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Renting is Throwing Money Away, Right? (2015)

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Re: Renting is Throwing Money Away, Right? (2015)

#111

Post by T2_t2 »

gonehome wrote: post #107
phamilton wrote: post #41

These articles always ignore leverage. Generally, with 20% down you are leveraged 5:1. So even if your home is just keeping pace with inflation of 3%, you actually experience 15% growth on your investment. To use the example in the article, if your investment doubled between 2009 and now, your $200k in a $1M home just became 1.2M. 6x growth beats out 3x growth in stocks in the same period. Sure, you can be leveraged…

I’m not following the leveraged point - why is a 3% increase equal to 15% growth? In the Bay Area HOA fees plus property tax add up to nearly my existing rent even before considering a mortgage which has made me nervous to buy. I’d be banking entirely on the upward trajectory of the market for it to be a better bet than renting with roommates.

You have $100 - you buy a house worth $500. House goes up 3%, it is now worth $515. You invested $100, and have $115 in equity. Growth 15%. (that is ignoring other costs, obviously - just an attempt to explain the maths).

That is the power of leverage - you grow on the bit you own as well as the bit you owe.

Re: Renting is Throwing Money Away, Right? (2015)

#112

Post by usaar333 »

code4tee wrote: post #54

The “pro renting” crowd has a lot of consistent falacies in arguments: - Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. - Calculations also often assume someone just pays the minimum mortgage payment for the full term of the loan. Even small additional principal payments (which most mortgages allow without penal…

There's detailed calculators to handle all the issues you bring up: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...

Also, it's a trade-off. In some markets, buying wins. In others, renting wins. I personally found it hard to justify buying in expensive parts of the Bay Area: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...

Re: Renting is Throwing Money Away, Right? (2015)

#113

Post by conanbatt »

code4tee wrote: post #54

The “pro renting” crowd has a lot of consistent falacies in arguments: - Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment. - Calculations also often assume someone just pays the minimum mortgage payment for the full term of the loan. Even small additional principal payments (which most mortgages allow without penal…

> Financial calculations ignore the leveraged nature of buying a home. Small increases in property value are multipled relative to your initial investment.

This is absolutely true, though it is also hard to account for that risk, which also leveraged the down side:

Toronto is experiencing a 30% drop right now which probably means that for the last 3 years of home buyers, they are all having a mortgage higher then their property value. They actually have lost a lot of money and paid interest for it.

> - “I don’t want to pay those high real estate taxes.” Renters still pay the same real estate taxes, it’s just baked into the rent and can’t be deducted from taxes.

This is a nuanced economic topic: property taxes don't transfer to rent quite right. Rent is not that elastic to tax changes, while property values are. The rest of the comments you mention about tax exemption for being a homeowner is true and pretty ridiculous.

EDIT: looking into toronto's case, it seems to particular about restrictions or otherwise. The point in general is that the leverage works both ways, so there is exposure.

Re: Renting is Throwing Money Away, Right? (2015)

#114

Post by usaar333 »

oostevo wrote: post #44

The New York Times has a fairly detailed rent-vs-buy calculator that makes it easy to see the effects of changing some of the variables the author talks about in the article. https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

This is sadly a bit outdated - the 2018 tax code changes significantly hit the owning case in certain markets and the NYT calculator may view owning as ~10% better than it should be for high-income married individuals.

shameless plug for my own: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...

Re: Renting is Throwing Money Away, Right? (2015)

#115

Post by usaar333 »

Johnny555 wrote: post #46

There's another intangible benefit to owning if you know you're going to stay in the area long term -- you can't be forced out of your home. I was forced out of one home I rented due to owner move-in, which led to a stressful 30 days of trying to find a new apartment in a tight housing market. We managed to find a place outside of the city, but close enough to transit for a manageable commute. And rent was about the…

Wow, where do you live?

30 days seems really short for owner move-in; CA is 60 days (at least if you've been there a year)

Re: Renting is Throwing Money Away, Right? (2015)

#116

Post by icc97 »

stevekemp wrote: post #102
imbur wrote: post #26

Home buyers often overlook the cost of selling their home when considering if renting is cheaper. That is 6% in realtors fees and another 2-3% in closing costs. Renting is a great deal if you are not going to live somewhere for 5+ years before moving

This is very country-specific. I sold a flat in Scotland at the end of last year. I think I paid a flat-fee of about £2000 for a solicator to create the home-report/brochure, handle the necessary paperwork, post advert(s) online & arrange viewings, etc. I'm sure the fee was probably calculated based on the sale price, but the idea of paying 6% of the sale-price is very alien to the UK at least, and I suspect Europe t…

The costs of buying a house in Belgium is ridiculous. It's 10% tax, lawyers cost about 5x more. If you put an offer down you're on the hook for 10% of the price if you pull out.

Re: Renting is Throwing Money Away, Right? (2015)

#117

Post by usaar333 »

chrisseaton wrote: post #21
jimmy1 wrote: post #16

When the goal is to have a roof over your head, between renting or buying, the better option is to buy. If the goal is to invest wisely, of course buying a house is worse than say something like an index fund. But the problem is: I can't sleep in an index fund. A house isn't a depreciating asset. Renting is not an asset at all. Mortgages are fixed. Rent tends to frequently increase, skyrocketing at worse. This articl…

> owning is cheaper than renting This is the key thing! Obviously owning is cheaper than renting, as renters have to cover the costs of their landlord owning, and then some profit for them on top of that.

As sibling comments note, not necessarily due to appreciation being baked into housing costs.

Additionally, the owner and renter may have different risk tolerances where in the renter is comfortable putting cash in the stock market, the owner might want lower-risk, lower-yielding assets.

Finally due to tax distortions, the owner may have a better deal on their own house than a prospective new owner could get.

The Bay Area is an example where renting is much cheaper than owning: https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...

Re: Renting is Throwing Money Away, Right? (2015)

#118

Post by Ajedi32 »

Simulacra wrote: post #81
monkmartinez wrote: post #78

Earlier quoted context omitted.

I own my home in a relatively cheap COL area... I would rather rent. Houses nickel and dime you to death. The expenses pile up at both the front and back of the transaction... that is, when you buy and finally sell. Please show me how the small increases in property value multiplies my initial investment. The problem is most people don't move sideways or down... they move up, thus negating any windfall in investment…

My renter pays for my mortgage which includes principal and interest, landlord insurance, and taxes. Not to mention an additional $380 a month and profit that I put towards the principal and my 401(k).

This is perhaps the biggest argument in favor of ownership. Unless your landlord is _losing_ money on the deal, the price of rent takes _all_ other costs of ownership into account and then adds more on top of that.

If you're renting, you most certainly _are_ losing money on the deal vs. what you'd pay if you owned _exactly_ the same property.

Re: Renting is Throwing Money Away, Right? (2015)

#119

Post by pfarnsworth »

usaar333 wrote: post #109
phamilton wrote: post #41

These articles always ignore leverage. Generally, with 20% down you are leveraged 5:1. So even if your home is just keeping pace with inflation of 3%, you actually experience 15% growth on your investment. To use the example in the article, if your investment doubled between 2009 and now, your $200k in a $1M home just became 1.2M. 6x growth beats out 3x growth in stocks in the same period. Sure, you can be leveraged…

A few notes: Deductability of interest (and property tax) is a lot smaller than it was before with the new tax code. On a $1M house for a married couple, you might get ~$9k back but (in CA) that's offset by the $12k (EDIT: likely non-deductable due to SALT max) property tax. Anyway, using my own calculator ( https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul... with other defaults), the situation you descri…

Property tax is deductible up to $10k.

Re: Renting is Throwing Money Away, Right? (2015)

#120

Post by usaar333 »

code4tee wrote: post #5

The financial arguments assume one only pays the minimum mortgage payment amount. Many people add a bit extra each month which can quickly turn a 30 year mortgage into a 9-12 year mortgage. It also ignores many of the other benefits of owning, such as having a lot more say over what you do with the propert and not always having to worry about rent increases or what happens when the lease ends. The rent vs buy equatio…

> The financial arguments assume one only pays the minimum mortgage payment amount. Many people add a bit extra each month which can quickly turn a 30 year mortgage into a 9-12 year mortgage.

Wouldn't that actually make the trade-off worse as instead of putting money into a high-return asset (stocks) you directed it to a lower-returning asset (housing)?

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