Renting is Throwing Money Away, Right? (2015) • Hacker News Board

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

#391

Post by emodendroket » Mon, Apr 23, 2018, 3:08 PM UTC

loxs wrote: post #296

fdr wrote: post #173

The strictly financial part of the calculation is important, but personal cost of volatility may be even more important for those in a position to choose to rent or buy. I suggest it should also give pause to those who plan to build extensive social capital somewhere long term, but continue to rent. I view real estate ownership as a personal hedge. As we've seen in San Francisco from displacement of those in less luc…

What if you build "social capital" in a place where most people rent... then situation changes and most of your social contacts move away, because it's no more economically feasible to live there? What happens to your social capital then?

Yes, and what if you are shot to death?

It's very unlikely that all your contacts and family and friends are going to move away all at once. As some people leave presumably new ones are also coming along.

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

#392

Post by refurb » Mon, Apr 23, 2018, 3:08 PM UTC

s17n wrote: post #141

klipt wrote: post #63

Earlier quoted context omitted.

> 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. But if inflation is 3%, you're probably paying 3% (or more) interest on your loan. So suppose your home costs X. You pay 0.2X downpayment and borrow 0.8X through your mortgage. The first year your home appreciates to 1.03X but you also pay around 3% o…

There's no such thing as a margin call on a mortgage.

There is in Canada! Mortgages have 5-year terms, but 30 year amortization. When you renew at the end of your 5-year term, the mortgage company can ask for an appraisal and ask you to cough up enough money to maintain 80% loan-to-value.

That's even if you keep the exact same mortgage and bank.

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

#393

Post by refurb » Mon, Apr 23, 2018, 3:13 PM UTC

Ajedi32 wrote: post #118

Simulacra wrote: post #81

Earlier quoted context omitted.

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.

That's true, but your landlord may have bought for much cheaper a long time ago. That's not available to you right now. So renting could be cheaper than buying and the landlord makes a profit.

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

#394

Post by aaavl2821 » Mon, Apr 23, 2018, 3:15 PM UTC

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…

When comparing asset classes, you should consider the returns of the underlying asset class independently, and then compare the potential returns with leverage. And also remember that leverage has a downside

In this example, stocks outperform real estate (not saying this is true, just referencing the article). So for buying a home with a mortgage to be better than buying stocks, the cost of debt must be significantly lower. Which is sort of counter intuitive -- if an asset gets better returns, shouldn't you be able to borrow against it more easily? -- but it may be the case

But the second point -- that leverage has a downside -- can hurt you here. If the distribution of housing returns is a bell curve with expected return equal to inflation, you have just as much chance of leveraging hurting you as helping you. Lots of people lost their homes in the recession, and in a lot of cases leverage made it way worse

So if you believe the numbers in the article, you shouldn't be over-leveraging your home compared to your income, and you should diversify your assets (another benefit of investing in things other than homes)

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

#395

Post by bluGill » Mon, Apr 23, 2018, 3:15 PM UTC

piracy1 wrote: post #164

IshKebab wrote: post #161

Earlier quoted context omitted.

A cow is not the same as a freehold property. Land does not age (except maybe near the sea), and houses generally last a very long time.

Also, running a dairy farm requires some economy of scale that renting a house doesn't

If you have enough land for the cow to eat grass (note we are carefully not counting the cost of this land) you can milk the cow by hand: the only equipment needed is what you probably already have in your kitchen anyway, and a few bottles of "cow lotions" (some are cleaners but in any case cheap).

Running a dairy farm with 3000 cows has a lot of economy of scale but that is mostly time. And happy cows - cows much prefer their comfortable barn year round to being outside in the weather.

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

#396

Post by rout39574 » Mon, Apr 23, 2018, 3:17 PM UTC

VLM wrote: post #374

uxp100 wrote: post #331

Earlier quoted context omitted.

I think this is a good post and a good perspective to take, but its worth pointing out you bought an expensive washing machine, though if its more reliable, then that's probably the better purchase. On good days I do like my house hobby. I mainly bought a house because I kept having to move every year, renting flats in houses where they decided they wanted to sell, or move in themselves, etc. So now only the bank and…

Not so, I bought the cheapest washing machine I could get. I dropped about $1200 cash on a speed queen that'll last me maybe 20 years. Joe 6 pack finances a new LG every three years at 29.99% credit card interest for $600 and thinks I'm getting ripped off. Its just like the situation with hiking boots, I can only afford the $250 boots that last many years, I'm not rich enough to afford the $100 boots that only last o…

This is Terry Pratchett's "Boots theory of wealth", placed in the mouth of Sam Vimes. Rock on.

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

#397

Post by blisterpeanuts » Mon, Apr 23, 2018, 3:18 PM UTC

In 1995, I rented an apartment and kept it for 10 years at about $1000 per month. Total invested: $120,000.

Had I purchased in about 1998 or '99 when I was single, making good money doing hourly contracting, my then-$200K property would have risen to $500K by 1995 (in the area that I was house hunting). By today it would be $700K or more.

I was ill-advised by parents to not buy ("Not a good investment and you don't know where you'll be in five years") and I foolishly listened to them.

Now I own a couple of houses but with a lot of years left on the mortgages. Oh, how I wish I'd listened to my gut instead of lazily putting off purchasing! Today I'd have a positive net worth of probably over $1 million, instead of probably half or one third of that.

To young people in their 20s-30s, I strongly recommend getting some property. Buy the least expensive condo in the best neighborhood you can find, preferably with great schools (whether you have children yet is irrelevant). Live in it a while, then try to buy a standalone house with a bit of land--either trade up or, preferably, hang onto the condo and rent it out. There are cycles in real estate, but over the long haul, prices go up.

The best time to buy a house is 20 years ago. The second best time is today. Words of wisdom that are as true now as they were 50 or 100 years ago.

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

#398

Post by sytelus » Mon, Apr 23, 2018, 3:18 PM UTC

This article is classic example of misusing math to make an exact counter point. It ignores the fact that,

- rents always keeps increasing for renter staying at same location

- there are significant tax advantages for high income earners

- people are not usually qualified to make investment decisions that would consistently outperforme real estate

- you build significant credit worthiness

- you get almost 2X or more living space for same or lower expenses

- in hard times, you can sublet extra room typically generating more income than investment dividends

- you get great free public schools, saving tons of money in private schools

- you have a say in how your neighborhood develops and evolves

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

#399

Post by gshubert17 » Mon, Apr 23, 2018, 3:19 PM UTC

BoorishBears wrote: post #253

loxs wrote: post #244

Earlier quoted context omitted.

Yeah but if the market collapses and you lose your job, you'll be forced to sell at a huge loss

How does a drop in the local housing market lead to you losing your job? A general market crash causes many people to lose their jobs, it doesn’t discriminate against homeowners. The renters are probably in a worse position in that case too, stop paying rent for a month and you’ll be evicted the next month. Stop paying your mortgage and the bank will at least work with you for a little longer.

Sometimes the cause is a loss of employment at a large local employer, and the effect is a drop in the local housing market as former employees try to sell and move to places with a better job outlook.

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

#400

Post by drblast » Mon, Apr 23, 2018, 3:23 PM UTC

Aaargh20318 wrote: post #269

ShadowFaxSam wrote: post #200

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 w…

If you're talking about leasing/financing, then I'm assuming you're getting a new car. Why does your first car out of college have to be a new car ? Why not just buy a cheap used car outright ? You can get something that'll last you a couple of years for €1000.

Often when you're living month-to-month without savings it's feasible to buy a new car but not a used one.

The loan terms on new cars are usually more favorable and you don't have to worry as much about something expensive on the car failing and leaving you without transportation.

I was a couple months out of college when the old car I owned needed about $3000 in repairs that I didn't have. My options were payday loan, buy a new car, or buy a much cheaper used car and hope that it didn't end up needing $3000 in repairs.

New car was the easy choice, and I fully understood at the time that if I could scrape together $3000 it would be much better to repair the car I owned.

It's like buying cheap sneakers from Walmart that you know won't last. Doesn't matter if it's a bad decision if that's all you can afford.