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Renting vs. buying a home

khanacademy.org

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Re: Renting vs. buying a home

#81

Post by waitwhat123 »

I agree, as others have pointed out, that the exact numbers differ based on location as well as situation (mortgage size, etc.) and in some cases it is better to buy vs. rent.

However, I think it was a good video because it does an apples-to-apples comparison and clears up a misconception that many people have about buying. In part 2 of the video he sums it up pretty well "You are not a home owner until you have no debt. Until then, you are a paying rent on the money you owe instead of the place you live - you are a money-renter".

Evident from the comments here on HN as well as the blog post, many people mistakenly believe that monthly payment in a buying situation all goes towards equity or "savings". But after 30 years, the buyer would still owe $1M on the house - he hasn't saved any money at all. Reading some of the comments, it's almost scary that people about to spend a huge amount on a home don't understand this!

Re: Renting vs. buying a home

#82

Post by waitwhat123 »

orenbarzilai wrote: post #54
dctoedt wrote: post #44

Earlier quoted context omitted.

> after 30y you end up with a house that worth $1M In his video, Sal Khan did an apples-to-apples comparison: He compared the net out-of-pocket costs of (i) an interest-only mortgage in which you build no equity, and (ii) renting, where you likewise get no equity. If you also want to build equity in your house, in addition to merely paying the interest, then that's an additional out-of-pocket cost (which unlike the i…

It doesn't make sense to ignore the fact that you ending with owning the house. Maybe the numbers still works but if he ignores that fact his entire presentation is useless.

At the end of the 30 years, the buyer in the video would not own the house. He would still owe $1M in order to own the house (if the market is good, the house could very well be worth more than $1M, but that is besides the point).

The amount that he was paying monthly goes towards paying off interest on the loan, property taxes, etc. only.

Re: Renting vs. buying a home

#83

Post by laichzeit0 »

The worst assumption here is that you're gonna pay your bond off over 30 years. I payed my house off in 5. It's also an access bond, meaning, even though it's "payed off" it's not closed and I can use the money in there like a savings account, withdrawing and depositing back in later as I want. Essentially I'm my own "bank" now paying whatever interest my bond currently has, which is usually a whole lot lower than a credit card. If I had to calculate the interest I'm saving over the next 20 years which I can now freely speculate with it trumps renting.

Re: Renting vs. buying a home

#84

Post by sitharus »

As someone who recently bought, if the decision is an investment in housing vs an investment in other things don't buy a house!

On the other hand, if what you want is a place to live that you can redecorate, remodel and change however you like then you can't beat buying. Where I live you can't do anything to the fittings and fixtures without the landlord's permission.

Given my local housing market I tripled my floor area buy buying for same monthly payment, but that's not true everywhere.

Re: Renting vs. buying a home

#85

Post by joeblau »

When it comes down to it, there are way to many variables to consider in anyones equation. Some people prefer owning and others prefer renting and whatever you think is better might be better in your situation. I've been around a lot of "owners" telling "renters" that they are throwing away their money. I've never heard a "renter" say that to an "owner" even though this video points out that it could be the case in certain scenarios. It's just a different perspective based on the time that the video was recorded.

Re: Renting vs. buying a home

#87

Post by waitwhat123 »

snowwrestler wrote: post #60
gdilla wrote: post #12

Earlier quoted context omitted.

There are other costs to owning - maintenance, property taxes, closing costs, and your agents fee (when you eventually sell - unless you keep forever). I bought a condo at age 24 in LA in 2002. I hated that the HOA could do things like, we need to fix the roofs, so pay up. We voted on it. Ditto re-paving the parkinglot ever x years. Damn if my first year in the condo was somehow fix everything year. Ugh.

Renters pay all these costs too; they are just hidden in the rental payment.

Yes, but those are included in the rent price. Whereas, in a buying situation it would be on top of the price you think you'd be paying.

Re: Renting vs. buying a home

#88

Post by yetanotherphd »

jnardiello wrote: post #46

I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…

I think you are also suffering from the error of focusing entirely on one aspect of the problem and ignoring the others.

Forced saving, and cost-benefit analysis are both factors that should be taken into account. Your claim that a person is entirely incapable of saving unless they have a mortgage is a bit extreme.

Re: Renting vs. buying a home

#89

Post by tgrass »

jnardiello wrote: post #46

I'm amazed to see how many scientists are in here. Lot of math, lot of graphs, lot of speculation but nobody even mentioned that we are, before technicians, people. We have desires, we have daily routines, we have habits and we have a psychological environment and background. Renting will effectively (as the video outlined) leave a surplus of money in your pockets. Which you will use to buy the latest gadgets, to pay…

Your timeframe is critical to the decision though. Most of us will not live in our home for 20 years, let alone 30. Some of us will move to other towns to take pay raises that (a) we could not have discovered in the town of our current home and (b) might more than compensate for any loss in savings.

Choosing to rent or buy on purely financial grounds must incorporate the length of time you will own the home.

Re: Renting vs. buying a home

#90

Post by hillarystark »

The link submitted to HN lands on video 2 of 4 which was created was uploaded Uploaded on Mar 15, 2008 where Sal was renting and the video is pro renting: http://www.youtube.com/watch?v=YL10H_EcB-E

Interestingly, it looks like on Dec 31, 2013 new video was added as 1 or 4 where Sal said he bought a house and now is neutral on rent. vs. buy: http://www.youtube.com/watch?v=JNL6f1xkie4

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