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Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

nytimes.com

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Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#41

Post by bluefirebrand »

sparrc wrote: post #37

Isn't this generally always the case? I've always understood that when you buy you should expect to be paying more than a renter for maybe 5-10 years. At least in the US mortgage payments are almost always fixed whereas rents are almost never fixed or controlled. Rent just rises forever in most cities and usually mortgage payments of people who have owned for 10 years look like amazing bargains.

I thought the same, renting is supposed to be cheaper isn't it? It's supposed to be the option for the people who can't afford to own.

People opting out of ownership in favor of renting is an oddity, and usually is nothing about money and instead is about not wanting to be anchored by a mortgage.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#42

Post by fshbbdssbbgdd »

fairity wrote: post #35
dimes wrote: post #12

I made a spread sheet comparing renting to buying a few years ago. The premise was that I wanted to compare my investment in my home vs. paying less to rent and investing the difference in the stock market. The assumptions were something like a 3.5% mortgage rate (30y) and 4% appreciation on my home, vs. a 7% appreciation in the market. What I found is that on a time horizon of ~7 years, it absolutely makes sense to…

> The reason is that when you have a mortgage, you're making a highly leveraged investment. You can lever up an equity portfolio as well. Moreover, the going interest rate for a margin loan is only 1-2% (less than the cost of a mortgage).

Although mortgages have some big advantages:

1. Interest rate can be fixed for 30 years.

2. Interest is tax-deductible.

3. No margin call. If the price drops, you can wait until it recovers.

There’s really nothing similar available to the average person for other investments.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#43

Post by mdnahas »

sparrc wrote: post #37

Isn't this generally always the case? I've always understood that when you buy you should expect to be paying more than a renter for maybe 5-10 years. At least in the US mortgage payments are almost always fixed whereas rents are almost never fixed or controlled. Rent just rises forever in most cities and usually mortgage payments of people who have owned for 10 years look like amazing bargains.

No. When you rent, you usually are paying (1) the owner's mortgage, (2) taxes, (3) maintenance and (4) profit. So renting the same place is almost always much more expensive than the mortgage payment.

Rents do not have to rise. They have been rising in most cities because people are moving to cities. Rents dropped in Detroit when a lot of people left. (Rents also rise with inflation.)

I do wonder about the data. It compares the median rental to the median house purchase. And people usually rent smaller places. So, renting is usually cheaper because of that. I don't know that it is an apples-to-apples comparison.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#44

Post by jjeaff »

bluefirebrand wrote: post #41
sparrc wrote: post #37

Isn't this generally always the case? I've always understood that when you buy you should expect to be paying more than a renter for maybe 5-10 years. At least in the US mortgage payments are almost always fixed whereas rents are almost never fixed or controlled. Rent just rises forever in most cities and usually mortgage payments of people who have owned for 10 years look like amazing bargains.

I thought the same, renting is supposed to be cheaper isn't it? It's supposed to be the option for the people who can't afford to own. People opting out of ownership in favor of renting is an oddity, and usually is nothing about money and instead is about not wanting to be anchored by a mortgage.

Why would anyone buy a property to rent it out if buying was more expensive than renting?

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#45

Post by sparrc »

mdnahas wrote: post #43
sparrc wrote: post #37

Isn't this generally always the case? I've always understood that when you buy you should expect to be paying more than a renter for maybe 5-10 years. At least in the US mortgage payments are almost always fixed whereas rents are almost never fixed or controlled. Rent just rises forever in most cities and usually mortgage payments of people who have owned for 10 years look like amazing bargains.

No. When you rent, you usually are paying (1) the owner's mortgage, (2) taxes, (3) maintenance and (4) profit. So renting the same place is almost always much more expensive than the mortgage payment. Rents do not have to rise. They have been rising in most cities because people are moving to cities. Rents dropped in Detroit when a lot of people left. (Rents also rise with inflation.) I do wonder about the data. It c…

That's not necessarily the case. When you buy a house you can't suddenly just have a mortgage payment equivalent to someone who bought 10-20 years ago. And someone who just recently bought a house cannot charge higher rent than someone who bought 10-20 years ago.

In other words, rent is dictated by the market, not some "cost plus profit" calculation on a per-landlord basis as you're describing.

If you're renting from someone who just recently bought the house, they are very likely taking a short-term loss for long-term gain.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#46

Post by jjeaff »

fairity wrote: post #35
dimes wrote: post #12

I made a spread sheet comparing renting to buying a few years ago. The premise was that I wanted to compare my investment in my home vs. paying less to rent and investing the difference in the stock market. The assumptions were something like a 3.5% mortgage rate (30y) and 4% appreciation on my home, vs. a 7% appreciation in the market. What I found is that on a time horizon of ~7 years, it absolutely makes sense to…

> The reason is that when you have a mortgage, you're making a highly leveraged investment. You can lever up an equity portfolio as well. Moreover, the going interest rate for a margin loan is only 1-2% (less than the cost of a mortgage).

Is that the going rate for a margin loan? I have only found IBKR to have rates that low.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#47

Post by bluefirebrand »

jjeaff wrote: post #44
bluefirebrand wrote: post #41

Earlier quoted context omitted.

I thought the same, renting is supposed to be cheaper isn't it? It's supposed to be the option for the people who can't afford to own. People opting out of ownership in favor of renting is an oddity, and usually is nothing about money and instead is about not wanting to be anchored by a mortgage.

Why would anyone buy a property to rent it out if buying was more expensive than renting?

Because owning a house builds equity and renting doesn't?

Owning a house and having renters pay for your house to build equity is extremely valuable. Even if they only pay 80% of the mortgage, it's still equity you are only paying 20% for.

Besides which, most renting is only for part of a building, so it's much cheaper than buying a whole building and property.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#48

Post by guilhas »

I live in the UK, and renting is definitely always more expensive

Also when buying if I extend my mortgage to 35 years I can pay 550 a month, or I can reduce to 25 and pay 900 or more because it is a worth investment place to put your money

So I am only paying more if I want, and that is because it is also my savings, more rentable than a savings account anywhere

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#49

Post by brianwawok »

adamredwoods wrote: post #36
brianwawok wrote: post #23

Earlier quoted context omitted.

While I generally agree, and own myself, there are some clear downsides to owning that may not have made your math. * Cost of maintenance and upgrades. You now have to mow your grass or pay someone to mow it. You now need to shovel your driveway or pay someone to do it. When the toilet breaks, you now need to pay for it. When your roof wears out, you now need to replace it. If you don't replace carpeting and replace…

>> protected by the falls There are protections for house owners. In extreme cases, one can walk away from a mortgage, and take a 7-year loan default.

Sure, except

a) If you are 20% down, you still lost 20% + whatever money you put into it. On a million dollar house this is 200k of wealth evaporated.

b) Having no credit for 7 years can be life changing. Not that great to live this life in the US.

Re: Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

#50

Post by fred_is_fred »

pram wrote: post #28
fred_is_fred wrote: post #9

Something I've thought about quite a bit here - for renters don't you worry about being unable to control housing prices long term? I have maintenance on my house and taxes, but I can generally control both (for example I can have my house painted now or wait a year or 2). Rent prices may go up 20% without any input from you. Secondly - do renters move more than owners? How does that work if you have kids in school?…

My mortgage payment has gone up $400 a month since 2013 just because of property taxes and the house value getting appraised upwards. Pretty much feels like renting at this point lol

OTOH when you sell you reap the benefits of $4800/year in the additional appraised value.
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