-More choices in terms of size, acreage, architectural features -No worry about landlords disapproving of your lifestyle, no drop-ins and inspections, etc. (I knew someone whose landlord let her cat out and it was missing for weeks) -You can change your property to suit your tastes -The only pet limits are those imposed by your government -With a fixed rate mortgage, your monthly costs stay basically the same. Yes, there are repairs, but you can save up for that and postpone many things in a pinch. Except in extreme cases coupled with poor emergency savings, rising property values are unlikely to push you out of your home (and if they do, you get something for it). With rent, your landlord can raise the price and you have no choice but to pay it or move out. -You can get attached. Some people just like that feeling of having roots, and there's nothing wrong with that preference.
In Germany, "inspections" are flat out illegal except in very strictly regulated circumstances.
> The only pet limits are those imposed by your government
Not true either. Just look at the HOA crap in America. Worse than government, in fact. Laws at least have to act like they've been passed by a democracy and stand up to judicial review, HOA decisions more often than not are pretty much final.
> With a fixed rate mortgage, your monthly costs stay basically the same
Good luck getting a long term fixed rate mortgage.
> With rent, your landlord can raise the price and you have no choice but to pay it or move out
That is what regulation is for: in Germany, there are laws limiting rent raises.
E.g. my suburban neighborhood near Salt Lake City doesn't have an HOA.
I've not seen an HOA survive in any significant way past 30 years.
HOAs can be a pain, but aren't universal. The HOA that covers my home approves exterior changes, collects fees to cover shared property maintenance and insurance, and that's about it. No limits on pets (beyond county rules, mostly dealing with livestock). No limits on interior renovations. Etc.
Even with regulated rent increases, you still end up paying more over time. With a fixed rate mortgage, you pay less per month over time (after inflation). By the time you retire, the house is yours, with only taxes and insurance to be paid.
In australia most mortgages are variable rate and I don't think I've seen anyone advertise longer than 5 years fixed.
So the pressure from them to their kids 'invest in houses' is very big. After all, house prices always go up.
I worked it out for my Uncle and he was making more on his house price going up than in his job (for a couple of years.)
You can't do up a renter. Most people want to 'nest' or have different requirements from a home than the renter has. Got a baby? Need a baby room. Go surfing? Need a surfboard storage room. Want to paint over the mould? Need permission from landlord.
And where I live no one rents out houses. So renters just can't live here.
Do you mean the fungi that spread on wet walls? Because I would consider just painting over these a very bad idea.
http://www.homedepot.com/b/Building-Materials-Moulding-Millw...
Not sure how else to fix it. The UK is very wet, houses are stone and cold. Condensation is almost constant and mold pops up most winters. We used to run a dehumidifier and it would collect water, but as soon as you open the front door another houseful of wet air comes in.
Want to paint a wall? Own a pet? Add a garage? Replace your grass with desert cactus? Build an extension? Knock a hole in the ceiling so you can hang upside down like a bat from the rafters? Build a dirt bike track in your backyard?
Owning is nothing if not flexible.
At the very least, you should agree that describing "flexibility" as a characteristic of renting alone is a incomplete summary of the situation.
Where I live is almost magically optimized -- My spouse and I can both commute to work without driving or parking a car. We're within walking distance of shops. Our kids are guaranteed of attending good schools. It would suck to be displaced from that situation.
Turning things around, why would you want to be a landlord? I'm my own landlord, I collect "imputed rent" from myself, and I have perfect tenants. ;-) Of course being a landlord has some risks, but if I had to move, I'd probably keep my existing house and rent it out.
This varies a lot.
I don't actually care to own a house too much but we are going to buy one soon because the rental market in my area has gone in-fucking-sane in the last few years so its ao much cheaper to own in my neighborhood, I'm basically lighting dollar bills on fire every month with how inflated rents are.
Oh, and landlords are so stupid. We are model tenants, both very high income... but we have a cat so we are ineligible to rent 90% of properties, no exceptions.
That is because it is a landlord's market right now.
I don't think governments have any business promoting home ownership though and society shouldn't make you feel like you didn't "make it" until you are strapped with a mortgage you can't afford.
Let's talk moves. Every month, renters play a stressful game of "musical homes": they have to move in a single day. Those that are lucky happen to be moving to a place that has been vacant for some time, and can negotiate a head start to start moving there before their official move-in date.
Owners negotiate possession dates, giving themselves comfortable time zones for moving gradually, and can write clauses into contracts like "we will buy this place, pending the sale of our current place".
Payments. Many people who own have a mortage. But you can shop around for a mortgage independently of the property you're moving into. Mortgages have flexibility. They can be moved to a new property ("portability"). How many landlords offer "skip a payment" feature in the rent?
Why do they do that? I always took at least 3-4 days overlap between the rent on the old and new place. Assumed that's what normally happens.
How do you overlap if the place you have now is month by month, and the place you want to move into isn't available until the 1st of next month? If you give notice, you have to move out the morning of the 1st, unless you pay another month's rent, and only on the 1st can you get keys to the new place.
The only way you will get overlap is if the people move out of the new place sooner and the new landlord lets you start moving in, or else your current landlord doesn't find any new tenants for the next month and nicely agrees to give you a few more days to move out.
When vacancy rates are low, the good places you want are never the ones that are conveniently vacant: what you want, everyone else wants.
It's not unheard of for one group of renters to be moving in simultaneously as another is still moving out.
In Vancouver, Canada things must be quite dim in this regard these days. Check this out:
http://www.metronews.ca/news/vancouver/2015/12/16/vancouver-...
Ouch! You're not likely going to find a nice, empty, move-in-before-official-date apartment here in this market.
By the way, from the above: "citywide, two-bedroom rents jumped to $1,643 from $1,571 in 2014." I haven't been looking, but the 2014 figure substantially surpasses my current mortgage payment plus property taxes and maintenance fee. Bye bye!
When I was renting, I always tried to get a few days overlap, but in some markets it's very difficult. After all, if I'm moving into my new place on 9/1, you can't very well move into my place a few days early, and vice versa.
Because rental laws in the UK offer no long term stability. See a previous comment I made.
Want to take a long time off from work (either a sabbatical or by being between jobs)? Good luck doing that if you have huge monthly expenses. If your expenses are instead hundreds of dollars a month instead of thousands, then it's a lot easier to save up for a 4 month hike of the Appalachian Trail, or a month long trip to explore Europe or Japan or Southeast Asia or to travel around the US or whatever. Or to spend a year concentrating on shifting careers or focusing on a hobby (or turning a hobby into a career) or volunteering or raising your kids. Or, for that matter, just taking full advantage of your vacation time.
Also, owning a home is great for investing. For the first several years not much will change, but then you'll start building equity, after that you'll be well into the "market proof equity" range. But after you've paid off your mortgage you'll likely not be retired, so now you have massive amounts of cash ballooning out your savings and investments.
All of this is predicated on actually paying off that mortgage and building positive equity, which is not always going to be easy and may not be the most reasonable economic choice depending on the housing market and one's income. But if you can manage it then it can have tremendous benefits.
Tends to be much MUCH better return wise versus homes.
The other big factor is inflation. Rent will increase every year while your mortgage payments will stay at the same nominal value. Admittedly inflation is much less of a thing now, but in the past it made owning a home hugely more worthwhile.
Great calculator to explore the various paramaters here: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...
Sure, until you consider the flexibility other have to do stuff with your apartment (or house, I guess?). There is no guarantee of stability.
Also, mortgage interest is no joke and is never accounted for in these rationalizations.
Rent cost has to be insanely low to compete with owning a house in the long term.
And once you've paid off your mortgage, there's still investment opportunity cost. I agree that owning may be the smart thing to do on balance (though things like stamp duty add too much friction for me), but it isn't a slam dunk.
Which is subsidized by the US Government in the US in the form of tax deductions.
Always run the numbers. Numbers are the difference between emotion and logic.
No but the point is the government literally pays you (maybe not much, but a few $k) to own a house. This is a form of discrimination against renters and causes the marginal guy ("should I buy a house or rent?") to lean towards "buy" for no good economic reason.
Let's take two scenarios:
(A) In scenario A, you pay rent on an apartment for $5000 per month.
(B) In scenario B, you pay a fixed-rate mortgage on a residence in the amount of $5000 per month.
Therefore:
In scenario A, you are essentially taking $5k and setting it on fire once a month.
In scenario B, you are paying that money toward a share of the property's ownership.
So instead of setting it on fire, you're gaining $5k of equity in the property.
> because payments toward ownership build capital
Money invested outside of property also builds capital. Money not spent on mortgage interest builds capital. Money not spent on maintenance builds capital. Money not spent on property transaction-related costs (surveys, legal fees, Stamp Duty in the UK) builds capital. Owning property when a major housing bubble collapses burns capital faster than your wildest dreams. (Not everywhere has a housing bubble at the moment, but an awful lot of places do.)
Obviously you can argue with a lot of that, but the picture is nowhere near as clear-cut as you're making out.
If you rent, you're likely paying all those additional fees in addition to a share of the mortgage for the owner. Property owners aren't charities and are under no obligation to take on those costs when they can get somebody else to take them on for them.
It really is as clear cut as that.
Sentences like that are a huge red flag. It cannot be as clear cut as that. You can't ignore price levels when making that kind of blanket statement. Think of it as a reductio ad absurdum: if it's always better to buy, then it's still better to buy when buying costs 25x the annual rent, right? 50x? 100x? 1000x? 1000000x? People really do fall into thinking like this; it's exactly how bubbles happen.
Buying my current place would probably cost about the equivalent of 35 years' rent (before taking into account opportunity costs etc). That's longer than I expect to live. I could just about swing it, but my savings would be gone, I'd suddenly be stressed about losing my job etc. You might think it's still clear-cut, but it's far from obvious to me. If prices weren't completely ridiculous, sure, I'd probably go for it. But they are, and that matters.
Considering buying costs at multiples of renting basically doesn't occur in reality, so it's not worth spending brain-cycles thinking about it.
> I'd suddenly be stressed about losing my job etc.
Is your rent free? Job stress affects both kinds of home tenancy.
> That's longer than I expect to live.
Well, I hope that's not true. I'm dipping into the wine now, so I'll toast to your health and long life!
Do you think everyone on HN is 16-22 years old?
Average life expectancy in most of the world is >70. So somebody expecting to die in the next 35 years would have to be over 35, at which age I'd hope they would have learned about basic economics and arithmetic.
This isn't a very difficult discussion since it can be pretty easily rooted in readily available information and pretty basic calculations. There's even on-line calculators that will do the hard work of adding numbers together if people can't be bothered.
The hard realities that lots of people can't seem to get into their noggins are pretty simple:
- housing costs money, are you recouping that money in some way? owners do eventually, renters do not. Period.
- property owners don't run charities, all those things house owners pay for explicitly, renters pay for implicitly, they just don't get the itemized list
- renting a bedroom out of some guy's basement is not the equivalent of buying (or renting) a house, if you think they are, you've entered into a conversation you cannot possibly understand and you need to back slowly away
- owners get many more options to sway the cost of housing into their favor than do renters, in surprisingly common cases, owners can even make money off of their property
- Buy $1.2M - Rent $1800 a month. By law rent can only be increased a limited amount every year (and it's never been increased for me).
The landlord is getting 1.8% return on his money before his maintenance expenses, taxes, etc.
The only scenario this makes any sense is interest rates remain at 0% for the next 30 years. Even in this case it's not clear that house prices can keep appreciating at the same rate. Unless we go negative rates.
If I have 1.2M in cash why would I buy this house instead of renting? I'm taking a big risk with a lot of money. It's true that over the last 10-20 years people who have taken this bet came usually ahead (except in some parts of the US) but it's still a huge risk.
- London yields 2-5% https://www.portico.com/yields - No such rent capping law in London, it's generally expected that rents will increase every year and there's plenty of demand to cover it.
Clearly, people are making the decision to buy the house.
An income from investments of $60,000 a year isn't enough to live like a king, but it's certainly enough to live like a yeoman, even after taxes. If you buy an expensive house with that money, instead of buying an income stream with it, the best you can hope for is to live like a wage-slave.
It has to be an absolutely bizarre market for a renter to find an equivalent place to rent, then have enough money left over that they can invest in some mythical financial instrument that will earn them all that rent back plus whatever valuation a property owner is earning while their property appreciates in value.
At the end of the mortgage the owner now only has to pay any applicable taxes and the cost of living is more or less "free" (minus maintenance). A renter will rent forever.
A renter can rent a small room as part of a larger house, but you can't buy a small room.[1]
My personal investment fund has had 50% per year gains since 2012[2].
Perhaps we do live in a bizarre market because I've done exactly what you described.
[1] Do that here. https://flatmates.com.au
[2]
2012-2014 in tech. TSLA & SCTY contributed the bulk of my gains.
2014- in Australian gold miners, whose index has doubled in a year. https://www.google.com/finance?cid=16106836
Sure you can. Housing units come in all shapes and sizes. In the U.S. at least small places are usually sold as condos and can be as small as any efficiency.
> Perhaps we do live in a bizarre market because I've done exactly what you described.
No, you rented a smaller place than a house, then invested the difference.
I said "equivalent place to rent".
I'll say it one more time and maybe this time your reading comprehension will kick in, unless you live in an absolutely bizarre market, where rents are vastly under mortgage costs, and you can rent an equivalent property (same size, same number of bedrooms, etc.) at those vastly lower rates, you'll never have enough money extra that you would have spent on property ownership that will earn back the money you've set to fire by renting.
For example (since you seem to need a specific one):
A house that costs $600,000 needs slightly more than $2,600/mo to service a 30 year loan. Unless you live in an absolutely bizarre housing market, you will not be able to rent the same house for an amount that is significantly less than that.
But, let's suppose you cut a deal and rent it for $2,000/mo. That leaves you with $600/mo. You need to turn that $600 into $2,000 every month to make up for the loss on rent. I laugh at your 50% return, because now you're only $1,100 a month in the hole each month.
Suppose your landlord is a real cool guy and let's you keep the same $2,000/mo for 30 years (unlikely, but let's suppose he's an idiot), You've now burned about $400,000 and still have to figure out how to cover housing costs until you die.
Your smart friend on the other hand, after 30 years, has $600,000+ in property, no more major housing costs for the rest of his life and spent less than you to get there.
Suppose your friend hits it big, he can refinance after a few years, lower his mortgage payment below your rent (which has probably gone up by then), and can now make 50% gains on his investments and he's still buying his property.
Let's say he hits it really big on his investments, he can just pay the house off early, not pay the balance of the interest, his housing costs go to near zero and now he can invest all the money he'd spend on housing on your 50% return investment plan.
If he's real smart, he'll just buy a second house, and rent it out to you since you'll just pay most of that mortgage for him.
After 30 years he now owns two houses, has made a fortune on your investment plan and you're still paying what are probably much higher housing costs for renters.
Maybe you're a real clever guy and after 30 years you've somehow saved up enough to just buy a house outright and skip all the other costs (minus maintenance), maybe you but the house your renting from your friend. Great, you now own property, and your friend still has his house and the money you paid to buy his second house (now valued well in excess of the $600,000 he paid for it) plus the fortune he earned investing in your stock tips, plus you'll probably have paid him back for all the interest he ever paid on the house via your purchase price.
(okay okay, I'm handwaiving away interest and taxes and such, but the math doesn't change all that much once considered and most competent landlords simply pass along those costs to their tenants).
You've also got hundreds a month in day to day maintenance and upkeep, not to mention the taxes and insurance and hoa fees. Oh, and a point of PMI unless you've got 120k in your back pocket for a 20% down payment.
Don't forget 6% commission, closing costs and other taxes on the sale.
Buying doesn't pencil out against renting when the rent is lower than a 30 year mortgage payment.
You seem to think that renters don't pay for that and owners operate a housing charity where they foot all the maintenance and other costs while renters just pay some kind of courtesy "I'm occupying your property" fee.
In many 30 year models, given a $500k home up for rent or purchase, the owner comes out somewhere between $1mil-$2mil ahead of the renter in terms of total asset ownership. After which the owner has only maintenance and taxes to pay for living while the renter continues to burn their money at higher and higher rental rates.
During the same 30 year period, the owner will have a diminishing cost of living while the renter will maintain around a steady cost (on average) meaning that not only will the owner come out wealthier than the renter, it will be easier for them to gain that wealth as per inflation.
Run the numbers on your scenario without handwaving and you'll show the homeowner taking a stark loss over the renter.
1% rule is a good place to start. That would estimate the rent would have to be 4400/mo minimum for that 600k property to cashflow. 2600/mo? no way.
Best calculator I've found (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...), given standard values like a 4% mortgage with a 20% downpayment and a 5% investment return rate, shows your scenario break even at best over 30 years -- hardly "large and unambigouous margins".
So now it's just your reasoning that's broken.
Here's the tl;dr - You need to pay for housing no matter what. Do you buy and rent out your property to somebody who'll pay your mortgage and costs for you? Or do you pay those costs for somebody else? Assuming an equal start, the property owner comes out somewhere around $1-2mil ahead of the renter over 30 years, and has housing in the end.
For those parameters, on a $500k property, you would need to find an equivalent property to rent for $1,491/mo for 30 years for renting to be "better". After which the renter has no housing and the owner has housing into perpetuity.
Good luck finding equivalent housing under $1,491/mo for that kind of property. In most areas in the U.S. at least, an equivalent property rents out for far higher than $1.5k/mo. In the areas I spot checked it was more in the range of $2.5-$3k/mo.
This assumes the owner only ever keeps this particular mortgage, never pays down the principal, never rents any of their rooms out or takes any other cost saving measures that aren't available to the renter.
Meanwhile percentage of income required to live in that property will stay the same for the renter while going down (relatively) for the owner.
If you fiddle with the down payment slider, you'll note that no matter what it's set to, it doesn't make all that much difference in the ratio. Set it to zero since you can finance 100% without too much fuss. Now this sets things as equal, there's no additional money to invest for the renter other than some imaginary delta they would save by renting at rates far below any available realistic market rental rate.
The renter still has to find property to rent about a thousand dollars less than the going rental rate in the market he's in, then still has to find housing at the end of the 30 year period.
If the owner decides to sell at some point along the way, they can convey the stored value of their property into their new property. The renter has simply burned all that money and will rent forever, at increasing nominal costs pegged to inflation or current market forces (whichever is greater).
So that I don't have to repeat myself again, here's an excellent write-up on the topic. Assuming an equal start, the property owner comes out somewhere around $1-2mil a head of the renter over 30 years, and has housing.
Your analysis link makes the same handwavey errors you did in your initial breakdown -- maintenance costs far too low, ignoring other costs involved with homeownership, etc. Interestingly enough, the link has a postscript where he redoes the analysis after people point out those errors with just a couple of those factored in (not all of them) and concludes that the renter would just about make his money back -- and that's with a rent payment about the same as the mortgage payment, not 25% less.
Even if rents are a bit lower now, that $2600 payment will stay approximately the same. In ten, fifteen years, those initially lower rents will have surpassed the $2600. Moreover, rent continues to be money set on fire. Less and less of that $2600 is burned on interest as time goes on.
Mortgages have ways to reduce the burn. You can choose accelerated payment plans with more frequent, smaller payments. There are ballooning options: pumping some money yearly into the mortgage to pay down principal.
Your figures are way off.
I started with $5000 in late-2012, and 3.5 years later, I have lower six figures investments. That's enough to buy a house in some parts of the country. So I don't get why I have to wait 30 years to buy a house if I wanted to.
I'm guessing you own property with a mortgage tying you down financially and are trying to justify why you did so.
I can quit today and live for 7 years doing absolutely nothing.
Can you?
> So I don't get why I have to wait 30 years to buy a house if I wanted to.
Why don't you? Then continue to just live in one bedroom of that house and rent the rest out to make more investment income? It doesn't make sense that you aren't? In fact it sounds pretty stupid that you aren't: in one swoop you secure infinite-term housing and you can get other people to cover all of your cost of living.
> I'm guessing you own property with a mortgage tying you down financially and are trying to justify why you did so.
No not really. There's a bit left, but I can finish paying it out from savings pretty easily. It's not worth it because my interest rate makes borrowing the money essentially "free".
>I can quit today and live for 7 years doing absolutely nothing. Can you?
Sure, I can liquidate my assets and pretty easily retire for the rest of my life to a few places my wife and I have scouted out in nice parts of the world. It wouldn't be lavish, but it would be fine.
If we're clever, we'll instead probably just rent our current house out to somebody like yourself and use the (rent - maintenance - taxes) to take out a mortgage on the same property we're thinking of buying outright for retirement and just live on the passive income forever. We'll thank the renters for funding our retirement with a gift basket full of cheap wine and summer sausages once a year. The mortgage on the place we're eyeing is not in the U.S. and current runs ~$600/mo. The rent on my house right now would run around $3k-3.5k/mo. In 30 years the rent on my house would run around $6k (keeping with expected inflation). The mortgage on the property we bought would still be $600. Feel free to do the math.
I and my wife expect to live another 40-50 years if that puts the value of property ownership into perspective for you.
There is almost no long-term scenario where renting wins over buying in the long-term. It would require a magical multi-decade convergence of oracle-like investment ability and absolutely bizarre and sustained housing market that has no historic precedent anywhere in the world.
http://www.independent.co.uk/voices/the-housing-crisis-is-cr...
Crazy.
But to be honest, why is everyone focused on buying a house? Does everyone want to own a house, 1.7 kids and a car or where does the need to buy instead of renting come from? Maybe I'm missing something, but the flexibility of renting seems a lot bigger advantage than the small advantages of owning a house.