Home ownership is still mostly renting • Hacker News Board

Re: Home ownership is still mostly renting

#61

Post by hash872 » Wed, Sep 22, 2021, 4:25 PM UTC

throwmamatrain wrote: post #58

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?

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.

Going to court over this in California, New York or Massachusetts:

You: Here are 3 emails I sent documenting the problem and asking for it to be fixed, here's a 4th email stating I would be hiring the handyman myself if it wasn't fixed, here's the 5th email with the invoice

Landlord: (who cares. Also they don't have an attorney because the cost of an attorney in court exceeds the repair by a huge margin)

Magistrate (in the 15-20 minutes you get in small claims or housing court): Landlord, you are fined $5000 for not fixing the issue fast enough. Next fine is $10k if you don't shape up. Dismissed

Re: Home ownership is still mostly renting

#62

Post by shadowoflight » Wed, Sep 22, 2021, 4:26 PM UTC

FreezeInTheDark wrote: post #43

everdrive wrote: post #32

Earlier quoted context omitted.

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.

I live in a low-mid CoL city, so I guess this is all super YMMV, but even with a 5% down payment, a decent home would run me around $1.5k/mo in mortgage payments (including interest, principal, PMI, and an escrow payment for taxes and insurance), whereas an equivalent rental would run well over $2k/mo, possibly closer to $2.5k/mo.

Sure, I can (and do) rent an apartment for less than a house, but that means rent increases whenever the owner feels like it - my rent has been steadily increasing to the tune of about 5%/yr, and this year it was all the way up to a 7% increase.

Re: Home ownership is still mostly renting

#63

Post by kindle-dev » Wed, Sep 22, 2021, 4:26 PM UTC

shapefrog wrote: post #40

gruez wrote: post #5

Earlier quoted context omitted.

20x leverage = 20x return, but also 20x risk.

Except it is 1x risk for example in the US - see jingle mail. The debt is against the property not the person thus 20x return 1x risk (plus your destroyed credit). For other countries in the world there is bankrupcy.

This only applies to non-recourse state, of which there are only 12.

Re: Home ownership is still mostly renting

#64

Post by joshstrange » Wed, Sep 22, 2021, 4:26 PM UTC

hash872 wrote: post #59

joshstrange wrote: post #54

Earlier quoted context omitted.

> 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 e…

I 100% understand how I might be in the right and win anything brought against me. What I'm trying to say is I don't want to deal with that headache or become an expert on how this works in order to win. Also, like I said before, I live in a red state and while I don't know exactly what rights a renter has, I don't want to know. I shouldn't have to become informed on this stuff when I'm doing everything right. Also just because something isn't legal, doesn't mean a landlord won't do it. I don't want to eventually win, I want to never deal with it in the first place.

Re: Home ownership is still mostly renting

#65

Post by dahfizz » Wed, Sep 22, 2021, 4:27 PM UTC

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…

In OP's example, the landlord had to buy a fridge, cut down some trees, and replace a floor. Clearly, 10 years of rent payments would cover that.

Being a landlord has costs, but I'm not sure what your point is. Renting property is clearly profitable, or it wouldn't be so common.

Re: Home ownership is still mostly renting

#66

Post by gjhr » Wed, Sep 22, 2021, 4:29 PM UTC

rich_sasha wrote: post #52

hash872 wrote: post #39

Earlier quoted context omitted.

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.

Yup. In the UK the benefits of owning are clear, but the entrance requirements can be very high.

Re: Home ownership is still mostly renting

#67

Post by milesvp » Wed, Sep 22, 2021, 4:30 PM UTC

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…

People greatly mis understand this point. Renting really is cheaper in the short term than buyng, especially if you can get a multi year lease. I’ve rented many single family houses in my life, and always, without fail, the rent was less than what the current mortgage (with minimal downpayment) + upkeep. This delta also tends to grow as the value of the house goes up.

So a very valid strategy is to rent, and take that delta and put it in an index fund. This won’t outperform a mortgage in a very hot market, but you will still likely be able to live “rent free” after 30 years of this strategy with a 4% drawdown on just that account.

The main argument I like for home ownership is that it really helps force this savings, since many have a hard time not spending money on frivolous things.

That said, I finally bought the house I was renting 6 years ago. Mostly it was a hedge against raising rents. My area was seeing 10%+ yearly rent increases. So far it turned out to be a smart play, but interest rates could have gone up a couple points, and I might uave been underwater for several years.

Re: Home ownership is still mostly renting

#68

Post by runako » Wed, Sep 22, 2021, 4:39 PM UTC

kindle-dev wrote: post #63

shapefrog wrote: post #40

Earlier quoted context omitted.

Except it is 1x risk for example in the US - see jingle mail. The debt is against the property not the person thus 20x return 1x risk (plus your destroyed credit). For other countries in the world there is bankrupcy.

This only applies to non-recourse state, of which there are only 12.

Doesn't this only matter if the property is worth less than the mortgage? If the lender can foreclose and sell the property for enough to clear the outstanding mortgage, there's no additional loss beyond the down payment (and any equity paid in since then).

Re: Home ownership is still mostly renting

#69

Post by hash872 » Wed, Sep 22, 2021, 4:40 PM UTC

UnpossibleJim wrote: post #53

hash872 wrote: post #33

Earlier quoted context omitted.

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…

Well many, many rentals were originally owner-occupied SFHs or condos. So they weren't purchased to be profitable.

From my experience at a commercial real estate brokerage, forming a personal relationship with dozens & dozens of landlords- it's an extremely unprofessional small business, attracted by people who think 'land, they're not making any more of it' is a sophisticated statement. It also attracts a lot of 'more money than sense' types who are willing to eat losses for the first 5+ years because they think they'll make more money over time. I would conservatively estimate 20-33% of new landlords are actually losing money every year. Could be way higher than that!

Imagine saying 'there's tons of day traders, no one gets into day trading to lose money, so they must all be making $'. In fact, no- it just attracts a lot of unsophisticated folks. Same thing with owning a small retail business or a restaurant- there's lots of restaurants, they're also terrible businesses! I would put being a small landlord closer to owning a restaurant

Re: Home ownership is still mostly renting

#70

Post by DanTheManPR » Wed, Sep 22, 2021, 4:42 PM UTC

PaulDavisThe1st wrote: post #20

joshstrange wrote: post #4

I'll conceded that I might be missing something but houses in my area cost significantly more to rent ($1.5K+/mo) than my mortgage ($1.2K) and have a ton more restrictions (pets, modifications, etc). Every house or apartment I've rented I've had to fight tooth and nail with the owner/manager to get anytime fixed (I once had water seeping out of my kitchen floor for over 2 months in an apartment, it just finally stopp…

TFA mentions the other costs that you're (potentially) not including: property taxes, maintainance, building insurance (depending on your escrow situation). I think MB's point is that there's a lot of talk about how "investing" in home ownership is a smart financial move, and that a more careful consideration of this suggests that it's not so clear that this is true. There are definitely other reasons to own, if you'…

I'm also a new homeowner, and my mortgage + property taxes + insurance + utilities are about 2/3rds of what I was paying for rent last year. Will ongoing maintenance on my home eat up the $400 a month I'm saving? I guess that's possible... but even if it did, I'm still breaking even, and I own my own home.

That's particular to the area I live in, though, where the rental market is extremely tight in comparison to the buying market. In my particular case, the article's advice about "what else you could do with the money" is moot. The rental market here exists for people who need transient housing, or who's financial situations makes a loan difficult to get.