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Renting is Throwing Money Away, Right? (2015)

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

#221

Post by nonameisfinetoo »

T2_t2 wrote: post #111
gonehome wrote: post #107

Earlier quoted context omitted.

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.

But the house usually does not go up 3% if you take inflation into account

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

#223

Post by jstanley »

phamilton wrote: post #206
simonsquiff wrote: post #136

Earlier quoted context omitted.

6% for realtors fees is outrageous! I had no idea it was anything like that in the US. Here in the UK, it’s about 1.5%. That can often be haggled down to 1% if you have an expensive house that’s desirable enough to sell itself. And even that is getting majorly distributed by online agents, who are offering a flat fee service rather than % of property, which can be an enormous saving. At 6% it seems a market with a hu…

How are buying agents compensated in the UK?

You wouldn't typically use one.

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

#224

Post by dspillett »

jo909 wrote: post #142
phamilton wrote: post #70

Earlier quoted context omitted.

That's fair. It definitely underscores the actual point of the article which is "You should run your own numbers rather than believe 'conventional wisdom'". I'd love to see some analysis (perhaps a monte carlo sim) on how the "no recourse" angle plays out. I can only assume that a floor on losses skews the expected outcome significantly.

It underscores how little you should trust your own numbers (or numbers from strangers on the internet). Forget one small factor and the whole picture shifts a lot.

> how little you should trust your own numbers. Forget one small factor and the whole picture shifts a lot.

Though you should at least try run the numbers. Maybe you will forget an important detail but if you just go with your gut or an insufficiently specific recommendation from elsewhere you will likely miss many more important details.

The trick is to do some research first, and if possible have someone else look over your thoughts to see if they can spot an important omission. Be particularly careful if the sums add up in a way that closely confirms your original idea - your analysis might be unintentionally biased by subconscious filtering.

> or numbers from strangers on the internet

That is definitely something to be wary of. Too many people base decisions on simple advice without checking that the advice is even relevant to their specific situation. I've seen people in the UK dump figures into US targeted calculators with the thought that "the $£ is the same for every figure so it will all work out OK" without thinking that our tax regimes and other factors are quite different in ways that can have a large impact.

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

#225

Post by chii »

neuxenian wrote: post #208
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…

Leverage cuts both ways, though. As someone who just sold their house, the costs are a percent of the sale. You don't get taxed on the sales (generally) but you will probably have to pay real estate sales costs. So yes, if your home increases by 3%, you've gained 15% growth on your investment, but if the sale cost is 5% of the the sale price, then things aren't so clear anymore. The real calculation is the total mont…

> This in turn is relevant because your mobility becomes relevant.

you don't need to sell, just rent out the apartment when you move.

With the rental income, you can pay for a similarly priced location in the new place. Then, when the market fits, make the sale, and you've lost very little (if anything), except upkeep costs due to rental damage, etc.

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

#226

Post by snarfy »

The way they changed the standard deduction and personal exemptions for 2018, for most people the tax deduction from their mortgage won't be worth it. It will be better to take the standard deduction instead of itemize. I had to adjust my tax withholding this year otherwise I would have owed a few thousand next year (compared to the few thousand return I received this year).

The whole tax benefit for owning a home is gone. Not only is there no benefit, you are now penalized.

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

#227

Post by stephen_g »

lath wrote: post #30

I own because I like knowing I can modify my living space however I like. I took out a bedroom to make a home theater, could never do that renting. There are definitely advantages to home ownership psychologically that can’t be defined in a dollar figure. His main point though was that renting isn’t throwing money away. I say if renting is the better option for you then who cares?

Yep - that was a huge deal for me (wanting workshop/garage space). Apart from that, renters rights can really vary around the world, in Australia it's pretty bad. Depending on the landlord, you can get fairly frequent inspections with as little as 24 hours notice, generally can't have pets, are often on a 6 or 12 month lease and can't always renew (if the landlord sells and the new owners don't want to keep you on...

I much prefer owning, and my interest is $100 less per week than what the previous owners rented my place out for before I bought it. If the value of the house keeps up with inflation by the time I sell I'll be very happy. (We don't have capital gains tax on primary residences either, or land tax so that's nice).

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

#228

Post by reacweb »

There are so many factors to take into account. When you buy, you buy generally bigger than what you would rent because you buy for the future, you rent for the present. Bigger houser means also more maintenance costs and more taxes. Inflation does not always work: the value of a house getting older and outdated may decrease. The environment may degrade. OTOH, when renting, it is psychologically harder to spare. With a mortgage, you have no choice.

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

#229

Post by cperciva »

gnicholas wrote: post #154
usaar333 wrote: post #109

Earlier quoted context omitted.

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…

Good point about the property tax deduction becoming much less valuable in high-income tax states like CA. It used to be the case that property tax was basically built-into the cost of renting. That is, your landlord pays property tax, gets to deduct some, and then passes the pro rata share onto each of the renters. This implicit property tax created an equivalence with the property tax that you would pay if you boug…

Businesses get to deduct property taxes because they're earning income from the property. Individual owner-occupiers of property aren't earning any taxable income from the property.

Yes, individuals should get to deduct their property taxes... but only after they start paying income tax on imputed dividends.

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

#230

Post by bvm »

laurencerowe wrote: post #180
littlestymaar wrote: post #130

> You hold a 5 percent fixed-rate 30-year mortgage Wait, are you Americans paying 5% interest on mortgage, whitout even counting insurance? For real?! Edit: Having looked at other comments in this thread, it looks like interest are taxe-deductible, which makes it more affordable, but that's also really weird: it means the gouvernment subsidizes financial institutions to charge American consumers a lot more than the n…

US mortgage rates are generally quoted for 30 year fixed rates (about 4.5% currently.) Rates in the U.K. are much lower but those tend to be variable rates which will increase in line with central bank interest rates when those economies begin to recover.

I've just signed a 3-year fixed term @ 1.49% (at which point i'll then have to find another...). I'm pretty amazed at how different it seems to be in the US.
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