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Renting is Throwing Money Away, Right? (2015)

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

#191

Post by hellofunk »

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…

> - “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.

It's quite common to rent a house when it is worth X, and for that rent to remain nearly the same even if the house becomes worth X+Y. Due to common restrictions on how much rent can be increased year to year, the taxes on the house can (and often do) grow considerably for the owner, while the rent stays nearly the same. In this very common scenario, the taxes are not at all baked into the rent and the owner starts to lose out until you move and they can raise the rent considerably for a new renter.

In other words, renting does in fact protect renters from a rise in property values when real estate tax enters the equation.

The flip side, of course, is when property loses value, the renters potentially lose out since they continue to pay based on prior taxes.

I should add that the pros and cons are often local to the country you live. In many places, Germany for example, mortgage tax is not deducted from income tax. Which is perhaps why half the population in Germany rents a house for most of their lives.

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

#192

Post by dlp211 »

KKKKkkkk1 wrote: post #159

Since housing is an emotional subject, let's try to argue by analogy. I regularly buy lots of dairy products. Milk, yogurt, cheese. Why shouldn't I save some money and buy myself a cow instead? That way, I could satisfy all my dairy needs, and maybe even have some extra milk to sell to my neighbors. No more making the dairy farmers rich at my expense. Now, assume that I sell my cow ten years later. And let's say that…

This analogy is not correct. The correct analogy is renting a cow vs owning a cow, not owning a cow versus purchasing it's by product.

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

#193

Post by zwischenzug »

chrisseaton wrote: post #170
zwischenzug wrote: post #167

I'm fed up of having this argument in London. I rent, and pay about 2% of the value of the property in a year. I get around 8% on shares over the last ten years. Renting is an absolute no-brainer for me. People are shocked when I tell them how much return I get on my savings vs how much my rent is, especially when I tell them where I live (a 'premium' part of London).

I don’t understand why you are arguing in favour of renting with those numbers. You pay more in rent than you would do for a mortgage, and you earn less from your shares than you would do from London property price rises... what’s the upside of renting in your case?

In case it wasn't clear: 8% is per annum.

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

#195

Post by 6841iam »

another thing this article fails to address is what is the supply of homes in a given region and how wealthy are people there. if you take mountain view where google is headquartered there are many wealthy people near by thanks to rising stock prices of goog, fb, aapl, Netflix etc. because of this and the lack of homes getting built house prices are just going up.

in 2017 less than 250 single family homes sold in mountain view. just put that in perspective. 250. thousands started working at google but only 250 homes sold. and the average days on market for a home was: ~10 days.

if these firms continue making money and if they continue to see their stock prices going up then you'll continue to see house prices rise in these markets.

articles like these fail in markets like mountain view / Palo Alto. they probably make more sense for markets that have abundant housing like Las Vegas / Denver.

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

#196

Post by jalk »

dingaling wrote: post #187
ProAm wrote: post #90

Earlier quoted context omitted.

Your forgetting the tax write off of mortgage interest. Which needs to go into you equation no? That can be sizable.

That's a uniquely American benefit. Most Western mortgage-payers have to pay out of post-tax income.

Mortgage interest is tax deductible in the Scandinavian countries and in the Netherlands IFAIK

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

#197

Post by Freak_NL »

dingaling wrote: post #187
ProAm wrote: post #90

Earlier quoted context omitted.

Your forgetting the tax write off of mortgage interest. Which needs to go into you equation no? That can be sizable.

That's a uniquely American benefit. Most Western mortgage-payers have to pay out of post-tax income.

We have it in the Netherlands as well, although it is gradually being phased out.

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

#198

Post by zwischenzug »

nothrabannosir wrote: post #178
chrisseaton wrote: post #170

Earlier quoted context omitted.

I don’t understand why you are arguing in favour of renting with those numbers. You pay more in rent than you would do for a mortgage, and you earn less from your shares than you would do from London property price rises... what’s the upside of renting in your case?

I was under the impression London house prices rose very little last year? It turns out it was 2.5%; low compared to the rest of England. Surely the stress around Brexit is helping depress property value. https://data.london.gov.uk/housingmarket/ If you could have made 8% instead: good work in 2017. Not commenting on the rest, but for a 1y data point, it was good.

London is falling at around the rate of 1% per month right now.

https://www.markiteconomics.com/Survey/PressRelease.mvc/5918...

as are rents (shares not doing great either), but that's another story.

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

#199

Post by mikekchar »

KKKKkkkk1 wrote: post #159

Since housing is an emotional subject, let's try to argue by analogy. I regularly buy lots of dairy products. Milk, yogurt, cheese. Why shouldn't I save some money and buy myself a cow instead? That way, I could satisfy all my dairy needs, and maybe even have some extra milk to sell to my neighbors. No more making the dairy farmers rich at my expense. Now, assume that I sell my cow ten years later. And let's say that…

Not really related, but I'll bet most people don't know that in many places you can by a "cow share". Basically you buy a percentage of the cow's output for the rest of its life. The farmer milks it, takes care of it and gives you the milk. In some places it is illegal, but in other places it's the easiest way to get raw milk (which may be important if you make your own cheese, among other things).

In this kind of arrangement, it's a derisking tool for the farmer. The share holder is paying upfront for the cow (and possibly even for maintenance). For the share holder it's a way to lock in availability (more than price) of a difficult to get resource. There are similar arrangements for things like hops in homebrewing. Some big clubs will essentially buy futures for hops in order to lock in availability and price for really hard to get hops. In this case it can really pay off because the price can skyrocket (multiples) if a particular hop because suddenly popular one year.

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

#200

Post by ShadowFaxSam »

This same principal can be applied to buying or leasing a car. When I first graduated college and had my first "adult" job I wanted to purchase my first car. The general mantra I heard was "Leasing is throwing money away". I ended up financing my first car, (used) thinking I was making the correct financial decision.

The problem with someone fresh out of college buying or financing a car is they really have no idea what they're next 3-5 years have in store (change in cities, jobs, etc).

My friends who went the leasing option were making considerably lower monthly payments and were able to move on to another car at the end of the year with no difficulty, or could move to another city without carrying a multi-year financial obligation.

I ended up moving to Europe before I had even completely paid off the car and had to sell it at a loss.

I wish I could go back and simply lease a car for my first few years out of school before I figured out where my career would take me.

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