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Is it better to buy or rent?

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Re: Is it better to buy or rent?

#61

Post by Cherian »

refurb wrote: post #10
nkozyra wrote: post #5

Earlier quoted context omitted.

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

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…

Even in this case, isn’t there a reasonably good chance the person could have sold it for 10% more than ($X+$Y+$Z)[1] at the time of the crisis? The lender and the loaner will part with the equity based on the mortgage payments over the years.

Based on cursory look into Redfin data, homes in the Bay Area are vanishing in 5-12 days, selling at 100-300K above the listed price.

[1] I hope we don’t cite recession here.

Re: Is it better to buy or rent?

#62

Post by cletus »

Some people don't buy to, in their words, avoid being exposed to the property market or some variation thereof. This a fallacy. As long as you need somewhere to live you are exposed to the property market.

A good way of looking at this is: not owning is equivalent to having a large short position in the property market. If prices go down, you "win" by not losing money and/or your rent going down. If prices go up, you "lose" because your rent goes up and what you can buy now is less than what you could've before.

That's a fine position to take but my point is that it IS a position.

You don't necessarily need to own where you live but you should own _something_. It could be in the area you plan to retire to (to hedge against rising prices), an investment property to generate income or whatever.

IMHO REITs aren't the answer here. Residential and commercial real estate are different beasts. Commercial real estate is generally a means of generating income. Residential is far more speculative.

Some people compare long term returns on property vs equities. These compare reasonably favourably.

In all those cases borrowing to buy property is far more favourable. In the US at least you can get 30 year fixed mortgages that are currently hovering about 4% for 80%+ of the purchase price. You just can't get those terms on anything else.

Even on day 1 your mortgage payment is ~30% principal at these interest rates.

Property tends to be a great hedge against inflation too and higher interest rates and higher inflation seems to be a risk with the amount of quantitative easing occurring in the developed world.

Lastly, the ability to essentially fix your housing costs is (IMHO) huge, particularly in major urban centers.

Re: Is it better to buy or rent?

#63

Post by bradleyjg »

jessriedel wrote: post #8
nkozyra wrote: post #5

Earlier quoted context omitted.

> Buying instead of renting forces you to live more frugal As a home owner, I'm going to ask someone to elucidate on this sentiment.

The idea is that you are contractually constrained to invest into a long-term asset (the house) on a monthly basis. In principle people who rent are paying less each month and should on average do just as well if they invest that money elsewhere, but in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.

>> in practice they tend to spent the extra money. Once they reach retirement, they have fewer assets.

They presumably spend the money on things they want. Forced savings means forced forgone consumption.

Every marginal dollar into savings isn't always a net positive. It depends on a lot of different factors including: life expectancy, whether or not you have dependents, how much you already have saved, your income, your alternatives, and not least of all your intertemporal discount rate.

There seems to be some sort of savings fundamentalism backlash against a culturally low savings rate. In a sound bite situation there may be no choice but to pick a simple message and go with it, but in a longer form discussion there's room for more nuance.

Re: Is it better to buy or rent?

#64

Post by to3m »

cowls wrote: post #22
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…

I disagree, this view is too simplistic. It's very different to owning shares in a company. You have to either buy a house or rent. You cant opt out entirely, whereas you can with shares. By choosing to rent, you are betting on the housing market being stagnant or falling, if house prices shoot up and you opted to rent, you will need to now pay higher rents or a bigger mortgage. So there is risk in renting too If you…

Why will rents go up, when they could have gone up already?

Re: Is it better to buy or rent?

#65

Post by saiya-jin »

rm999 wrote: post #20
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?

Renting is the best option for flexibility. Want to add a bedroom? Want to change neighborhoods? Just lost your job and want to downgrade? Want to move closer to your new job, or an entirely new state? These are all good, common use-cases for renting. BTW, a lot of landlords will let you modify your place - some will even chip in for the costs or pay it all. >Plus why spend money on somewhere you don't own? People ha…

There are locations, and I live on one of them, where finding an accomodation, even with stable long term 150k USD/year single pet-less guy is a few month effort of chasing 100s of appartments, until one will work out. You are nto in position to actually pick anything.

On this thread it's visible that people try to promote their own decisions in this topic (and we all have been into it deep down). Let me put mine - I took loan 8 years ago, in a different country, on a small appartment that when looking back, wasn't the best idea (but neither really bad). Mind you, it was in 2007 :) Surprisingly the price didn't drop below the one I paid, but the pressure to bring every month enough cash to make it through was... not nice. THe perspective to have similar setup for next 20 years was a bit sould-crushing though (it was 50m appartment, so nothing to raise your family in).

But, this pressure forced me off my lazy but, I temporarily moved to another country to earn more and pay it off asap, realized that this country is SO much better than previous one (which wasn't my home anyway), so I decided to stay. 5 years forward, probably the best decision of my life (and there were heaps of people saying I should settle where I am instead of move).

Re: Is it better to buy or rent?

#66

Post by vonmoltke »

ekianjo wrote: post #7
swingbridge wrote: post #6

It's good to get people thinking about all the things included in the calculator. Most people are totally clueless when it comes to the real cost/value of owning. They only see what someone bought a property for and what it sold for some time later. A home you live in is almost always a net cost. It's not really an investment so much as its a cost avoidance (vs renting). Buying more house than you need "because this…

> A home you live in is almost always a net cost. Plus it "prevents" you from moving somewhere else. Or let's say, it increases the friction of moving somewhere else. Most home owners stay at the same place for the rest of their lives.

There are a whole lot of other factors that increase friction more than owning your domicile, and those factors tend to be stronger with people who are motivated to buy:

- Deep networks of friends - Strong community ties - Strong local family ties - Children with their attendant social networks - General aversion to moving frequently

Also, the idea that "most" homeowners never leave is antiquated. Nearly everyone I know who has bought a property has bought more than one before 40.

Re: Is it better to buy or rent?

#68

Post by pkolaczk »

ido wrote: post #53
pkolaczk wrote: post #18

Earlier quoted context omitted.

Maybe in US it is cheap to rent, but at least in Poland, if you can get a mortgage, your mortgage monthly payment is often much lower than the rent payment for the same property. Renting here is only good if you don't plan to stay for long or if you actually can't get a good mortgage, because your income is low. The more you earn, typically the better interest rate you can get with mortgage (mine is currently 1.8% to…

In Berlin, Germany it's (at least at first) a lot cheaper to rent. The place we're renting for 500 euro/m would be about 200k euro if we wanted to buy it, which would mean something like 600-650 euro/m for 30 years (with maybe 40-50k euro down-payment).

Well, but after 30 years, when you retire the place is yours own and your monthly payment goes down. Even if you saved that 100-150 euro every month, you'd not afford buying it after 30 years, assuming it stayed at the same price-point.

On the other hand, it is hard to believe you can rent a 200k€ place for 500€/m. In Warsaw, a 2-room 40-50 m² apartment in the city center costs about 400-500€/m to rent, but if you wanted to buy it, offer prices start below 100k€.

Re: Is it better to buy or rent?

#69

Post by cloudwalking »

to3m wrote: post #64
cowls wrote: post #22

Earlier quoted context omitted.

I disagree, this view is too simplistic. It's very different to owning shares in a company. You have to either buy a house or rent. You cant opt out entirely, whereas you can with shares. By choosing to rent, you are betting on the housing market being stagnant or falling, if house prices shoot up and you opted to rent, you will need to now pay higher rents or a bigger mortgage. So there is risk in renting too If you…

Why will rents go up, when they could have gone up already?

Because every day there are more people and more jobs but not more land.

Re: Is it better to buy or rent?

#70

Post by vonmoltke »

aroch wrote: post #60
vonmoltke wrote: post #57

Earlier quoted context omitted.

> BTW, a lot of landlords will let you modify your place - some will even chip in for the costs or pay it all. Where are all these landlords, because the ones I have experience with in Florida, Texas, and Virginia get pissed if you so much as nail a picture to the wall.

Hanging paintings with nails is typically considered part of legally defined normal wear-and-tear. If your landlord is getting angry at you using the place you're renting in a reasonable manner, than perhaps you're renting from the wrong people.

So, that seems to be an open question in Texas. The Texas law leaves a lot up to interpretation, so reversing charges for nail holes would require suing your landlord. I'm not sure, but I think the situations in Florida and Virginia are similar.
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