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Most Germans don’t buy their homes, they rent

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Re: Most Germans don’t buy their homes, they rent

#271

Post by kdamken »

standel wrote: post #141
coldtea wrote: post #58

Earlier quoted context omitted.

> After all, renting has a guaranteed zero ROI. A guaranteed zero ROI is better than a negative ROI which you can get with buying a house (e.g. the house you can resell it drops due to the market and you can't afford the mortgage for some reason...)

negative ROI on investment is the risk component of your investment. This is true of any investment. Stock being certainly higher risks than housing and still people invest a lot in stocks. But I should have said renting is a sunk cost. There is no investment component at all in renting.

Stock being certainly higher risks than housing and still people invest a lot in stocks.

I would say low cost index funds are a much lower risk investment than a mortgage. They also have the advantage of being very liquid in the case of actually needing your money. Rent is not a sunk cost, this is a common misconception.

There are many good reasons to buy a home, but do not think of it as an "investment". Compared to other investment options, it's a pretty terrible one.

I highly recommend reading this article to learn more - http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrib...

Re: Most Germans don’t buy their homes, they rent

#272

Post by matthewowen »

aianus wrote: post #165
criddell wrote: post #160

Earlier quoted context omitted.

> It might be cheaper but only if you don't value your own time or have anything better to do. No way. My family of four eats around $250 of food every week. That works out to $3 per person per meal. The other expenses would have to total more than $600 before we would break even eating fast food every day. The food we make at home is considerably better than fast food, so I think it would cost an extra $1000 to eat…

It takes ten minutes to earn $10 doing software engineering. In no universe am I cooking a better meal in less time.

Can you spend 10 extra minutes and earn an extra $10?

This mode of thinking is interesting, but it's usually overrated as a way of deciding on time value. Most people have a job that takes some time and pays some money, but they can't arbitrarily work a little longer for a little more money as they desire.

This isn't to say your time value might not be high enough to justify not cooking... but it's usually a complex calculus, that involves assessing what you would actually do instead of cooking (for many people, that might just be zoning out in front of the football game), and figuring out the expected future value of it (eg spending the time reading a book may provide you with future intellectual or financial wealth). But then you also have to factor in the human growth from cooking: maybe you'll be a happier person if you cook more frequently.

This is quite a web, but I guess that's the point in my opinion. Annual salary divided by minutes worked in a year feels like a slam dunk way to make these decisions, but it's really not rich enough.

Re: Most Germans don’t buy their homes, they rent

#273

Post by hx87 »

imtringued wrote: post #79
Normal_gaussian wrote: post #28

The only liberty that renting provides is the protection from the whims of the housing market. Aside from that it takes liberties right left and centre. I cannot structure my house and life as I want from painting and shelving through pets and kitchen appliances. I cannot fix something without causing a hassle and days off work. I cannot register a business here. I am at the whim of my landlord. Renting in the UK is…

On the other hand it eliminates the NIBMY problem. Since the tenants do not own their home they don't have the pressure to protect their investment. The landlord receives returns on his investment through rent on a monthly basis which lessens the risk of a sudden development reducing the value of the home. Home owners that live in their own home on the other hand face the full risk since they can only recoup their co…

I'm not entirely sure that NIMBY is rational with respect to maximizing the value of a real estate investment--wouldn't free construction plus taking out equity loans to build as dense as justified by demand be even better? IMHO, NIMBYism is more of a sentimental phenomenon.

Re: Most Germans don’t buy their homes, they rent

#274

Post by techthroway443 »

jessedhillon wrote: post #239
cmdrfred wrote: post #236

Earlier quoted context omitted.

It really depends on where you live. I live outside of Philadelphia. My mortgage, taxes and insurance is less than $1200 dollars for a 3 bedroom house. I'd pay at least $1200 to rent a crappy 2 bedroom apartment and rent just keeps going up around here. Consider, even If my homes value stays completely static (according to Zillow it went up a 5 percent this year), in ten years time I will be paying considerably less…

Yes, but there's a reason why the crappy 2br costs as much as your house. That reason might not appeal to you, but it exists and has a specific monetary value.

Could you explain the reason?

Re: Most Germans don’t buy their homes, they rent

#275

Post by kasey_junk »

pixl97 wrote: post #167
cm2187 wrote: post #130

Earlier quoted context omitted.

> Namely, it is very difficult to raise a family of four in a mutual fund. It is difficult to ski without skis. But most people don't buy skis, they rent them. Renting skis do not mean that no skis will be manufactured. There is a need for house, houses will be constructed, irrespective of whether people will over-bid on them or not. > A paid off home is a social safety net against homelessness Stocks and savings are…

>Stocks and savings are equally a safety net against loss of primary income. Until you have a 2007 collapse again (predicted by some to happen again soon), where you both lose your job and a massive amount in stocks. Savings have been at extremely low rates for a long period of time in the US.

At about the same time the housing market got decimated as well. It also comes back in more variant ways.

One extreme downside of thinking of your home as an investment vehicle is how poorly it is diversified. It is almost exactly directly correlated to the local job market...and to macro trends like the MBS issues we saw in 2008.

Re: Most Germans don’t buy their homes, they rent

#276

Post by kdamken »

standel wrote: post #138
bryanlarsen wrote: post #104

Earlier quoted context omitted.

> renting has a guaranteed zero ROI If rent < mortgage interest + other housing sunk costs and you invest the delta, renting can have a substantially higher ROI than buying.

You still need to rent something for you and your family. It's almost a fixed cost in your life. In any case, it's better to turn that fixed cost into an investment. It's hard to believe you'll ever get your equation right. Even more when you weight investment risks and actual average ROI over 25-30 years in stocks.

What about property taxes? I know people who have paid their house off in full and still pay 12-15 thousand in property taxes each year.

Additionally, even if the house is paid off, you're still on the hook for all repairs, maintenance, etc. And if your neighborhood starts to go down the tubes, your house value can quickly decline as well.

Re: Most Germans don’t buy their homes, they rent

#277

Post by sosuke »

heisenbit wrote: post #196
Spooky23 wrote: post #180

Earlier quoted context omitted.

Residential properties usually have short term leases. You have minimal incentive as a tenant to plant flowers, buy shrubs, etc. You have minimal inventive as a landlord to make the house look any more attractive than it needs to be. Landlords don't maintain property to the same standard as an individual homeowner, when they do, they use more efficient service models (ie. a single crew with a single set of tools) to…

"Residential properties usually have short term leases." Not true in Germany. Most leases are indefinite. As the contractual rent often increases by less than the market there is some incentive to stay put. Also keep in mind that moving in Germany is an expensive proposition as the kitchen is usually not part of the deal.

It's a different story in the US which makes hard to have a comparable conversation unless both parties have intimate knowledge of both environments.

My rent in the US went up $100+ year after year, rent never goes down is the feeling you get and I've never seen or heard of it happening. You never invested anything into the property or building. Buying a home was freedom from that constant rising pressure, moving every 2-3 years to find another move in special and I can finally invest time and effort in my living space.

Re: Most Germans don’t buy their homes, they rent

#278

Post by zip1234 »

Spooky23 wrote: post #152
cm2187 wrote: post #5

So in Germany, the interest on a mortgage is non tax deductible. The article doesn't mention it but I understand that property owners are also liable for capital gain tax if they hold the property less than 10 years. I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money…

That's a ridiculous position. My ownership of my home provides a lot of active investment activity that wouldn't happen otherwise: Examples: - the local nursery benefits from the plants and growing materials that we buy - investments in home improvements generate contractor man-hours and local material purchases - as an active participant in stakeholder in the community, I contribute to the governance of the communit…

Also, in 99% of rentals I've seen, the landlords put in the bare minimum to keep tenants there and paying high rents. Homeowners tend to spend money on their houses to make them nicer.

Re: Most Germans don’t buy their homes, they rent

#279

Post by sleepyhead »

And how is that working out in Berlin now? Rents in Prenzlauer Berg and Neukölln increasing significantly every year. There wasn't a need to buy before because rent was dirt cheap. That's changing fast. It's obviously going to push out those who are poor but perhaps this will lead to more people realising the benefits of owning property.

Re: Most Germans don’t buy their homes, they rent

#280

Post by linkregister »

camiller wrote: post #65
cm2187 wrote: post #5

So in Germany, the interest on a mortgage is non tax deductible. The article doesn't mention it but I understand that property owners are also liable for capital gain tax if they hold the property less than 10 years. I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money…

Buying stock on the open market also doesn't create any job for anyone, it just transfers wealth to the hands of the seller. Basically, unless you are investing in an IPO, the company doesn't see a dime from the ongoing trading of it's stock. So the vast majority of investors are not creating jobs by buying stock. Similarly, most bond investors are not buying new issue bonds, they are buying bonds from the current ow…

Companies often issue common stock long after IPO. Tesla famously did this earlier this year in order to finance an accelerated release schedule for the Model 3. Companies undergoing temporary financial trouble also issue common stock. The major banks issued large amounts of common stock during the 2008 financial crisis. Most have not yet repurchased the issued stock.

Technically and in the extremely specific case, yes, buying stock on the market doesn't create jobs for anyone. However, the liquidity of stock in the aggregate is one part of the confidence of the financial system. Upon IPO, buyers of the stock need to know they can sell their stock on the market after it fulfills their objectives.

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