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Home ownership is still mostly renting

mattbruenig.com

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Re: Home ownership is still mostly renting

#71

Post by runako »

hash872 wrote: post #61
throwmamatrain wrote: post #58

Earlier quoted context omitted.

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 (…

That's great for the 20% of Americans that live in those states. In many of the other states, you're evicted and looking to find another rental that will take you even though you were just evicted for not paying rent.

Re: Home ownership is still mostly renting

#72

Post by hash872 »

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…

It does not necessarily include a profit margin for the owners, because houses & condos are simultaneously purchased by non-landlords who aren't trying to generate a return- so that's who sets the prices. And in practice real estate attracts the deeply financially unsophisticated, or the wealthy doctor who's willing to take losses for 5+ years for future appreciation.

I mean, there's lots of small restaurant businesses out there, but they don't necessarily generate a real profit or make real financial sense. Some industries just attract irrational or unsophisticated people!

Re: Home ownership is still mostly renting

#73

Post by runako »

The forced saving angle is often maligned by the sort of hyper-rational people that become engineers, but it's a real benefit. Things that happen to real people:

- job loss

- startup fails

- sudden medical expense

- freelance contract customer decides to spend less next month

- is married, spouse experiences any of the above

- decides to invest in something that fails

- decides to invest in VC, but that VC performs at or below the median of VC funds (e.g. far below S&P)

- takes a lower-paying job for external reasons (to learn new tech, exciting new space, etc.)

Financial stress situations like these challenge the "just save the difference in an index fund" plan. The simple fact is that when you are going through something like this, the temptation is going to be very strong not to make 100% of the index fund investment. If you miss it enough times over the decades, you won't see any benefit from this strategy (and you still will not own a home). On the contrary, if you owe a mortgage every month, you will (if it is possible) find the money somehow.

Re: Home ownership is still mostly renting

#74

Post by lakis »

dahfizz wrote: post #65
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…

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.

  A lot of the expenses happen when you switch tenants. In between tenants, before the new tenant arrive, the carpet may have to be replaced, the house may have to be repainted, various other maintenance jobs that are deffered must happen.

Re: Home ownership is still mostly renting

#75

Post by notauser »

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…

That's because rent of $1.5k is for the whole of a house, whereas the mortgage is only covering whichever part of the house you don't own.

My rent would be $3k, but I own one third of the house, so my mortgage is $2k.

The alternative would be paying $3k in rent and investing the $100k in equity. The cash-flow from the equity investment would off-set some of the cost of renting.

Re: Home ownership is still mostly renting

#76

Post by dsizzle »

kindle-dev wrote: post #46
dsizzle wrote: post #17

Earlier quoted context omitted.

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...

Looks like the answer is in the middle of our guesses: your link says the median down payment is 12% for all buyers.

Re: Home ownership is still mostly renting

#77

Post by hellisothers »

niij wrote: post #14
hellisothers wrote: post #10

Earlier quoted context omitted.

Also that interest is largely (if not totally) tax deductible.

Almost 90% of Americans file the standard deduction which precludes you from deducting mortgage interest. https://taxfoundation.org/90-percent-taxpayers-projected-tcj...

Wow TIL it’s 90% that use standard deduction, thanks for the tip, I’ll factor this in when discussing this in the future.

Re: Home ownership is still mostly renting

#78

Post by UnpossibleJim »

hash872 wrote: post #69
UnpossibleJim wrote: post #53

Earlier quoted context omitted.

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 'mo…

That seem crazy... not crazy in the, "I don't believe you" sense, crazy in the sense that people would just keep rolling with losses in renting and not just flip houses, which is still a pain, but you don't have to deal with renters and are sort of doing the same job.

Re: Home ownership is still mostly renting

#79

Post by paxys »

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.

This completely depends on the "modest appreciation". Even though it seems like it, growth in housing is not a given in the way you can reasonably assume stock market appreciation over the long term. Plus there is a lot more uncertainty since you cannot hedge your investment in a home. The entire market could be doing great but your particular house may be affected by local zoning laws or a homeless shelter in the neighborhood or a new highway or anything else.

Re: Home ownership is still mostly renting

#80

Post by aswan »

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…

In addition to the proportion of interest decreasing over time as the principal is paid down, there's an additional factor: the mortgage payment is fixed for the full term of the loan at purchase time. So suppose you take out a 30 year mortgage with a monthly payment of $2000 in 2021 and you never pre-pay or refinance. In 2050, you'll still be paying $2000 per month even though rents will have risen with inflation over that time.
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