This. I did the math when I rented an apartment in downtown Toronto and the rent was less than mortgage interest + condo fees + property tax + maintenance.

But once you have completely bought your house/apartment, you have that warm comforting feeling that it's yours. Nobody will get you out to puts in his children, nobody will raise the rent because, you know, he has no choice, etc.

But in the case of a house, you'll have to repair it as times goes by and that can be quite expensive. But the one who rents it to you would have to do it as well, so, buying a house just makes sure you don't pay the little profit margin of the landlord (just the one of the bank :))

>so, buying a house just makes sure you don't pay the little profit margin of the landlord

Buying is not universally better than renting, period. There is no such thing as a free lunch; any profit received by owning the capital asset is compensation for the risk of holding that asset.

Yep you're right. I just wanted to explain that there is also a psychological argument at play. That warm comforting feeling...

I would feel like there was a noose around my neck if I couldn't move without paying $30k in realtors fees (and possibly incurring capital loss depending on timing).

In Australia you are often treated poorly as a tenant. Rent increases every 6 months, 60 day eviction notice if the landlord wants to do anything (sell, paint the walls, let their cousin stay there, consider selling it...). You can't do any modifications or get longer than a 12 month lease.

Also, there is a collective paranoia about missing out, of tumbling off the 'property ladder' and neither you or your children ever escaping wage slave poverty.

Except if the value of the real estate goes up.

Usually when mortgage interest + etc. > rent, it indicates that the property is overvalued and the value (over the long term) is more likely to fall than rise. Every other buyer - or almost every other buyer, except the ones that need to launder money - is making the same economic calculation, and if the cost of money to buy the property is more expensive than the rent you can earn from the property, they're not going to buy the property.

Ah but my equities-heavy roboadvisor portfolio has gone up way more than the landlord's apartment...

is it so? Is that still the case when your landlord leverages 20/80?

So let's say you save 10¢ on every dollar by renting in your scenario. You'd have to have a hell of a return on that 10¢ you saved to beat the 90¢ you would have invested in the property but instead flushed down the drain in the form of rent....

"flushed down the drain"

Oh not this crap again

https://www.youtube.com/watch?v=KAMeI4uHAFE

"But practically speaking, ownership has worked out better for most people over the long run."

As I said before, as long as you don't buy high and sell low, your money has effectively been flushed down the drain in the form of rent.

You seem to think that 90c is going straight to equity when for many years it will be going straight to interest payments. So for the first 5-10 years your $1 is going down the drain vs the renters 10c going into investments.

At any point over those 5-10 you can turn around and sell the property and collect the full gain - it's entirely irrelevant to the mortgage payments being dedicated to interest. My $1 gets my name on the title, your 90¢ gets your name on the lease. Think about what your net investment is. So maybe my maintainance/tax/interest costs equate to 50¢. I'm still investing 50¢ compared to your 10¢. Also, I get incredible leverage. Let'say my property costs $1 million. I'm controlling a $1 million investment vehicle with a $4k/month mortgage payment + tax/maintenance. That's incredible. My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property.

It sounds like nothing I will say will sway your beliefs so good luck with your investment.

>My return on the property is driven from the $1 million basis, and I get to keep all of it despite not having much of an equity stake in the property

And if that property falls to $900,000? Now you owe $1 million on a home worth less; literally throwing away $100,000.

If you think of it in these terms, that's about two years worth of rent. But as a renter, you have no chance at benefitting from future appreciation. If you think the housing market is going to be in decline from your move in time, then it might be a good idea to rent depending on your time horizon. Over the long term, it has proven to generally not be a good idea.

You don't actually lose anything until you sell. A paper loss is a different thing. It has plusses and minuses.

If you're willing to employ a "buy and hold" strategy for property to ride out the bottom of the RE market, you should be able to do it just as well with a diversified investment portfolio.

>You don't actually lose anything until you sell.

If the value of your asset falls, you've lost net worth.

It's preposterous to claim that, even though the price of your home has fallen by half, and you are servicing the mortgage on the old value, that you haven't lost anything. Or that the fact that you can offset capital gains with capital losses somehow makes a plunge in value "worth it".

"Paper losses" are losses. The value of the asset isn't based on the price you paid.

it's how long term wealth is built best.

until the bubble pops up, like it did in 2008, but it comes back up so it's a rather temporary set back. Also, rents rarely come down, so most often the property value decline is temporary, or it is another opportunity to buy when things are in water - when there is blood in the streets, there is money to be made.

You think 90% of the mortgage is equity??

It would take you a decade for the equity you earn to match the interests you pay. (http://www.mortgagecalculator.org/ to fool around).

Theres property that rented out produces 2% income. If you can make more than 2% a year, then renters will be richer and compundingly so if they rent over buy.

>Theres property that rented out produces 2% income.

Exactly right. Most people here have probably seen nothing but rising house prices their adult life. Even with a massive bust, people still believe it. In reality, real returns to real estate are barely above inflation.

You can't predict the property market. It's kind of financially risky to put your entire investment into not just a single sector of the economy or a single industry but a single property! What if you'd bought your house in Detroit? What if you bought at the peak of a bubble? Even if it's not such an obvious disaster, it can still easily perform worse than other investments.

I guess it depends heavily on the location's property market and the regional tax rules. E.g. here in Norway, good tax breaks for owning property means we're currently paying $1k/month on mortgage+maintenance+taxes, but renting the same apartment costs 50% more.

It also means you essentially can't rent anything bigger than a 2 bedroom apartment; bigger units make so much more financial sense to own (easily $1k/month cheaper even before you include the investment aspect) that there is no market for renting them.

In other economies that would severely punished poor people, but I'm guessing there is sufficient social housing. It still seems like it would lead to problems though.

This is very rarely true. The only case where I can think of where you may be right is when real estate is purchased at the top of the market and sold at the bottom. When you go to sell real estate, it doesn't matter how much equity you have in the property, you will fully collect the gain or absorb the loss resulting from the sale. Equity is usually only relevant when looking at creditworthiness.

It isn't that rare actually in major western cities. So you are betting on large increases in property value to offset the loss from front loaded interest payments to make your investment better? That's a gamble.

The interest is part of the investment. It gives you control of the property and ability to collect all appreciation. It takes a very minor increase in value to turn a profit if your time horizon is short term. A renter doesn't have anything to show for his or her rent payment and cannot collect any appreciation.

>It takes a very minor increase in value to turn a profit if your time horizon is short term.

It's hard to believe that amateurs on this board actually believe house-flipping is a sure thing.

Well that would be true if things were normal, like 10 years ago. But the rate of return on real estate is much higher than the rate of return of say the S&P 500.

10 years ago things were very much not normal in housing prices and 8 years ago a lot of people lost everything because they counted on prices increasing at way above historic norms. Much like you're doing here.

pundits have been predicting the bubble bursting here since the GFC. But the 'economic miracle' of the housing boom keeps rolling on in Sydney and Melbourne.

With Australian interest rates at record lows, property investors keep borrowing unperturbed.

That's extremely illogical thinking though. If the pundits have good reasons for thinking the market will crash (and I believe they do), and the fact that it hasn't yet doesn't make it less likely, or mean it won't happen. It just means that it's likely to happen sooner rather than later!

It's not an economic miracle, it's a huge amount of asset speculation built on one of the largest levels of household debt in the world, just like in the US and many other countries before the GFC. All it will take is a rise in unemployment, or a shock from China, and it will go (of course interest rates won't rise, the RBA would have to be insane).

Keep in mind that as an individual you cannot have a near-million dollar leverage at a relatively low rate to buy other investments.