People don't necessarily buy then suffer the consequences of being rooted. Rather, one may be rooted because of family, preference, or because their job market is one place. Then they want to buy because if you are rooted, you might as well have greater control over your dwelling. If I rented my occupancy would be at the whim of my landlord, which is OK for apartments in the US, as apartment landlords generally have no reason to kick out tenants summarily (except in unstable markets, like perhaps the Bay Area.)

But most single family home landlords are small time operators who can't be counted on to provide long term occupancy. I would find such an arrangement untenable.

For those who want to be mobile I completely agree that renting makes sense, but for many folks being rooted leads to ownership, rather than ownership leading to being rooted.

And on the opposite, I never understood how people can not own a house and waste money on renting for decades. Where market for houses in western countries is very limited due to stupid regulations and every year a few millions of people move to that country causing renting prices to increase by XX% each year. It decreases my financial stability. Losing a job for less than a month is a financial disaster, I still to have to pay for car-fuel, insurance, life insurance, pay bills. On the other hand, having a house without mortgage, yes, keeps me in one place, but value of my house due to the same reasons is increasing for my benefit, not for my landlords benefits.

> waste money on renting

How is renting wasting money? Are you not living in the unit? You're gaining 100% benefit by paying rent and receiving a roof over your head.

You must mean a waste by losing out on building equity?

That's a crap shoot in itself. A hot housing market and equity can go into the toilet at anytime due to very irrational market conditions. Look at the housing markets of Las Vegas or Miami for examples.

It's very simple actually.

Consider, for brevity, a mortgage where the monthly or yearly payment, including taxes, is equal to the rent you would be paying for the same place.

Then live in the place and go about your life for several years, until the mortgage is paid for.

Option 1, you took the mortgage. Now you own a house and you are not due any more payments. You can keep living there and use the excess income for other purposes, or you can sell the house and upgrade, or whatever.

Option 2, you kept renting. You are still under a landlord, you are still due monthly payments, and you still don't own anything more that what you started with, after all those years.

In this very real sense, rent is wasted money.

You do incur a lot more costs as a property owner than as a renter, which you should bear in mind.

Over the life of your average 20-25 year mortgage you should expect to have to replace numerous appliances, encounter a couple of catastrophic and unexpected issues (leaking roof, etc.), and after 10 years the decor will be outdated and shabby.

To get optimum resale value you will have to sink a lot of time/money into remodelling (the money you will likely recover, but not the time/effort), then you have the stress of trying to sell the place.

You are also bearing the risk of a downturn in the housing market, and could end up in negative equity.

As a renter you have greater flexibility, much greater certainty over your outgoings, etc.

This cannot be overstated. I think many of us see the mortgage, taxes, and insurance are less than rent and call it a win. We are vaguely aware of the money pit and getting out issues but they are hard to predict and easier to sweep under the rug. This conversation should always be accompanied with, "Assume $5k per year for maintenance," or some related concrete number based on condition and size, so we force ourselves to deal with a number instead of brushing it off. Also, real numbers for seller's closing costs.

Still, I think for most markets in the US anyway, buying does make economic sense if you plan to stay in it for several years and enjoy or don't mind taking care of a building, to use peer's phrase.

This calculator is excellent, btw: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...

I was waiting for someone to mention that. Home ownership is expensive and makes you inflexible. Also, consider property taxes (which will scale with inflation) and the fact home owners insurance is more expensive than renters.

And besides finance you need to consider if you want the responsibility of owning a home. Cutting the grass, shoveling snow, cleaning gutters, fixing things, painting, etc. It's a lot of work.

Owning makes sense for some people but there are a lot of benefits to not having to spend your life taking care of a building.

Another counter-point: when you buy a house, even while the mortgage isn't paid off, you can immediately start renting parts of it and end up in a situation where your mortgage payments are equaled or exceeded by your rental income. I also believe that this is taxed differently from normal income, especially so if you're renting rooms in a house you live in vs. owning rental property.

In the Bay Area at least, a single-bedroom apartment is easily $2000 a month. If you play your cards right, a single-family home in a desirable neighborhood for tech workers or others can be had for under $1m with 4 reasonably-sized bedrooms, a garage, and a yard. You can then rent out 2 of the bedrooms at $1400/month each and end up with your mortgage payment from your tenants each month. There are still maintenance costs and very significant property taxes (~single-tens of thousands per year on such a property), but you also build equity, which you can later sell (minus the mortgage interest). Depending on the mortgage, you could also use this situation to over-pay mortgage payments in order to pay off the property faster and reduce the amount spent on interest if that works out to a better investment opportunity than anything else you could do with the same money (any early payoff penalties included).

It does seem to me that renting is a mixture of paying for convenience and throwing money away, given the above scenario and considering how after 5 years, the home owner ends up with ~$150k in equity assuming the housing market stays flat (it doesn't in the Bay Area, e.g. http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby ) , taxes, maintenance, and interest included, you should still come out ahead with the house. Once you also factor in that renting gets you 8-20%+ increases in rental price per year, while the house value appreciates on the low end of that range over the same amount of time (and also that you can raise the rent for your lodgers accordingly), you really start to see why houses in the Bay Area are attracting foreign investors and starting bidding wars above asking price for nothing-special properties.

Edit: lastly, the point I feel everyone neglects: unlike other investments, your first property has the additional advantage and value that you can live in it, so comparisons to other investments become quite different. Sure, you could take your down payment and put it into ETFs, and on paper the yearly average gains might look similar, but if you suddenly lose your job, the ETFs won't provide a place to sleep at night.

Landlording poses significant risks which you also must take into account. Thus if your net worth is 500k and all of it is in a rental unit, what happens if your renter floods the house or damages it in some other way?

What happens when your renter quits paying rent and starts legal proceedings based on a grievance, real or perceived? Now you cannot sell the house nor are you collecting rents.

Lastly see my other comments. Any investment that pays dividends gives you a place to sleep. The fact that you live in your investment is uniformly a downside, as it hinders liquidity. The fact that you can rent is again not relevant. Most financial investments begin to return a percentage immediately. Renting rooms is just less liquid and more risky than investing in a balanced portfolio.

I think it's important to not conflate being a landlord (investment and business) with buying a home to live in.

The Bay Area is but a single market and not representative of all markets. There are many more markets that haven't seen similar growth. The Bat Area is the exception.

If you are paying off a home and you lose your job, if you've leveraged yourself like many home buyers have then you might lose your home! Especially if you lose your job because the economy tanked and home prices have ranked leaving you underwater owing more than the home is worth. And then the bank takes the home back and your entire investment is wiped out. Look to 2009 for an example of this. And rents dropped significantly at that time.

The opportunity cost of tying up a solid down payment needs to be considered too. 200k down could be used in other places too.

I think most people who buy with 20% or less down don't understand how leveraged and dangerous their position is.

Lastly if buying a home was a good way to get rich then we'd have a whole lot more wealthy people.

It's not a bad thing at all and for certain people in certain positions it's a good thing. If you can buy with cash and have at least 40% of your bankroll left afterwards then yeah it makes sense. If you plan on staying in a place forever (laying down roots) and can afford 30% down and still have 2 years of mortgage payments in a cash savings account it makes sense.

I feel like a lot of people buy homes because they just think that's what you do. A home has meaning to a lot of people. But the opportunity costs and risks are large and the rewards are generally a wash with renting long term in most markets with the exception of places that get a 30 year boom or other rare real estate lottery scenarios.

There are ways to win but 10% down and a 30 year mortgage is rarely it.

Taking care of the building is actually a lot of fun for some people!

No doubt and didn't mean that as a slight to people who take pleasure in maintaining their property. In fact I admire lovely landscaping and can see myself wanting to do that one day perhaps.

All of those costs are simply amortized over the rental agreement. I'm not sure why people who rent seem to think landlords are appliance/maintenance charities.

Rental prices are what the market will bear. These may or may not be strongly correlated to the landlord's ownership.

Two very relevant examples of when the "amortization" argument won't apply:

- a rising market in which the landlord bought a long time ago. Their purchase price was way below the area's current market value. So they can cover their expenses while you still pay less in rent than what a modern-day mortgage would be.

- a home buying market that's expecting continued pricing appreciation. Homeowners can (and will) rent out property at a loss with the expectation it'll be made up in a higher sale value years down the line. Whether or not this actually happens, of course, depends on their ability to accurately predict the future.

There's also the inverse case of declining markets, when landlords can end up over the heads financially and simply can't charge the rates they need to cover their mortgages, because the entire area has turned south.

There are very real financial risks to landlords. They can't just charge whatever they want. It really depends on the state and future of their market.

Correct. When rents get too far ahead of mortgages, people simply buy property instead.

In your first example, the landlord is amortizing expenses by charging rent above their ownership costs. It doesn't have to be at or higher than then current new mortgage rates.

The second example does happen. However, if the landlord's bet is wrong, and they have the runway to float the extra expenses for a while, they can simply wait for rents to rise and over decades make it back and begin amortizing then. Or they can sell and hope to make it back.

Property owners have many more financial options with their property than do renters.

Not necessarily. When the capital gains from simply sitting on a property are so great, I'm sure a lot of landlords are actually making a net loss on a renting operation, and don't care all that much.

Regardless, the point is that a lot of people see the mortgage repayments equalling the rent and don't think about the extra costs of ownership.

Landlords don't have infinite cash reserves. They still need to cover costs or minimize losses if they're betting on capital gains from property sale at some later date. Most renters pay for the maintenance and taxes of the property they live in, it's just not itemized for them and the costs are generally amortized and distributed among multiple tenants. Landlords are generally not charities, if you got lucky enough to find one who is, be very thankful.

You are correct that rent != mortgage and shouldn't be compared too close. Renting is a 100% loss, while mortgage is <100% depending on where you are in your repayment plan -- allowing the owner to recoup some of their housing costs after time.

After the mortgage is paid off, the renter still continues to loose 100% of their housing costs while the owner has only care and maintenance (and taxes) of the property to account for.

Not at all. Rental costs are most strongly influenced by supply-and-demand of housing, whereas sale costs are mostly influenced by supply-and-demand of credit.

Not true, rental costs will go as high as possible until buying becomes more attractive. Buying costs are based on supply and demand of housing and credit. That's why it's more expensive to buy a house in San Francisco than in Kansas City, Missouri even if the credit markets are effectively the same in both cases.

Under normal market conditions, borrowing money becomes expensive as monetary supply decreases. However, very active central banking systems the last couple decades has changed the story on this.

The maths rarely work out the way you outlined:

If the mortgage is equal to the rent, then potential landlords are leaving money on the table. That rarely happens for long. Typically most landlords in competitive markets will leverage and take up interest-only mortgages to the extent were rent only barely covers interest and maintenance, and make most of their money on capital gains.

For most people a repayment mortgage and maintenance and appropriate insurance should end up more expensive than renting for that reason.

It is possible to come out financially on top by owning, not least if you're willing to do maintenance yourself etc., but it's not nearly as clear-cut.

I've done very well buying, basically out of luck because I happened to buy on a tracker mortgage briefly before the interest rates crashed after the financial crisis, but if I'd foreseen that change I'd have been filthy rich instead of just a bit better off on my mortgage. But a tracker mortgage adds risk, and it could just as well have gone the other way. I took that risk because I could afford it.

For me, the main economic benefit is that it is a hedge against unforeseen rapid changes in housing costs. If the area I live in suddenly gets drastically more popular than nearby areas, then I can still afford to live here. The cost is that I take a risk with respect to making it harder to move, but with a son in school locally that is not something I'd consider lightly anyway, and that if interest rates swings the wrong way I may still end up paying more overall.

The algorithm to make money as a landlord is pretty simple.

1) mortgage the property you wish to rent out

2) rent it out

3) wait until rents increase and earn profit (mortgages do not increase while rental rates do)

Not sure about point 3. Normally mortgage costs do increase - in line with interest rates. Even with a fixed-rate mortgage, there is usually a term for that rate, which is generally substantially less than the lifetime of the mortgage, often as little as two years, and rarely more than five. This is certainly the situation in the UK, do things work differently in the US?

In a great many housing markets, there are several kinds of mortgages. But basically the fall into two types, fixed and variable (go up and down with then current market rates) -- there's some hybrid loan products and some non ursury types, but this is basically how they break down.

The most popular kind of mortgage is one where the rate is "fixed" or locked at the then current market rate, and it won't change regardless of market forces. The great benefit of these kinds of mortgages is that the repayment terms operate without respect to any inflationary forces or changes in lending markets. Repayment is typically 15, 20 or 30 years.

Historically, and I intend this to mean for something like 99% of history where these types of mortgages have existed, this means that by the end of the loan period, the monetary amount per repayment period (say monthly) is the same, but it's actually cheaper per repayment period in then future real currency. In other words, in 30 years, you're paying for housing at nominal currency values from 30 years prior. Given historic inflation rates, at the end of a typical 30 year loan, this can be around 50% per payment period discount over then future real currency value.

My understanding is that in the U.K., a "fixed rate" mortgage is what we in the U.S. would probably call an "Adjustable Rate Mortgage" or ARM with a fixed 2 year rate (though I believe the closer approximation for an ARM in the U.K. is a discount rate mortgage).

There are also variable rate mortgages, in some markets those are the only types available, in others they exist to cover higher risk borrowers but in others they offer some kind of monetary benefit to the borrower. Depends.

While mortgage rates under such systems can increase, it's not generally normal for them to over decades. For example, in the U.K. over the last 30 years, it's been the general trend for the rates to decrease. (http://www.bankofengland.co.uk/boeapps/iadb/Repo.asp)

Even if the rates do increase at some slow rate, the average of the mortgage payment is still likely to become cheaper over decades than the then future rental price. Following general inflationary trends, rents in most markets have doubled in the past 30 years, while a person who took out a mortgage on a house 30 years ago will be paying much less or will have payed off the property by now and has no specific monthly housing costs.

Yes they do. The most popular mortgage here is a 30 year fixed rate.

>Consider, for brevity, a mortgage where the monthly or yearly payment, including taxes, is equal to the rent you would be paying for the same place.

That's hardly always true

And if it is, you should do the maths and consider if you can afford becoming a landlord, because it means there's potentially room for yields well above normal (but beware the likely incoming flood of other landlords once people realise).

The difference in costs are several factors between rent & mortgage+taxes+insurance+maintenance+appliances.

I have better places for moneys(some investment, some wasteful) and I get to move whenever I please... although, I have had to move when it didn't please me, too.

In European cities like London, Paris or Zurich, the supply of housing is so constrained that, barring something catastrophic like a war or a global financial crisis, prices will never drop that much for that long. In fact, it's quite a big economic problem — there's little reason for the majority of people to put their savings into anything other than property, because it tends to be so reliable.

And somewhere like London, renting a whole property is often just as expensive or more expensive that paying the equivalent mortgage would be. So you wouldn't even save any money by renting.

In a great many places, the rental rates are set to be about the same as if somebody just purchased the property and were about to pay mortgage payments.

In the short term, the renter makes out, because the owner has to assume taxes and maintenance, but over the long term, the existing mortgage doesn't increase while rent does and the property owner starts to cover those costs and then starts to make money off of the property. Once the mortgage is paid off, the rental money is pure profit.

I've lived in Switzerland for a decade. My rents have never gone up. They have gone down once though, because the law here mandates tying of rent to interest rates and when they are lowered, you can write to your landlord and demand a reduction.

Unfortunately there are caveats. Last time I tried that, my landlord claimed that my rent was already lower than the market average for my area and thus I didn't qualify for the reduction.

If you look at a place to live as an investment vehicle you are simply looking at it wrong. A home which is paid for is a place you can live without fear of not being able to make the next rent payment.

A mortgage is a bit of a jail sentence. Saving money and purchasing a place to live is the right way to do it.

No one will tell you that because they dont make money from you putting your money in the market.

But the same could be said about money in the bank: it is insurance against not being able to make the next rent payment.

Saving money is the right thing to do---putting all of your savings into immovable property may not be.

A place to live where you can grow food without someone taking it away eliminates the homeless situation.

There is no other investment offering that security. Ask Etrade if you can have a place to live and food to eat if all your trades go wrong :)

Do not forget maintenance, insurance & taxes that go along with that monthly nut. People used to always tell me I was throwing my money away on rent(until the "Great Recovery"), but I've never had to pony up thousands of $$$ for a new a/c unit or replacement appliances. As always, YMMV.

Why do you think your rent isn't simply amortizing those costs? The landlord isn't a utility/maintenance charity.

Many cities place artificial constraints on rent increases, for example which prevents full amortization.

Doesn't matter. Landlords who are in the business of renting aren't a charity. Somebody will be paying for those expenses and it's the goal of the landlord to make it not them.

Most of these kinds of arguments seen to stem from some kind of fantasy that renting is a smart choice because look at how we're pulling one over on landlords with all that free stuff they have to give me.

But no rental market can survive when landlords are losing their shirt to paying for other people's expenses.

And yet rental markets are full and robust everywhere which means landlords make money on the exchange, otherwise the entire rental market would be controlled by rapidly impoverished idiots, which is obviously not the case.

Landlords make money in several ways simultaneously, but providing charity to renters is not one of them.

Strawman much? I never said nor intimated I was pulling anything over anyone. Property owners assume the burden of maintenance & costs of ownership. Those costs are reflected in the amount of money I give them for the privilege, not the "right", of residing on their property. When I leave, I have NOTHING to show for it.

It's very simple, even outside of equity earning and the ups and downs of the housing market, once you pay off your mortgage, you now have a place to live that's fairly close to free (other than maintenance, utilities and taxes). If your home is large enough, you can even turn it into a revenue generating asset by renting out portions or all of it.

Rents also tend to go up with inflation, once you enter into a mortgage agreement, mortgages do not and thus you end up paying less over time (in real dollars) to live than if you rent. Since most people's income goes up, this means that renting tends to stay at about the same percent of income over a person's lifetime while it becomes less and less of a part of somebody's income who has purchased.

See my post above. Once you pay off the mortgage it is equivalent to paying yourself out a percentage of cash investment. In NYC that number is approximately 4.5%. That is pretty good but not great considering the risks of ownership.

Home ownership via a mortgage is a leveraged investment. If you're renting, you usually don't have access to leverage for an investment like that. Further, when you're renting, you don't normally have much of an impetus to save extra and accrue interest; whereas a mortgage acts as a forced saving scheme. You must save (build up equity) or else the bank will foreclose on your property!

Except I think you are assuming the renter is starting out with a large cash reserve they can invest and the owner doesn't have that at the start and must accrue that value over their mortgage period.

To compare correctly you must assume both people are starting the same

My big reason for giving up on renting is the control. I ended up being forced to move twice after landlords sold the building I happened to be living in. It was a frustrating experience. This is much less likely to happen with my own house (natural disasters, eminent domain, etc.).

Yeah. It's market-specific, to be sure. Homes in the Western US markets, especially California, have risen at a quick pace, in part because of zoning laws which prevent cheap expansion of the overall housing inventory.

Another important reason homeownership pays off well for many is that the investment is leveraged.

Also, in the US, entities like Fannie Mae combined with tax deductions amount to a government subsidy for home buyers. You can borrow $400K to buy a house at a very attractive interest rate and, on top of that, claim a tax deduction for the interest payments. But what rate will you get if you want to borrow $400K to place a leveraged bet on the price of gold or oil or Apple stock?

> How is renting wasting money?

My parents paid off a $200k mortgage in 15 years. When they sell the house and move, they will get $200k - breaking even.

Meanwhile, I've been renting for 15 years and will never get that money back. It's just a loss.

This sounds like my parents telling me how stupid I am for renting here in Barcelona for the last 8 years. Property prices have dropped by over a third, and I am spending less on rent than the prices are dropping by every year.

Re: renting is wasting money.

Think of the math this way. A $1mil condo in New York generates approximately 45k/yr income, or 4.5% return on investment per year in rents. Subtract taxes and amortization and ask yourself, can you get similar returns elsewhere? You could for example purchase an index fund with the same $1mil and contribute the gains towards rent. Either way you are living "for free."

It is however risky not to diversify. So if the $1mil is all you have and it is all in the house, you are in danger. Additionally, property is not very liquid. In the downturn it would be difficult to exit. For these reasons, I believe house ownership only makes sense as a portion of one's assets. Renting makes solid financial sense otherwise.

In the conversation of rent vs. own people often forget to take the opportunity costs into account.

To make your plan work, you'd have to have around $1mil in investment dollars that you'd place into various investments to make the "free" rent money. Since you're relying on those investments to provide shelter, they're just as illiquid as owning property (except with property you can make money off of it).

The best plan here is to keep $800k in investments, move to rural nowhere and buy a huge house for $200k cash and live off the investment income entirely and not bother working. You can then rent off portions of the property (a bedroom, a basement, airbnb etc.) to surge your income if you need it.

If you don't have $1mil up front to start, like most people, building equity in the place you live makes far more financial sense over time than does renting because you both get to live there and because it doubles as an investment. Starting from the same lack of a million dollars, renting only covers cost of living and does not provide for any investment opportunity.

The amount is irrelevant, since you are making the same percentage on whatever sum investment. I think you are using a non-technical definition of liquidity: I can convert ETFs or stocks into cash almost immediately. So for example, it is easy to scale down or to move money from stocks to bonds. The house is immovable property in all senses of the word. It is difficult to convert to cash or to move (in case of political upheaval, for example).

Your last point ignores the significant costs associated with 1. amortization and 2. the liquidity problem. First, given a neutral market, the house decays in value: appliances need fixing, floors, heaters, boilers etc. We are just used to rising prices due to speculation, but nothing guarantees the upward trend. Second, consider the cost of converting cash into house and the other way around: mortgage fees, interest, buying and selling fees, plus real estate taxes.

The New York Times has an excellent calculator on buying vs. renting. The math just does not support your conclusions. Buying wins out after 10-15 years GIVEN an upward real estate market. With any downturns, renting wins out indefinitely. Include the risk of investing into a single instrument (all you money is in the house) plus the stresses of ownership (shit goes wrong all the time and costs you money) and the picture is not so clear at all.

To make your original scheme work (investment earnings pay for rental costs), you investments are de facto illiquid, otherwise you have no way to pay for housing without breaking from the scheme. You also need to make more from your investments than renting currently costs because over time rental prices are likely to go up and your investment return will need to increase.

You are right that property ownership is more illiquid, but supposing I had a million dollars invested making me a better than 4.5% return, why would I pay rent when I could just buy a house with that money instead? At the end of the mortgage period I'd have my original investment plus ownership of real property, while the renter would only have their investment dollars and would have to continue the investment-for-housing scheme for the rest of their life.

> First, given a neutral market,

This is a false assumption as markets are almost never neutral. It's impossible to be a market oracle, but historic trends show a general upwards movement in most well functioning economies. It's a better than chance bet that most markets are thus net positive. You are correct though that nothing guarantees this upward trend.

The New York Times calculator is pretty good, but misses the simple fact that you need to live somewhere forever and not just for the period of a mortgage. Thus any comparison should be made with how long you expect to live.

The picture is very clear, you will likely need housing longer than 10-15 years, and if that's true, then buying property nearly always wins over renting.

A person with $1 million available to put into an index fund is the 1%, and advice for them is not really applicable to the general population. For "normal" people, buying a house can be a good idea because you can deduct the interest from your income. It also gives you much more stability in terms of monthly housing payments if you get a fixed-rate mortgage (unless rent control is an option). Finally, you also "get back" a portion of your mortgage payments when you sell the house. You never get your rent money back.

Rent/buy is not a simple analysis, there is no one right answer. If you ever (for medium-large values of "ever") find yourself in a situation where there's one obvious right answer for all cases, you probably did something wrong.

Fortunately, at least for homes it's also a solved problem. Take your data to the below calculator, and get on with your life.

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...

See above. The amount is irrelevant. Deducting interest is good. However, you must take into account the costs of amortization, real estate taxes, and the costs of borrowing money. Check the NYT calculator. Owning wins out in an up market and only after a decade or so. It is much more difficult the absorb the costs of real estate transaction for those not in the top 1%. Rental is a reasonable financial strategy for any income bracket.

In Canada you may also qualify for tax credits when buying a home. That combined with low rates creates house horniness that's hard to resist.

Who's going to lend me $1m so I can play the stockmarket?

You could absolutely borrow on margin to play the stock, although you would probably need to have more than the typical home mortgage 20% to get the loan.

Is that really something that is available to the ordinary man/woman in the street? (Genuine question, I have no idea ..)

ordinary people can borrow 50% on margin

If losing a job for less than a month is a financial disaster, you're probably not in the market for a house anyway. It's perfectly possible to rent for decades and have years of runway in savings.

Also, the burden of being rooted, and of having to maintain a house, could be such a significant detraction to quality of life that it totally makes up the difference.

Also, at least in my case as a relatively young American, living in a house is pretty much to opposite of the lifestyle I see myself wanting for at least the next decade.

>Also, the burden of being rooted, and of having to maintain a house, could be such a significant detraction to quality of life that it totally makes up the difference.

Yea, so I'm renting a house where my agreement states that I am not allowed to fix or improve the flat myself. All changes must be agreed and made by agency. Current faults in the flat include: leaking water from toilet flush since seal is broken, reported 2 weeks ago, reminded 3 times. Water bill is on me. I would be happy if I could fix it myself, I would save money on water, calls made to the agency and not have the noise of leaking water, it's annoying. Aver salary in my city is ~£22k, and average rent just hit £720 per month, if we add bills and council tax, it's ~£850 which is more than halt of average salary. Hopefully I work in IT-financial sector and my salary is higher. I would be much happier to buy a house and be rooted to this city than to depend on renting agencies and increasing population which pushes renting prices a lot.

I'm making savings now to save for a house, if I get a mortgage for 20 years, my average cost of it will be £440 which is 2/3 of my rent...

>>Yea, so I'm renting a house where my agreement states that I am not allowed to fix or improve the flat myself.

That's the beauty of renting: if you don't like your current agreement, you can find another place with more preferable terms. Plenty of landlords allow tenants to change/improve the property.

Whereas when you buy a house, you are stuck with the same neighbors (and sometimes the same HOA) for a much longer period of time.

Why not just rent out your property to somebody else so you no longer have to pay the mortgage on it, then move somewhere else?

As an owner you get whatever agreement you wish to make with yourself.

However, you are right, it's slightly harder to move from owned property to owned property, so in many jurisdictions, property owners have significantly more rights about neighboring land usage than do renters.

For example, I once had a neighbor who was running an illegal business out of their house and causing all kinds of chaos. I presented evidence to the courts that their business was causing real estate market depreciation and was "damaging" the value of my property. The judge ordered them to cease immediately or pay me $50k in assessed depreciation. They shut down their business, put their property up for sale and were gone within a month, they paid my court costs as well. I had on my side, the HOA, local Sheriffs, county zoning inspectors, county ordinances, state ordinances and the agency responsible for handling business registrations. The actual time in court was less than 1 hour. My property value rebounded the full amount and my new neighbors were great.

On the other hand, when I was renting, I once had a neighbor with a serious drug addiction problem, who was stabbed once by a homeless man he let into his apartment so they could do heroin together. Even though he presented a clear danger to the entire community, it took 90 days to have a community hearing to evict him from the property. I could have left sooner, but would have had to pay a penalty to break the lease early and by this point local rents had gone up about 10%. So I would end up paying more to live, and be out the penalty of two months rent. I had on my side approximately nobody. When he was finally evicted, he was replaced by another recovering drug addict who occasionally lapsed and we'd find high in the stairwell. This was in a very nice area I might add -- and the county had selected our building as a pilot "integration program" for people coming out of non-violent criminal and drug rehabilitation programs. They had hoped that being around a nice environment might help them out.

True, but you leave out the cost and hassle of moving regularly. Most landlords know that people don't want to be relocating each year, so they can slowly increase rent year-over-year.

> That's the beauty of renting: if you don't like your current agreement, you can find another place with more preferable terms.

Not where I live. Rental market is WAY too tight.

Sure, but you shouldn't be surprised to hear that many rental experiences are much more positive than that, or that many people's situations lead them to totally difference conclusions. I've listed a bunch of reasons. You wrote "I never understood how people can not own a house and waste money on renting for decades" above, and my response is "It's easy to understand. Take my perspective as one of the millions of examples."

My experience (UK) is that landlords screw people over where they can - they want to make money but actually have a social responsibility for housing conditions. Most people I know live in horrible conditions for a little less rent or increasingly so more precarious and even less stable house shares. Maybe that's an English problem though.

The interesting question being posed in these threads is a lifestyle choice: ownership or flexibility, lay your roots down or remain agile.

If you have enough money to pick and choose that's great. Otherwise home ownership may be the only route out of a precarious and unstable existence.

Surprisingly, I seem to be in the minority here: I consider the lack of freedom and NOT being rooted that comes with renting to be much more of a burden. To me a huge advantage of buying a house is that I know where I'll be living next year and 5 years from now. I don't have to worry about my scummy landlord raising rents by 30% every year "because they can". I don't want to burden my kid with having to find a new set of friends every year because we have to move to a different school district again. If I want to build a deck or knock down a wall or install surround sound in the living room, I can do so tomorrow without having to ask permission.

It's only a waste if you don't put the difference to work in some way.

Owning a house outright is great (I'm 1/3 of the way there) but for most, a 30-year mortgage is no more of a wise decision than a rental. You're just swapping landlord for bank.

The mortgage interest is deductible, and for many people the one thing that makes it possible to itemize deductions rather than take the standard. That's an advantage that renting doesn't have, all else being equal.

> You're just swapping landlord for bank.

And even if you pay off your mortgage you still don't technically own it due to yearly property taxes.

Not only do taxes pass through to renters, very often they are substantially higher. In New York, for instance, there is a substantial school tax credit for homeowners not available to rental properties. In addition, some cities have a homestead property tax rate that is substantially lower than the commercial tax rate applicable to rental properties.

One thing I really hated about living in an apartment was that the landlord would show up twice a year with very little warning to inspect the fire alarms etc. As a security person, having all the keys to my home and neighbors homes sitting in a nearby office wasn't very reassuring of my safety or privacy.

The bank on the other hand doesn't care what you do with your alarms or anything else as long as their payments keep showing up.

Exactly. You are either renting the money or the house. You might as well put your equity into a diversified mutual fund. However, there are massive nonfinancial benefits of owning a home, don't forget

I can drill holes in the walls wherever I want!

Seriously though, renting sucks compared with owning, for all those nonfinancial reasons you mention.

Assuming you can rent or buy an equivalent property, in most markets, the monthly outlay is approximately the same. There's very few circumstances where a renter has such an excess of money that they could make any meaningful gains off of alternative investments.

Over time this changes, assuming the renter and the owner have incomes that increase, rent also increases on the same property over time (usually on about par with inflation, but sometimes faster), while the owner's mortgage stays fixed. As a percentage of income, it's the owner who's more likely to have excess income they can be investing elsewhere.

After 30 years (or repayment of their mortgage if sooner), the owner's property is as close to free as you can get and they can invest all of the money the renter is now spending.

You are forgetting that your down payment ( and equity )is tied up in the house, when it could be invested elsewhere.

If you run the numbers and assume a market rate of return on most investments, it's very hard to turn the relatively small amount of money a down payment is into a net gain after 30 years.

that statement is simply false

feel free to run the numbers and present here

Here's the classic blog post on this topic

http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html

Try the New York Times "rent vs buy calculator" if you really can't understand that it might be financially better to rent. Also try setting up a budget and some savings - losing your job for less than a month should never be a financial disaster (and if it is you can't afford to buy a house).

Then keep on doing what you are doing. You are the one who started this discussion on buying land and building houses. We were talking about Switzerland.

I've heard it said that real estate is a risky investment.

On the other hand, it's really hard to raise a family of four in a mutual fund.

I don't understand what you mean. Raise a family of four on a mutual fund?

Why do you feel that you need a mortgage in order to raise a family of four? Why not rent?

Because moving a family of four is extremely disruptive for everyone, and it's very rare to have more than a year's security with a lease, even with a good relationship with the landlord. Not only that, but if your kids are school age, there's serious pressure to find a new rental in the same school area, which makes shopping for a new home that much harder.

>>and it's very rare to have more than a year's security with a lease, even with a good relationship with the landlord.

Huh? Landlords prefer stability as much as tenants. Very rarely will they say no to a multi-year lease. They may want to add the option of rent re-evaluation after the first year, but from a landlord's perspective it is very difficult to find good tenants, therefore the longer those tenants stay the better.

No landlord I have ever had has ever agreed to a 2-year lease. There's no "huh" about this point: if you rent, your tenancy continues at the pleasure of the landlord. That's not a fun place to be if it's important to you to provide a stable address for your kids for the next 10 years --- and that is usually pretty important.

It's kind of a joke or a proverb I guess since both houses and funds are investments with a certain risk but houses also double as a place where you and your family can live ;-)

In reality, the truth lies somewhere in the middle between "rent in throwing money away" and "it's a great lie that buying a house is a very good way to build wealth."

> Renting is, unfortunately and quite inaccurately, viewed as "throwing money away."

I hate this mentality, and it seems pervasive worldwide. As I said in another comment in this thread, I like to see rent as paying for a housing service: I pay a monthly amount in exchange for a roof plus a lot of annoying things I'd have to take care of myself (and spend money on) if I were a homeowner: broken appliances, water heater issues, heating issues, etc. It's quite a list.

"Service" is sort of key in the way I see it, and is the reason why I only rent from apartment companies and not from landlords. There are so many stories about downright insane landlords out there that I don't want to take my chances dealing having to deal with those.

Perhaps it is the result of choosing to take a historical price chart and say, "look the value goes up" rather than any sort of analysis. It is amazing to me so many people take out huge loans (mortgage, car, college) without doing the math on the final price after compounding.

If the economy is growing faster than your interest rate and the population is increasing as well and its really hard to build new housing, then by all means buy your house and maybe even take out a loan to do so! If not, maybe still buy, but there is little urgency.

In the US, we get a tax savings for owning rather than renting. Also renting includes a required profit for the owner. When you rent, your monthly bill includes everything the owner has to pay (mortgage, taxes, utilities), plus their profit. When you buy, you pay mortgage, taxes, and utilities, but no extra for profit. Also, you get to deduce the local taxes you pay on your national taxes, so overall you pay less.

Also, when you own, you can do what you want without having to ask permission. on top of that - no noisy neighbors that are too close!

Just because someone else is profiting from you doesn't mean you are wasting money.

Let's say you save $100k. You can either buy a house, or put the money in the stock market. If you put it in the stock market, you get a return but that return ends up going to your landlord's profit. If you but the house you get no return but don't pay the landlord's profit.

In other words, it's an investment. If you believe that the RE market has better ROI, and don't mind being rooted, then go for it. If you believe the stock market has better ROI and you prefer to be mobile, do the stock market.

Also consider that dividend income from the stock market gets taxed each year before it can be reinvested. So, it does not compound as rapidly as the untaxed "yearly dividend" (aka price appreciation) of the house.

OTOH, as you say, the easy mobility associated with renting can be quite valuable to some workers. It's like, "what opportunities and profits am I foregoing by being tethered to a house here in this job market?" etc.

I think it's all very complicated and situation-dependent, as you point out. We need to predict the housing market, interest rates, the job market for our particular specialty, changes in tax laws etc in order to make an optimal decision. We're all forced into the role of economic forecaster just to make the most fundamental decisions about life.

It's a financial calculation like everything else. Don't assume they do it for purely emotional reasons.

I chose to buy because:

1. It's significantly cheaper after tax deductions compared to renting in my area.

2. This is the highest paying area for the software labor market in the world, and I've looked compared to last 10 years. I don't really see anywhere else that would get better than the SF bay area.

3. It solidifies your housing costs. When prices are rising relatively rapidly, it can be a money saver, and over the long term, it's definitely a very large money saver because it locks your price in. That is a risky bet to make for sure.

You can end up with a housing bubble and being underwater for 5 years, or you could end up in somewhere like london or vancouver, where it goes up and stays up and by the time that 'bubble' pops, your 50 years old. But that is the same risk you take when you chose whatever profession you have as a career or by leaving your down payment savings in stock & bonds.

4. You have to compare against what your down payment would make in the stock market comparatively.

5. When you move away to better opportunities, you can just rent it, especially if rental prices have gone up a %5-%10+ since you bought and would cover the management fees. Maybe life will bring you back again, especially if you left from a pretty good market already.

6. If you save a lot of money, trading a fraction of your savings in down payment for a discounted housing cost for the rest of your life can be a good one time investment.

Pilot's who pour everything into their planes have a staying: you can sleep in your plane but you can't fly your house!

I guess people have different aspirations in life.

I own and rent.

I own a house worth about £300k with a mortgage of £140k. The mortgage repayments are £500 per month.

I wanted to upgrade my house to somewhere larger in a nicer area but didn't want to wipe out my savings to raise a deposit. So I made the decision to rent somewhere instead.

It feels like the best of both worlds. I get all the upside of a big house without any liability for something going wrong (boilers, high end kitchen equipment, etc). I've rented the house I own to some tenants and the profit from the rent I make goes towards my rented house.

Best case scenario - one day I'll own my old house outright and continue to rent. I might even buy another house to rent out at some point. Worst case - the market goes tits up I stop renting and return to the house I own where my mortgage is very affordable.

While I feel neutral about your post, I upvoted it to counter the downvotes. It seems to follow the HN guidelines and merely presents your side of the issue, so I can't see any reason for it being downvoted other than people not liking your opinion, which doesn't seem fair to me.

> But rooting oneself in one labor market (vs. being mobile) decreases one's employment options and therefore their salary.

True, but in most places outside the US (at least certainly in mainland Europe) moving great distances for a better job opportunity is unusual.

The main appeal of owning real estate vs. renting is the long-term and intergenerational perspective. At some point it'll be paid off and the housing cost will be extremely low - and the children will inherit something of value.

While I agree with you financially, when you have kids, buying property is a safer vehicle to leave something behind for them. Sure, if the rent is low enough and you invest the difference of what you'd be paying for a mortgage, you may grow a much bigger capital in 25-35 years. However, most people are risk averse or simply do no understand how investing works, hence: they buy real estate.

"You just pay about 70% you would pay for the rent and the house is yours in 30 years! But you need to fix all issues yourself and comply a lot of third party rules how everything has to look and work".

I dont get it ether, this sounds like the worst deal not even including the fact that i might do not want to live there in 30 years.

Because if you look over a 20-30 year period of home ownership you build equity in your home and get a pretty significant tax benefit as well (mortgage interest deduction).

If you were to have kids, think about the financial security owning a home provides them.

What financial security? I take it you have completely forgotten about the 2009 crash?

I was thinking that one would have paid off all mortgages by the time the children inherit the house.

The American Dream was narrated by banks in the USA as a way of fighting "the Red terra" and to make the populace wear the yolk of a mortgage. People with mortgages generally don't protest or strike.

As American hegemony spun the globe so did the "own your acres".

This is ridiculous.

Here in Europe we have been taking mortgages to buy property long before the USA was born, in fact since the Renaissance.

It certainly is a long-term contract, but nobody really considers it a "yolk." After a number of years your debt is paid and you can keep living in your place without paying anything else.

The alternative is to keep paying rent forever, well into retirement. Which one do you think is smarter?

I don't know, I find the "yolk" of a mortgage to be eggcellent!

yoke http://www.merriam-webster.com/dictionary/yoke

> to make the populace wear the yolk of a mortgage. People with mortgages generally don't protest or strike.

You know when I mention this to my co-workers they grimace. We call mortgages and a family the 15-30 year jail sentence.