun.

Re: Home ownership is still mostly renting

#59

Post by hash872 »

joshstrange wrote: post #54
hash872 wrote: post #42

Earlier quoted context omitted.

>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?

> What are they going to do about it? File eviction papers? Refuse to renew your lease? (though I understand this would probably not be an issue in this situation since you wouldn't want to renew) Ignore all future maintenance requests? Stop upholding other parts of the contracts? Try and tank your credit? The list goes on... I used to think like you appear to on this issue, but it's a different story when you are ac…

Other than not renewing your lease, they literally can't do any of those things. (Your credit? You have to be a certified financial institution to be able to report things to your credit report. Fun fact, small claims court judgements are no longer reported on your credit anymore either). In a blue state if a landlord tried to take you to housing court for paying for a repair they refused to fix (obviously you have email documentation that you asked several times first), they would probably walk out of court paying a large fine. There's a whole parallel (landlord-hostile) housing court system.

I think what you're missing is rather than taking anyone to court yourself, you control the cash flow (when & how much of a check you write every month), and they're the ones who have to do anything about it if they disagree. That's different from a labor dispute where you're the one getting an attorney, filing a lawsuit, etc.

The broader point is that blue states are very pro-tenant, so you're starting off with an incredible advantage

Re: Home ownership is still mostly renting

#60

Post by thebean11 »

FreezeInTheDark wrote: post #28
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.…

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…

> Since principal payments are on top of those costs

I was under the impression that in most cases, the principal payments aren't on top of those costs. At least not all of it.

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