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Is it better to buy or rent?

nytimes.com

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Re: Is it better to buy or rent?

#41

Post by refurb »

eueueu wrote: post #28
saturdaysaint wrote: post #26

Earlier quoted context omitted.

Want to live somewhere else without making a life-altering financial transaction that could lower your net worth tens of thousands of dollars?

Property will always increase over the long term. Unless you're moving every 6 months this isn't a good reason. Of course selling your house and buying a new one will take a few months, so it does restrict your mobility in that way.

Property will always increase over the long term.

I'm not picking on you, but it's amazing how quickly Americans (not saying you're from the US) forget economic events that happened only a few years back.

There are many places in the US where housing prices haven't come close to the peak in 2007. I knew several folks who lost a ton of money ($100K+) on real estate back then. It seems like all of those concerns have evaporated in the last 8 years.

Re: Is it better to buy or rent?

#42

Post by ocdtrekkie »

It heavily depends on the area. In very urban areas, property is a lot more expensive, and renting is probably the way to go. In my area, it's almost the same cost to buy as to rent. The difference being, you can get some of the money back on your purchase by selling your property, whereas your rent just entered a black hole.

Re: Is it better to buy or rent?

#43

Post by refurb »

fennecfoxen wrote: post #40
refurb wrote: post #11

Earlier quoted context omitted.

You're looking at it the exact right way. Risk is a two sided-coin. If the local housing market does well, you can make out like a bandit. If it doesn't, you can lose a lot of money. No different than owning $500K worth of share in a public company. Nothing wrong with buying a house, but people should be careful not to have their net worth all tied up in a single asset (house or not). The one rule I've heard is 90 mi…

> When you're young is OK to have a high percentage of your net worth in a house, but not when you're getting close to retirement. That said, if you actually own your home in retirement you've significantly mitigated against the risk of getting priced out by rising rents if the regional economy heats up. That could be a problem on a fixed income.

That's true.

However, the risk is that you have a 60 year old, nearing retirement with 90% of his/her net worth locked up in an asset. They are counting on being able to sell and use the equity for retirement.

If you own your home outright and have a nice chunk of cash in retirement funds, then you're fine. Of course that also means you're very diversified (some cash in real estate, some cash in the market).

Re: Is it better to buy or rent?

#44

Post by ocdtrekkie »

logicchains wrote: post #9

Does this take into account the risk of a housing market crash? For me, the biggest reason for renting rather than buying is to avoid putting all my bags in one basket; I wouldn't buy $500k worth of shares of one company, so spending $500k on a single house seems similarly risky.

But if buying is like putting $500k of shares in a company (this is a really expensive house, man), renting is throwing your cash out the window.

I mean, your mileage is going to vary on location, and a generic thread like this isn't necessarily all that useful, but in my area, a mortgage payment is actually less than a rental payment for a similar place.

So even if it's a "bad investment", I can reclaim at least some of the money I put into a purchase when I sell the place (or make a profit, but no guarantees). But I get nothing when I stop renting.

Re: Is it better to buy or rent?

#45

Post by Azew »

glomph wrote: post #35
todd8 wrote: post #27

There is an important oversimplification that these formulas/programs/spreadsheets often make, and I see it happening here. Consider two alternatives where everything is the same except the amount of money used for the mortgage down payment. The formula assume that money not used for the down payment is invested at a certain rate of return. If the mortgage interest rate is greater than the investment return, then the…

There is risk in the mortgage as well though. The value of the house could drop.

There isn't though, this calculation doesn't consider valuation of the home at sale time. What this considers is, how much could that money earn you in investments vs how much will you save in interest payments over the life of the loan.

What this does assume is that you'll live in the house long enough for the interest savings to catch up with investment gains.

Re: Is it better to buy or rent?

#46

Post by knodi123 »

glomph wrote: post #35
todd8 wrote: post #27

There is an important oversimplification that these formulas/programs/spreadsheets often make, and I see it happening here. Consider two alternatives where everything is the same except the amount of money used for the mortgage down payment. The formula assume that money not used for the down payment is invested at a certain rate of return. If the mortgage interest rate is greater than the investment return, then the…

There is risk in the mortgage as well though. The value of the house could drop.

that's not really part of the equation.

If you make the minimum down payment, and the value of the house drops, you're still on the hook for the full value at the time you took out the loan.

Once you've secured your mortgage, your payment plan (and therefore debt) has nothing to do with the value of the house.

Re: Is it better to buy or rent?

#47

Post by ha470 »

branchless wrote: post #34
refurb wrote: post #10

Earlier quoted context omitted.

Here is my take.... 1. People think they can afford to buy a place at $X 2. People find a place at $X+Y and say "it'll be tough, but I love this place" 3. People find out actually owning a house costs $X+$Y+$Z and they can barely make their house payments and supporting costs 4. Eventually (after enough mortgage payments) your principal payments become large enough to take on the form of "forced savings" I think this…

This is just nuts.

Agreed, this is an insane (and insanely stressful) way of saving.

Re: Is it better to buy or rent?

#48

Post by knodi123 »

batou wrote: post #24
jbb555 wrote: post #14

The money is certainly important. But buying is better than renting in many ways. Want to rip out your kitchen and have a new one? Want to pave part of the garden? Want to move a wall? Want to paint it all, or fit blinds? If you own it you can do all that. If you rent you have to ask permission which you might not get. Plus why spend money on somewhere you don't own?

It's a trade off. I live in London, UK in a flat I rent for £950 pcm. This would cost me £379,000 to buy, at the very least as it's a relatively nice area. I could scrape the deposit and get a £379,000 mortgage but the insurance, maintenance and other costs on top would result in zero disposable income. Currently I have £1750 left over every month which is nothing but bags of freedom to do whatever I want. If I was t…

it's definitely a balancing act, where the balance point depends on your own personality and proclivities. However, I think we can all agree that a formula involving London home prices is not going to be very representative of the rest of the world! ;-)

Re: Is it better to buy or rent?

#50

Post by markbnj »

We rented for the first ten years of our married life, and then purchased. All of the financial arguments aside, don't discount the value of having a place with your name on the deed. We had been forced to move out of two previous townhouses when the leases expired and the owners decided to sell. Knowing that your place is your place (yes, the bank's really, but they can't easily take it from you) is maybe an undervalued benefit.
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