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Renting is Throwing Money Away, Right? (2015)

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

#281

Post by hudibras »

rosege wrote: post #155
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…

interest rates vary pretty widely around the world. Im guessing you might be in Europe where rates are pretty low still. In Australia they never dropped anything like they did in Europe. If you're lucky you can get a loan around 3.9% but lots of ppl are close to 5% here and you can only tax deduct it if its an investment property

In Japan, mortgage rates are less than 1% right now for a 35-year loan.

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

#282

Post by notyourday »

chatmasta wrote: post #232
hvidgaard wrote: post #148

Earlier quoted context omitted.

What all professionals do, and what all potential home buyers should do, is run the actual numbers of expenses that is purely property taxes, interest, fees, expected maintenance, bills such as heating and electricity, and other related expenses not specifically reducing the amount of debt. That is the price of living in the house - compare that to renting a place. The difference between owning and renting expenses,…

But with renting there is no reward. EDIT: In addition to mobility cited by a reply to this comment, another advantage is the saved opportunity cost of investment in real estate vs other markets.

Except, say, you want to stay in NYC. Rent are ridiculous and continue not only to be ridiculous but become more and more ridiculous and unless you just happened to be in a rent controlled apartment, you are at a mercy of your landlord.

You may as well do 7/1 ARM or 7 year IOM and treat it as rent.

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

#283

Post by hudibras »

wldcordeiro wrote: post #83
kazinator wrote: post #61

Article assumes that if you're a renter, you don't pay insurance. Which is true for a lot of renters; but they will lose everything if the place burns down. The landlord's policy will not cover the belongings of the renters. Comparing insured versus uninsured is stupid.

No it specifically mentions renter's insurance near the beginning but the number cited seems like a minimum policy. > Rachel pays $307 per year in renter’s insurance.

That's about right.

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

#284

Post by lmm »

conceptpad wrote: post #144
Ajedi32 wrote: post #118

Earlier quoted context omitted.

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.

That's the simple logic of rent vs. buy, but as the article details, there are other considerations. Opportunity cost being one primary cost that you're not taking into account. To me the most important question is the most fundamental: "Am I a real estate investor?" - I am not, and the overwhelming majority of persons are not. And yet the moment we purchase a home, we become real estate investors. In my case the sim…

If you intend to live in a home for the rest of your life then you're effectively short one home (or half a home if you're going to share). So I see buying your primary home as more like covering your short than making a positive investment in real estate.

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

#285

Post by neffy »

loxs wrote: post #266
neffy wrote: post #245

He's assuming that the rent stays constant. A lot of what he says is correct, but this is a critical point. Buy, with a standard compound rate mortgage, and you essentially freeze your rental payment. Yes, for the first few years of the mortgage you won't pay back much equity - but you can compensate for that if you overpay your mortgage (make sure terms and conditions allow you to do this without penalty), say by th…

No, he is not assuming that. Go read the article again

You're right, I didn't get that far... but what he does is actually worse.

He assumes a 2% increase in rent (no, just no) - rents track real estate increases quite well too, the common link is the cost of the landlord's mortgage to buy the property, and an ROI of 8% on an MMF. Also no.

All of this is linked back to monetary expansion - in periods of high inflation, when you also get high returns on MMF's, your rent is equally increasing rapidly. In periods of low inflation, you don't get those kinds of return without unacceptable risk.

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

#286

Post by scarface74 »

jayess wrote: post #277
chatmasta wrote: post #232

Earlier quoted context omitted.

But with renting there is no reward. EDIT: In addition to mobility cited by a reply to this comment, another advantage is the saved opportunity cost of investment in real estate vs other markets.

Having been burned badly in the real estate meltdown, there is a lot more freedom in renting than buying. I'm just now getting slightly inclined to consider buying again, but it would have to be a whopping deal. I've enjoyed renting since at least 2010. I especially like the ability to call the landlord and tell them that the sink is leaking and they need to get it fixed. Or the water heater stopped working, come out…

When it comes to making a trade off for convenience vs. cost, I usually choose cost within reason and I also got burned by the real estate meltdown. I was in no hurry to buy.

But the rent where we were staying went from $1300 to $1800 within 3 years for a 3 bedroom, 1650 square foot apartment. We were able to buy a house, a brand new build 3000 square feet 5 bed/3.5 bath for $2000/month with only 3.5% down in a neighborhood zoned to top rated schools.

As far as convenience, we pay a lawn service $140/month to cut our grass and now that the home warranty is up (paid for by the builder), we pay about $700/year for a "home warranty" when anything breaks you just call them and pay a deductible. Is The warranty a good deal financially? Probably not, but it is convenient.

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

#287

Post by k__ »

scarface74 wrote: post #267
k__ wrote: post #264

Earlier quoted context omitted.

Also, rents go up all the time, especially while moving into a new flat. If you rent a flat for 20-40 years, the rent won't change as much as when you move around every few years. So you might end up with super low rent compared to the rest of the city after 10 years or so.

Rent control is only a thing in a few areas of the country. In most of the country, rent can increase at the end of a lease as much as the market will handle.

Ah okay. I'm from Germany, where we have rent control everywhere.

But I also know a guy from NY who rented a flat for a few hundred bucks decades ago and now subrents it to other people for thousands.

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

#288

Post by cko »

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…

> 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.

In a 30-year loan, it’d be actually less than 15%. It’s 15% the first year.

Calculating the compounded return, it’s 1.03^30 * 5, then you raise all of that to the (1/30) power. You get a 8.7% compounded annual return, assuming 20% down. Then I think you subtract the 3% inflation. 5.7% is better than just tracking inflation, of course.

The return is different if it’s not owner occupied, since you need 25% down and there’s capital gains tax. But then there’s cashflow, depreciation tax shelter, etc.

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

#289

Post by swebs »

>Are you better off:

> - Tying up your cash into a home

> - Finding an alternative investment, coupled with a rent payment?

This is the part I don't get. That would require renting to be cheaper per month than having a mortgage, yet it will always be more expensive for the same property because the landlord is paying the mortgage* plus marking up the price to make a profit.

*Or at least charging the equivalent market value since there will be other landlords in the city who are paying a mortgage

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

#290

Post by majewsky »

shin_lao wrote: post #128
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…

Did you read the article? In the beginning: "I empower you to conduct your own analysis and make your own decision, based on your own circumstances, rooted in logic and math." And later "Your Special Snowflake circumstances don’t change the fact that everyone is responsible for analyzing their own variables. Don’t base the biggest purchase of your life on an intellectually lazy cliche."

> Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."

Source: https://news.ycombinator.com/newsguidelines.html

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