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Is It Better to Rent or Buy?

nytimes.com

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Re: Is It Better to Rent or Buy?

#241

Post by bane »

larrys wrote: post #233
bane wrote: post #229

Earlier quoted context omitted.

Keep downvoting. Numbers don't lie. Do the math yourself and show your alternate calculations where you don't own a house at the end of the loan period if you buy and getting somebody to pay your mortgage as their rent makes you own it even cheaper.

I think the reason you are getting downvoted (I upvoted) is because you are making statements like this: "buying is almost always better" "This nyt analysis isnt correct" I think the point of what you are saying simply is if you find the correct set of circumstances in terms of the rent you are able to get for the house as well as the market conditions, cost, interest etc. it makes sense to find a renter (taking a wh…

edit more here https://news.ycombinator.com/item?id=7790758

There are cases where renting makes more sense. But they're usually in very short term situations, 1-2 year domiciles or in freakishly weird markets, weirder than SF or NYC markets to be honest.

It can't be said enough in this discussion also, the notion that a renter will have all this extra money that they can invest highly liquid, better than housing, investment options just doesn't work out in general. The post I linked to elsewhere in here goes into that in some depth, even goes over a couple scenarios.

Business property I don't think is a good proxy for housing. Business value can swing wildly up and down and there's far less of a guarantee that your business will even be worth what you put into it than in housing. You can literally pour tens of millions of dollars into a business year after year and have it be worth $0, but I can almost guarantee that I'll be able to sell my house after 30 years for at least what I paid into it (the principle, I agree that interest is harder to recoup). More likely, I'll be able to sell it for something far in excess. Even people who bought at the very peak of the property bubble will likely make a small profit.

But I also do agree that it's not a very liquid asset. It's hard to get money out of your house, but not impossible:

- After it's paid off, all the money you were paying is now liquid

- You can rent out parts of your house, in sometimes non-traditional ways, I know one guy who rents out parts of his unfinished basement as temporary storage for people doing overseas employment. Another rents her property as horse grazing pasture. Another uses their very nicely decorate home as a shoot location for local photographers and charges a small site fee. The list goes on. Not all of these are impossible for renters, but a great many of them are.

- You can use equity in your home for personal loans. It's not the same as liquid capital, but being able to raise a few hundred thousand dollars quickly can be useful and something renters can't do at all.

- if you have lots of land, sometimes you can sell off parcels for other people to build on, or you can repurpose it into business use

- you can sell it outright. One thing my wife and I are considering is retiring to a place with very cheap rent and just converting our home value into a long retirement in Spain or Italy. Basically our mortgage payment will get used twice.

No matter what, after any period of time, the renter still has lost every single dollar they put into their housing. Which typically represents the single largest expense for most people, consuming usually between 30-50% of their net income.

Re: Is It Better to Rent or Buy?

#242

Post by millstone »

jvm wrote: post #161
millstone wrote: post #57

My wife and I found a great apartment to rent. It was spacious, quiet location, reasonable rent. We were happy for a few years. Then the owners sold the complex, and the new owners set out to remodel everything, very much against our wishes. Construction crews started entering our apartment. They came in while we were out, laying down plastic sheets and moving our furniture around. They sometimes came in while I was…

Is the argument here that there is never inconvenience or downside to home ownership? That sounds rather naïve and one-sided. The flip side of all this is that as an owner, any sort of problem is YOUR problem. And there are a lot of potential problems with a building.

Absolutely, owning a home is more work. However, IME it is less inconvenient, because we are able to better control the timing of that work. For example, when our roof leaked one night, we were able to get it fixed the very next day. When we needed electrical work done, we scheduled it for when we would be gone, so as not to disrupt our lives.

There's a valid point that we had to pay for these out of pocket, instead of a landlord paying. In return for these random financial hits, we get a predictable mortgage and an increased property value, which sure beats the yearly rent increases [1].

[1] CA's horrible Prop 13 limits our property tax increase to 2% a year.

Re: Is It Better to Rent or Buy?

#243

Post by bane »

ebbv wrote: post #212
dragonwriter wrote: post #201

Earlier quoted context omitted.

> 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…

Assuming an equal start without any downpayment at all, you have to be Oracle of Omaha great with your stock investment portfolio to beat the return on investment inherent with housing since the difference between mortgage and rent in most markets will only give the renter a couple hundred dollars a month to invest.

In the end, the owner will likely recoup every dollar of principle they pay in the long term, while the renter has to find an investment opportunity that will not only return all of their loss (the rent they've thrown away) but then beat the increased valuation the housing market will provide the owner.

From here - http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html

What about stocks? Stocks are a medium to high risk investment with no guaranteed return on investment. It's actually pretty hard to make an educated guess what the return would be. But we can give it a go. According to this analysis,

   the nominal compound annual return of the Dow from
   year-end 1900 to year-end 2011, excluding dividends,
   was 4.75%.
That's actually pretty good and annihilates current CD rates (which hover around 2% for 5 year jumbos). Let's run these numbers. According to my handy compound interest calculator, with a current principle of $0.00 (starting from scratch), adding $2,400/yr over 30 years, compounded annually at 4.75% gives me about $160,000. That's actually pretty close to my inflationary upper bound calculated earlier!

But that's also an upper bound.

   However, the real compound annual growth was only
   1.6%. That is, when we use constant dollars, we
   discover that the purchasing power has only
   increased 1.6% per year.
So we should actually run the numbers with 1.6% we end up with about $93,000. That's great, but even with the miracle of compound interest, I'm not putting a dent in that $1.6 million.

Let's get crazy, let's say I'm a fantastic stock picker and I can beat all this and I'm making about 12% per year. Running the compound interest calculator, I get $650,000. That's pretty amazing, but I still have about a million dollars to go to break even. I actually have to hit 16.5% every year, for 30 years, to break even.

This site lets us run another kind of calculation, the average rate of return for the S&P 500 over some date range. I picked the last 30 years and got 12.67% not adjusted for inflation and only 9.57% adjusted. Professional fund managers struggle to beat the S&P. So realistically, you aren't going to either over the long run.

Re: Is It Better to Rent or Buy?

#244

Post by bane »

sliverstorm wrote: post #106
TillE wrote: post #64

Earlier quoted context omitted.

If one of your major criteria is a walkable city (ie, no car required) within the US, that list is very short and very expensive. Leaving the country broadens your options considerably, but that also adds its own complications.

If you demand walkable, then yes, you are up a creek. The only way to get purely walkable, with your grocer, theater, and night club all within a fifteen minute stroll, is high-density which generally happens in the heart of large cities, and is indeed expensive. But how about bicycle-able? My town is about 5 miles square, very bike-able, and I was able to buy a townhouse at twenty-five.

Lots of newer suburbs are being designed with high walkability in mind.

My newish suburb is walkable to a movie theater, bike store, huge gym, swimming pools, Tae Kwon Do school, a couple hair salons and a barber, a full grocery, a couple clothing stores, about a dozen restaurants from fast food to high-end dining, a UPS store, an optometrist, a toy store, a ballet school, two coffee shops, a dry cleaners, a bank, a liquor store, weekly farmer's market about 3 or 4 miles of landscaped parks, about 20 miles of trail and just on the edge of walkability is a full 18 hole pro-level golf course.

They're planning on adding more stuff to it as well including a full county library and some other odds and ends.

There's a nicer development similar to mine about a 15 minute drive that offers a similar environment.

My friends live in an older neighborhood that's also just a 5 minute walk from a lively older "main street" style commercial area and likewise get all their shopping and such done that way. They live in a brand new house, but the town is a couple hundred years old and historic.

You have to hunt around for them a little, but they're definitely out there.

Re: Is It Better to Rent or Buy?

#245

Post by dllthomas »

nilkn wrote: post #200
dingaling wrote: post #176

Earlier quoted context omitted.

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.

True, but (assuming prices are comparably "up" or "down" in both places and that you're moving into something of similar size or larger) it's better to move when prices are low (since a lot of the costs are pegged to the price of the house).

Re: Is It Better to Rent or Buy?

#246

Post by refurb »

rahimnathwani wrote: post #143
refurb wrote: post #119

Earlier quoted context omitted.

Canada also doesn't have 30-year mortgage terms. The loans are still amortized over 30 years, but you need to renew the mortgage every 5 years or so. If you lock in a super low interest rate, you only lock it in for 5 years (10 years are available as well, but you pay a premium in terms of interest rate).

This sounds similar to the mortgage market in the UK. Longer term fixed rates exist but the rate reflects the yield curve over the fixed period (not just current spot rates) and there is usually a large redemption penalty. For example, if you sign up for a 4-year fixed rate deal, there might be a redemption penalty of 4% if you close it out in year 1, 3% in year 2 etc.

Canada has the pre-payment penalties as well. Wouldn't surprise me that origins of the Canadian system came from the UK.

The US typically doesn't have pre-payment penalties which is another benefit for US homeowners since if you get a mortgage rate of 6% and a 30 yr term and rates drop to 3%, you can simply refinance without pre-payment penalty and lock in a lower rate. You do need to pay mortgage fee with the refinance, but banks often have deals where the costs are pretty low.

That said, one has to wonder if the US mortgage rules create perverse incentives for US homebuyers.

Re: Is It Better to Rent or Buy?

#247

Post by scott_karana »

pilom wrote: post #220

The New York Times has had this same calculator for years with all the same options and a much better interface: http://www.nytimes.com/interactive/business/buy-rent-calcula... Why did they make it worse?

Worse according to who? I can see the appeal of the old version, but I found the new one more suitable to my needs in every way I can think of.

Re: Is It Better to Rent or Buy?

#248

Post by IgorPartola »

mcdougle wrote: post #211
vijucat wrote: post #179

Earlier quoted context omitted.

> 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, pic…

I currently pay $55/month for someone to worry about collecting rent, finding someone to rent, negotiating, checking credit, etc. for my rental property. It is not very profitable in terms of cash flow, but I am building equity into the house.

Re: Is It Better to Rent or Buy?

#249

Post by mcdougle »

IgorPartola wrote: post #248
mcdougle wrote: post #211

Earlier quoted context omitted.

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, pic…

I currently pay $55/month for someone to worry about collecting rent, finding someone to rent, negotiating, checking credit, etc. for my rental property. It is not very profitable in terms of cash flow, but I am building equity into the house.

Yep, finding a property manager is one great solution to the problem. Did you find a good one easily? I've heard it's really hard to find a good one that actually manages the property well and keeps it rented out consistently. I haven't really looked myself, though, so all I really know about it is from stories on BiggerPockets.

Re: Is It Better to Rent or Buy?

#250

Post by Frozenlock »

lmm wrote: post #182
Frozenlock wrote: post #20

Earlier quoted context omitted.

And you still need to pay taxes (rent) to your municipality (landlord). So if I summarize, you can't do what you want with it and you need to pay your landlord. Why are people calling this 'owning' a house?

Because there's no value in having a word for a situation that basically no-one is in? Because despite your sophist argument there are huge practical differences between what normal people call "renting" and what normal people call "owning"?

Don't you have clothes that you own? Don't you own your food before you eat it?

If I buy a computer, I own it.

Far from a 'situation that basically no-one is in' I would say. I suppose what you meant is that basically no one really own their house. Well if it's the case, why use the word anyway?

Words have meaning. You can't just decide to apply a word to a situation where it doesn't apply and call it a day.

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