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Is It Better to Rent or Buy?

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Re: Is It Better to Rent or Buy?

#191

Post by hnnewguy »

NoMoreNicksLeft wrote: post #87
fspeech wrote: post #77

Earlier quoted context omitted.

The main problem with owning is illiquidity and associated immobility. If you rent you can quickly down shift if you run into trouble. If you own the transaction cost is much higher if you need to move. The main advantage of owning one's own residence is tax and stability (the flip side of the illiquidity problem). Owner's equivalent rent is not a taxable income. Capital appreciation works in your favor rather than a…

> The main problem with owning is illiquidity and associated immobility. If you rent you can quickly down shift if you run into trouble. Where are you getting these lease-free rental units? True, you're less on the hook with a 12 month lease, and the liability is lower than a 30 year mortgage... But this is a very mild difference. That job's not going to wait for you to sell your house or for your lease to end. > If…

>This is a manufactured debate, it's meant to appeal to twentysomethings' bohemian aspirations.

The actual "manufactured debate" is the one manufactured by the massive housing complex that tries to tell people that rent is throwing away money and it's always better to buy. Buy now! If you don't like your home, you can always sell it for more, later!

This tale has been empowered by the fact that we just went through a global, disproportionate, 20 year rise in house prices and extremely low interest rates that created much wealth for one of the largest cohorts in history. Everyone under 40 (at least) is skewed by this happenstance. Some have even managed to become wealthy from it.

The fact is, in an economically efficient world people would be indifferent between buying and renting. So there are many individual factors to consider, many of which are covered by this calculator.

TISNTAFL. Buying a home isn't free wealth (nor is renting). There are always tradeoffs.

>Someone wants them mobile so they can herd them around like migrant workers.

And maybe someone wants them to buy homes so they can't easily switch jobs or relocate, and are pinned down like wage-slaves?

Re: Is It Better to Rent or Buy?

#192

Post by refurb »

dingaling wrote: post #176
refurb wrote: post #121

Earlier quoted context omitted.

That's what makes me laugh when I talk to people who are looking to buy a home. Despite the housing crash of 2007, when I ask them what would happen if housing prices go down, they get this disturbed look on their faces and say "nah! not in this city!!".

As someone who has nearly paid-off a mortgage I have absolutely no interest in whether house prices increase or decrease. I'm buying somewhere to hopefully live for the rest of my life. I have no idea what the current 'value' of my house is, nor will I be enquiring. If it turns-out that the house eventually achieves negative equity, who cares? I'm still living in it and that would actually mean my property taxes decr…

Then it sounds like buying for the right reasons! Many people see buying a home as not only getting a place to live, but also as an investment. And for some reason many people see the investment as "low risk", which it often isn't.

Re: Is It Better to Rent or Buy?

#193

Post by hnnewguy »

gibybo wrote: post #50
tolmasky wrote: post #37

Earlier quoted context omitted.

If you rent, you can leave whenever the heck you want and then go live wherever the heck you want. That's true freedom and to some people - myself included - worth every penny. Its really interesting the different things people value. I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I value one day waking up and deciding, hey, I think I want to go try living in P…

From what I've seen, you generally need a 12-24 month lease to rent a house. I can sell my house whenever I want (or leave and rent it out to someone else), but if I'm stuck in a 24 month lease I'm stuck for the next 2 years.

>I can sell my house whenever I want (or leave and rent it out to someone else)

Whenever you want, huh? Everyone thought the same thing in 2007.

Are people honestly trying to argue that owning a home leaves you more mobile than renting? Preposterous.

When you need to get out of a rental lease (of which I've never seen go beyond 12 months, but I'm sure they do), the landlord is obligated to make every effort to mitigate his losses and replace you as a tenant. You aren't "stuck".

Re: Is It Better to Rent or Buy?

#194

Post by oldspiceman »

Rent or buy arguments universally skip what I consider the most important factor in any major investment decision: freedom. When you buy a house, you tie up major assets and take on a huge debt load. This provides a massive constraint on your life. You're less likely to take on a risky job opportunity, you're less likely to move for a good opportunity, you're less likely to purchase other things you enjoy, and you put all your eggs in one basket. On the last point, as Americans should know now, real estate is not a sure holder of value. You can easily lose 50-100K if you need to sell your house to move somewhere else but there are no buyers. The flipside of this is you may sell it for the asking price but need to wait a year to do so.

Re: Is It Better to Rent or Buy?

#195

Post by hnnewguy »

bane wrote: post #158
webwright wrote: post #85

Earlier quoted context omitted.

"You can do that when you own as well. You have to sell your house. " This is so incredibly wrong. Selling a house can be a massive and expensive undertaking. Assuming agents are involved, you can expect to pay 6-9% of the value of the house in costs (agent fees, closing costs, etc), assuming the buyer doesn't find something that is against code or something that is starting to fail (furnace, roof, etc). You buy a ho…

Why would I sell my house when I can get somebody else to rent it and make my mortgage payments on that house for me? I'll just buy another house at my new location. In the end I'll now own two houses I do whatever I want with and my renter will own nothing.

>In the end I'll now own two houses I do whatever I want with and my renter will own nothing."

Uh, you realize that when you buy a house, you end up paying tens, sometimes hundreds of thousands of dollars in interest beyond the value of the home?

That's what the renter owns: money, in his pocket, compounding interest for decades.

This is the reason why there's an economic calculation to be made. If you're paying the $1000 per month to rent a place that you could buy for a monthly mortgage, maintenance and tax cost of $1000, then, yes, you're an idiot for renting. But this doesn't happen in the real world, outside of the recent history of extremely fast-rising house prices and low interest rates.

Re: Is It Better to Rent or Buy?

#196

Post by pc86 »

tekalon wrote: post #30
pc86 wrote: post #12

Earlier quoted context omitted.

Well, usually. You can still be subject to HOA restrictions if you agree to them by buying a house in a HOA. You'll also be subject to township/borough restrictions which you can't really opt out of short of excluding entire neighborhoods from your home search (and researching local ordinances beforehand).

I hate HOAs and would deliberately avoid neighborhoods with HOAs or other types of restrictions.

It was a deal breaker when we were searching for homes as well.

Re: Is It Better to Rent or Buy?

#197

Post by fennecfoxen »

IgorPartola wrote: post #140
kenrikm wrote: post #135

Earlier quoted context omitted.

I used it to calculate if buying my house was a better deal than renting. Turns out over 30 years it was exactly the same.. down to the dollar.

Including the fact that you own the house after the 30 years?

If you're disciplined enough to have actually invested what would otherwise be the down payment, and kept it invested, and reinvested the proceeds, you'd own one house's worth of money after the 30 years and could proceed to buy a house using cash.

(Subject to the assumptions of returns and interest rates, etc etc.)

Re: Is It Better to Rent or Buy?

#198

Post by DrPhish »

mbostock wrote: post #18

Author here. Thought I’d highlight my favorite, perhaps non-obvious feature: the slope of the charts tells you whether the variable is positively or negatively correlated with the cost of buying. And depending on the settings, that slope can change from positive to negative. For example with the defaults, the down payment chart is flat. This means the total cost of buying is relatively unaffected by the size of your…

Suggestion: When the down-payment slider goes over 50% suggest that, depending on income level and interest rates, it may make sense to buy the house on a line of credit _backed by the house itself_. I did this, and it saved me a ludicrous amount of money vs. a mortgage

Re: Is It Better to Rent or Buy?

#199

Post by ebbv »

kenrikm wrote: post #135
hkmurakami wrote: post #28

Earlier quoted context omitted.

Huge props for including things like the Marginal Tax rate for tax deduction and closing costs, which most of my peers that I've spoken to are unaware of or fail to take into consideration properly. I just recently had a conversation with a friend about renting vs buying, and I raced through many of the factors in this calculator to demonstrate that it's not such a simple question and that there are many factors that…

I used it to calculate if buying my house was a better deal than renting. Turns out over 30 years it was exactly the same.. down to the dollar.

Yeah it was the same for me and that made me raise an eyebrow.

At the end of 30 years I will own my home. At the end of 30 years of renting I'd be in the exact same boat I'd be in day 1 renting.

The calculator makes a major assumption that if you rent you take your down payment money and invest it. Obviously the investment will be worth a lot after 30 years of interest. But this assumption is based on the false premise that you are sitting there with your down payment ready and it's just a choice of where to put it.

In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison.

It's also assuming that homes like the one you would buy are available to rent, so "everything else" is equal. Which is also a false assumption.

Basically this calculator is set up to make you feel good about paying a rent that's more than a mortgage payment would be.

Choosing to rent or buy shouldn't just be a purely financial decision. The real question is are you ready for the responsibility of being a home owner? Do you look forward to the prospect of having a permanent home and investing in it? Or do you just want a place to live and have someone else be responsible for maintenance?

Re: Is It Better to Rent or Buy?

#200

Post by nilkn »

dingaling wrote: post #176
refurb wrote: post #121

Earlier quoted context omitted.

That's what makes me laugh when I talk to people who are looking to buy a home. Despite the housing crash of 2007, when I ask them what would happen if housing prices go down, they get this disturbed look on their faces and say "nah! not in this city!!".

As someone who has nearly paid-off a mortgage I have absolutely no interest in whether house prices increase or decrease. I'm buying somewhere to hopefully live for the rest of my life. I have no idea what the current 'value' of my house is, nor will I be enquiring. If it turns-out that the house eventually achieves negative equity, who cares? I'm still living in it and that would actually mean my property taxes decr…

This is great, but it's not a realistic scenario for most folks who aren't approaching retirement and can't be 100% sure they're never going to move again. If you ever needed to move, you'd suddenly care quite a bit about the current value of your home because it will have a tremendous impact on the actual cost of buying a new home.
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