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Is It Better to Rent or Buy?

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Re: Is It Better to Rent or Buy?

#211

Post by mcdougle »

vijucat wrote: post #179
ryanjshaw wrote: post #178

Earlier quoted context omitted.

Even more complicated: - owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable - for some people, by the time they'd finish paying off a house they'd already reasonably expect their parent's to have passed on and left wealth/property; for these people, particularly entrepreneurs, having free capital in the intervening…

> owning a house may make it harder for you to decide to move and accept a job/opportunity elsewhere, or to travel -- the impact of which is unquantifiable Why is it harder? Not sarcastic at all, by the way : it's just that I am in Hong Kong and it's actually quite common for expats here to buy a house, give it out for rent, and never come back to Hong Kong again ! In fact, I know of some cases where people have boug…

If you decide to move, you have to do something with the house. I'm not sure about Hong Kong, but in the US, even once you own the house free-and-clear, a house is still a major expense -- insurance, property taxes, etc.

You can sell it or rent it to cover those costs, but both of those options take time and effort. To sell it, you need to market it, negotiate with a buyer, etc. To rent it, you need to market it, pick a good tenant, collect rent, do maintenance and repairs, probably deal with legal matters like eviction, etc.

I guess you could just give it away (but doesn't that still involve a bunch of title transfer fees?) or just stop paying taxes and let it get repossessed (but doesn't that destroy your credit?).

If you rent, you can just pack up and leave -- the only limits are any terms stated in the lease.

All of that said, I'm doing exactly what you mentioned -- I bought a house instead of renting, even though I don't plan to stay here very long (I'm actually thinking of moving again in a few months, once I've been here for a year). But I did it with the explicit intention of renting the house to make a profit once I move -- and I plan to do that with my next place, as well.

Re: Is It Better to Rent or Buy?

#212

Post by ebbv »

dragonwriter wrote: post #201
ebbv wrote: post #199

Earlier quoted context omitted.

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 premi…

> In reality, people don't usually save up a down payment until they've already decided to buy. So it's a false comparison. Even given the first sentence is true, its not a false comparison, given the assumption the reason that people don't save up the money (or just invest it gradually, same thing) is that they have something more valuable than investing to do with the money (i.e., that the decision not to do so unl…

You're choosing one part of my comment in isolation and arguing against it without context.

My point was that there's more to the decision than the simple "Will I make more money by investing in stocks than in real estate?" equation that pro-renting people usually point to. Of course stocks are a better return on your investment than real estate from a pure investment perspective.

There's more to choosing to buy than simply the pure financial motivation. If your motivation is purely financial then you shouldn't buy a house to live in but buy a house to rent out.

Re: Is It Better to Rent or Buy?

#213

Post by judk »

bane wrote: post #159
swalkergibson wrote: post #90

Earlier quoted context omitted.

This is unequivocally accurate. I own three investment properties plus my own home. Each one is profitable, including the house that I live in. It seems to me that the majority of this argument is that rents will not increase. That is a fallacy. All else being equal, each time you move from a place, you will likely be paying more rent because of the inevitable march of time.

And the only things a renter can do to reduce their monthly housing burden is downsize or move to less desirable location. A homeowner's monthly burden is either static or reducing (if they're paying down the principle early), and they have all kinds of things they can use to offset that monthly housing burden, like rent spare rooms out, or use part of their home for a business.

> rent spare rooms out, or use part of their home for a business.

Renters do this too. they have strictly more options than owners.

Re: Is It Better to Rent or Buy?

#214

Post by judk »

arjunnarayan wrote: post #65
mbostock wrote: post #60

Earlier quoted context omitted.

https://twitter.com/felixsalmon/status/469311904582627329

But it looks like Down Payment doesn't affect the result conditioned on holding the Mortgage Rate constant. I'm not so sure that's a good assumption. I imagine the down payment strongly affects the mortgage rate you'd get.

The M-M theorem is one of those pretty void theorems that says "in the absence of all real world factors, two abstsct models are mathematically equivalent structures".

Re: Is It Better to Rent or Buy?

#215

Post by judk »

silverlake wrote: post #136
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…

Your home price maxes out at $3M. That's just a small apartment in Manhattan.

Well, Central Park West maybe. You can get a nice small (Manhattan small -- a near-minimal studio) apartment for about $0.5M

Re: Is It Better to Rent or Buy?

#216

Post by judk »

This analysis always misses the most important by far for non-yuppies: the housing mix for renting vs owning is very different. In my neighborhood, you can't rent a house, because everything is owner occupied.

Rent vs Own is a boring question. Rent This vs Own That is nearly impossible to quantify.

Re: Is It Better to Rent or Buy?

#217

Post by sbd »

DrPhish wrote: post #198
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

How are you then able to get a mortgage if the house is already collateral on another loan?

Re: Is It Better to Rent or Buy?

#218

Post by bane »

judk wrote: post #213
bane wrote: post #159

Earlier quoted context omitted.

And the only things a renter can do to reduce their monthly housing burden is downsize or move to less desirable location. A homeowner's monthly burden is either static or reducing (if they're paying down the principle early), and they have all kinds of things they can use to offset that monthly housing burden, like rent spare rooms out, or use part of their home for a business.

> rent spare rooms out, or use part of their home for a business. Renters do this too. they have strictly more options than owners.

Most rental agreements strictly forbid this. I can't compare irregular activities to irregular activities because you can always escalate it to some nonsense money making action favoring one side over another.

But supposing your agreement explicitly allows sub let's without landlord arbitrary approval, the owner is still coming out on top because the activity is simply reducing their monthly outlay while still building equity, the renter is only reducing outlay, but still has zero equity at the end of the day.

More importantly, my mortgage payment will stay the same, fixed in dollars at the year I borrowed the money (in my case 2006 dollars). While rents will continue to increase. For example, at some point in the future, I'll theoretically even be able to rent a single bedroom out that will cover my entire mortgage payment simply because of this simple truth. I'll live "for free". But your base rent price will continue increasing such that you're monthly burden will stay a significant part of your monthly income. Even if you pass along as much as you can to a subletter, that percentage won't change much while mine will continuously reduce.

Re: Is It Better to Rent or Buy?

#219

Post by russgray »

kerneis wrote: post #156

Is this calculator very specific to the American market, or would it also produce accurate estimates for, e.g., France or the UK?

I've just used it for the UK. I ignored the currency and just used exact numbers (so what I paid for my house in £ is the number I put into the site as $). Under taxes, I adjusted property tax until the dollar amount was roughly equivalent to my annual council tax, and adjusted the deductible to 0. Under closing costs, I included stamp duty as a buying cost. Insurance, maintenance, etc are all direct conversions.

Leaving most of the expected growth sliders in place, and taking into account that I've shortened my mortgage with additional payments, it estimated I'd only be better renting if I could get an equivalent property for about £565. In reality, the smaller house a few doors up rents for about £1500, and Zoopla estimates the rental value of my house at £1600. So, either I live in a really good buying area, or the US calculations don't translate well.

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