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Renting vs. buying a home

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Re: Renting vs. buying a home

#91

Post by seanmcdirmid »

tansey wrote: post #38
ljoshua wrote: post #4

One of my favorite interactive pieces from the NYTimes is a Rent vs Buy calculator which is very configurable: http://www.nytimes.com/interactive/business/buy-rent-calcula...

I really like this tool. It also helps highlight one thing that I think Sal really underplayed: it doesn't necessarily matter what long-term historical rates have been. If you assume that Silicon Valley is going to be hot for even just the next 5-7 years, with both purchasing and rental prices increasing by 5% per year, then it very quickly becomes smarter to buy and sell the house within that 5-7 year window. At som…

And your nuts if you think even the SV market will grow forever. The key is to recognize value where others don't, and to otherwise realize that the market is efficient and all bubbles pop one way or the other eventually. My SV landlady talked about how hard the early 90s were, they almost didn't make it.

Re: Renting vs. buying a home

#92

Post by giardini »

jnardiello wrote: post #46

I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…

jnardiello: "... i realize that if you buy a really crappy built house, my arguments might not be valid."

Or if the neighborhood goes into recession for decades after your purchase.

There's a study floating around claiming that homebuyers flock to a region during a period of growth, buy homes at high prices and, when the local economy slows, are stuck forever.

jnardiello: "But where i live, houses are built to last centuries and they are by far the best way to responsibly spend your money."

- Centuries? Then you're not in the U.S. (nothing wrong with that but just want to clarify).

- Stocks do better than real estate historically.

-Building a home that lasts centuries is probably suboptimal. Who knows what the future holds? What will the local economy will be like in 10 years? What better, cheaper (e.g., energy-saving) building techniques will be developed in the next decade? We should all live in solar-powered eco-yurts!8-))

https://www.google.com/search?&q=eco-yurt

"A Home Is a Lousy Investment": http://online.wsj.com/news/articles/SB1000142405270230425930...

"Why owning a home is bad for you": http://www2.macleans.ca/2013/09/29/the-housing-trap/

"Is Home Ownership Overrated?" http://www.dailyfinance.com/2011/05/03/is-home-ownership-ove...

Re: Renting vs. buying a home

#93

Post by hillarystark »

The link submitted to HN lands on video 2 of 4 which was created was uploaded Uploaded on Mar 15, 2008 where Sal was renting and the video is pro renting: http://www.youtube.com/watch?v=YL10H_EcB-E

Interestingly, it looks like on Dec 31, 2013 new video was added as 1 or 4 where Sal said he bought a house and now is neutral on rent. vs. buy: http://www.youtube.com/watch?v=JNL6f1xkie4

Re: Renting vs. buying a home

#94

Post by switch007 »

I'm in southern England. I have no idea what to do. House prices are insane.

I have a sizeable deposit (20-25%) but I would still need a large mortgage. I want to buy because I know rent is going to through the roof as this tiny island becomes more and more populated.

However, I don't want to be tied to a job/location. Commuting to London for work is always an option but it comes at a cost of £350-450/mo in travel. Not to mention the time involved. I want the flexibility of renting but I also want a paid-off house when I'm in my 40s/50s.

AFAIK most mortgages (non buy-to-let) do not permit letting out your property, so I'd need to re-mortgage to do that.

Re: Renting vs. buying a home

#95

Post by methodin »

If you could transfer your mortgage exactly as it stands if you decide to move around then buying would be in all ways superior. Since that is not the case, if you aren't in a place that you've been for a while and intend to stay in for the foreseeable future then buying is really just a nuisance and prevents you from attaining things like better jobs unless you want to sacrifice your lifespan in the form of a long commute.

Re: Renting vs. buying a home

#96

Post by pudquick »

hhw wrote: post #78
bane wrote: post #61

The numbers here are weird at least in my area, so it's hard to compare. But in general, in most places, over a 30 year comparison, buying is better than renting unless you get very lucky with your alternative investment decisions. A couple things to add, house payments stay exactly the same over a very long time. They don't increase at all . The absolute dollar amount is fixed. So while rent in an area might triple…

Except your example conveniently leaves out: 1) Property Taxes Between 0.18% to 1.89% in the US. Let's assume the mean of the two for 1.035%. In the first year, that would be a payment of $5,175. Over 30 years, using the same 3% inflation to calculate the future value of an annuity, that works out to $246,202.78 2) Opportunity cost of down payment. Assuming a 20% down payment of $100,000, the future value of that mon…

... And in the end, for that trivial difference of $125,000 over 30 years ($350 a month) - you get to stop making mortgage payments on the house. And you can sell your investment in the house at any point during or after those 30 years.

You never stop making rental payments.

Worth it.

Re: Renting vs. buying a home

#97

Post by clavalle »

hhw wrote: post #78
bane wrote: post #61

The numbers here are weird at least in my area, so it's hard to compare. But in general, in most places, over a 30 year comparison, buying is better than renting unless you get very lucky with your alternative investment decisions. A couple things to add, house payments stay exactly the same over a very long time. They don't increase at all . The absolute dollar amount is fixed. So while rent in an area might triple…

Except your example conveniently leaves out: 1) Property Taxes Between 0.18% to 1.89% in the US. Let's assume the mean of the two for 1.035%. In the first year, that would be a payment of $5,175. Over 30 years, using the same 3% inflation to calculate the future value of an annuity, that works out to $246,202.78 2) Opportunity cost of down payment. Assuming a 20% down payment of $100,000, the future value of that mon…

To your points: Property tax is factored into rent so you are paying it one way or another.

Your return on your 'down payment' has to be well above average to make up for your otherwise 100% loss on rent.

And there is insurance you can buy at about $400/yr that will take care of most of your maintenance and upkeep.

Re: Renting vs. buying a home

#98

Post by hhw »

hhw wrote: post #78
bane wrote: post #61

The numbers here are weird at least in my area, so it's hard to compare. But in general, in most places, over a 30 year comparison, buying is better than renting unless you get very lucky with your alternative investment decisions. A couple things to add, house payments stay exactly the same over a very long time. They don't increase at all . The absolute dollar amount is fixed. So while rent in an area might triple…

Except your example conveniently leaves out: 1) Property Taxes Between 0.18% to 1.89% in the US. Let's assume the mean of the two for 1.035%. In the first year, that would be a payment of $5,175. Over 30 years, using the same 3% inflation to calculate the future value of an annuity, that works out to $246,202.78 2) Opportunity cost of down payment. Assuming a 20% down payment of $100,000, the future value of that mon…

Oh, and one more thing, the $783,370 figure doesn't take the time value of money into account, but your total rent paid figure does. In order to balance this out, we'd need to take a look at the future value of an annuity for your mortgage payments of $2176.03/mo or $26,112.36/yr, which actually works out to $1,293,862.17, bringing the total cost of ownership to $1,635,215.78.

Re: Renting vs. buying a home

#99

Post by bane »

hhw wrote: post #78
bane wrote: post #61

The numbers here are weird at least in my area, so it's hard to compare. But in general, in most places, over a 30 year comparison, buying is better than renting unless you get very lucky with your alternative investment decisions. A couple things to add, house payments stay exactly the same over a very long time. They don't increase at all . The absolute dollar amount is fixed. So while rent in an area might triple…

Except your example conveniently leaves out: 1) Property Taxes Between 0.18% to 1.89% in the US. Let's assume the mean of the two for 1.035%. In the first year, that would be a payment of $5,175. Over 30 years, using the same 3% inflation to calculate the future value of an annuity, that works out to $246,202.78 2) Opportunity cost of down payment. Assuming a 20% down payment of $100,000, the future value of that mon…

As a landlord, unless you are expecting to lose money on your property, you'll pass through things like property taxes and other fees onto your renter. Even if the market makes it so that you can't do it today, eventually, over a few years of increasing the rent every year or two, you can make it happen and then eventually profit.

In other words, renters are likely paying these things, but it's all built into the rental price.

For example, I could comfortably charge about $1000-1500 a month more to somebody renting my house than what I pay for it right now. In a few years, when I pay it off, and it costs me nothing but property taxes and maintenance. I could move to another house and rent this one out and use their rental fee to cover most of the mortgage cost on my new house.

Re: Renting vs. buying a home

#100

Post by clavalle »

ig1 wrote: post #39
tibbon wrote: post #3

I've rented for my entire adult like (I'm currently 31 living in Somerville/Boston). While my sister bought her first house in Pittsburgh when she was 23, and my parents had moved between several houses they purchased by my age... I've been happy renting. I didn't want to buy a house until recently, but now I want to buy one around here. Why? For one thing, in the major cities the rents keep going up at a rate faster…

Rent is largely a function of house prices and house prices haven't been going up constantly, in most US cities house prices are still below-2006 prices. S&P House Price index: http://us.spindices.com/indices/real-estate/sp-case-shiller-... Investing in a house is a gamble on house prices going up, which if you're going to make it you should do with a full understanding that historically there have been many house pr…

I think most people in this thread are not talking about buying a house as an investment, but rather, as a value store compared to rent.
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