You should only ever rent if you intend to live in a property an amount of time so small that the rent you're paying out doesn't cover the exchange cost. And that assumes that property prices aren't increasing which they almost always are and generally at a pretty firm pace.

Basically - you're trying to avoid the scenario where you live in a place so short that the exchange cost you pay to flip it on the far side exceeds the amount of rent you'd pay to reside in it.

Determining the exchange cost isn't always straight forward - the 6% given above may or may not be realistic for you, there are some brokers that will take a 1% cut and those folks are more common in hot markets, and there may also be taxes you need to take into consideration.

Also, there is a risk of getting stuck with a lemon - if you purchase a house which seems fine but actually has extensive water damage and mold you could lose a portion of the value, this is a really significant consideration in quiet housing markets (like the midwest) and less important in areas like SF where most of the property's value is likely the land itself - in either case you're taking a big chunk of the value of the structure out of the equation when reselling the property but in the later case the value of the structure is rather minimal while in the former case the land is essentially free.

Basically you almost always want to buy if you are able to. The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord.

> The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord

In principle, the principal payments are doing that (interest payments are being siphoned off by a bank, instead of a landlord), as is any delta in the property value (but if that's negative, that's anti-equity).

If it was just about the money, it would be better to invest the downpayment into a margin trading account with 1 to 5 leverage.

Home ownership, with a mortgage and down-payment less than 20% is higher leverage than that with more stability.

Put 10% down on 1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.

Also, if it's your primary, then tax free income up to that 500k if filing jointly when you sell if you lived in it for 2 years. Hard to beat.

  1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.

Extremely uncommon, even if you buy during a lull and sell on a peak. (SV homeowner 34 years)

I'm in LA and it's not extremely uncommon. I'm also seeing it in a few other Southern California areas.

Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.

Or just put those 100k into a margin trading account with 1:10 leverage in a "west coast real estate index". No commissions, no agents, no property taxes, no leaking roofs.

Regular people do not get 1:10 leverage in a margin account. Furthermore if you lever yourself up to 10x with options or exotic ETFs or whatever, and the market goes down by 10%, you don't have any money left. If you put 10% down on a house and the value goes down by 10%, you still have a house to live in even if you don't have any equity. You can choose to just sit and wait for the market to recover. There's no recovery from getting margin-called on your 10x leveraged account.

Still doesn't offer that tax advantage (either in capital gains or the numerous deductions). And if you have to live somewhere like the parent comment, this doesn't help you.

You will have a commission in the expense ratio indefinitely.

But yes, definitely a decent option if you want to put your money in real estate with less headache.

The tax advantage is up to comical 250k that will be promptly eaten away by brokerage fees, transfer fees and other god knows what fees, on top of all the house maintanence costs over those years.

Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.

It's 500k of tax free gains for married couples.

How is that, or even the 250k individual comical? Also, that's the gain that has no taxes AFTER fees/commissions. It does not get "eaten away".

You can also do 1031 exchanges, opportunity zones with real estate, or put it into an LLC. A lot of flexibility and tax strategy available.

I'd rather pay capital gains tax on a 250k stock appreciation, than have my house appreciate by the same amount. It's just ordinary people don't have brokerage accounts that can appreciate by so much.

As a slight diversion, this thread danced around a pretty interesting point in my eyes - why are ordinary people denied access to brokerage accounts with advantageous rates - it's not likely that the money actions will be nearly as dynamic or require nearly as much oversight as folks with a lot of money and the minimum investment bars seem unreasonably high before you start dodging the heavy fees. Isn't that system just furthering wealth inequality?

If it's just about money then you should diversify - but owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you - with the exception of going underwater on your property value which is only ever actually a problem since banks can effectively margin-call their mortgaged properties.

> owning your own home is a self-securing investment, it means you can't go broke no matter how bad fate treats you

lol what? Trees fall on houses all the time. Pipes break and water damage can seriously impact structure & foundation. Dumb-ass kids accidently drive their mom's car through the veranda. Houses burn down and kill people. A factory shuts down and now there are no more jobs so everyone leaves, driving your house price down.

Assuming a home is a secure investment -- even in a hot market like SF or DC -- is foolish.

> More than one-quarter (27%) of reported fires in 2014-2018 occurred in homes. Even worse, more than three-quarters (77%) of civilian fire deaths and almost three-quarters (73%) of all reported injuries were caused by home fires.

> During this five-year period, US fire departments responded to an estimated average of 353,100 home structure fires per year. These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage.

https://www.nfpa.org/News-and-Research/Data-research-and-too...

No, because if you're investing on a 1-5 margin, the market dropping by 20% in two weeks, and then going up by 80% over the next five will leave you flat out broke.

Meanwhile, someone not investing on margin will be up 60%.

Nitpick, but they’d only be up 44%. 0.8*1.8 = 1.44, not 1.6.

Only if there were margin calls on real estate loans (there aren’t) of if there were no margin calls or forced selling on brokerage accounts (there are) this would be good advice.

There are margin calls on real estate loans - they aren't nearly as capricious but when mortgages are renegotiated banks will usually refuse to offer a new mortgage if the property is underwater - in that case the bank will generally try to foreclose on the property and recoup the lost mortgage balance through debt collection. This happened all over the place in 2006 and led to the housing bubble.

In the United States, very few people are on short-term mortgages, which means that you have the option, but not the requirement to reneg on it.

You should generally only reneg if interest rates are dropping - and interest rates dropping causes an upward pressure on home prices.

If you can afford a 20% or so downpayment (big if, I know), the two options might work out to fairly comparable (after-tax) monthly payments right now. In the longer run, buying will leave you potentially with equity and with a fixed rate mortgage will assure fixed payments.

Even in a mildly inflationary economy, making fixed nominal payments on a salary rising more in line with inflation for an asset valued more in line line with inflation can be a fairly attractive deal.

But none of the above is meant to be investment advice. Homeownership has its risks and certainly loses flexibility.

Just checked Redfin, a condo in SF for $1M with a 30 year mortgage at a nice 3% interest rate and 20% downpayment would be:

- $3300 in principal + interest

- $1000 property tax

- $500+ HOA

- $200 homeowners insurance

That is $5000+ monthly and requires $200k upfront (and significant upfront cost as the brokers are paid off). How is that comparable in after-tax payments to renting a $3000 apartment?

The math might be a bit different for SF - there are a lot of local factors to keep in mind (like that 500 HOA + Homeowners seems steep to me for a property that isn't near EOL) - but the biggest different at the end of the day is that the 3300 you're paying into principal + interest is still your money (well minus the interest) when you rent all 3000 you're paying is essentially throwing money into the void.

5-10 years later you have equity, a portion of value of the home not tied up by a mortgage. You can refinance or sell and extract this money. You can then use this money to move into the $2M house you had your eye on.

The difference is appreciation. Otherwise owning is probably 150% the cost of renting in SF. And with rent control you don’t have the issue of rent going up.

I've never owned a house in the US, but my understanding is that the interest portion is tax deductible (whereas rent is not), which at the kind of salaries necessary for this housing is likely to make a sizable dent in this payment.

I must admit that I had forgotten how high property taxes in the US can be, though. HOA surely depends a lot on what exactly you'd be buying.

IIRC that was changed -- the interest payments being deductible -- as part of the Trump tax cut.

The standard deduction was increased for everyone to compensate for it.

Not only that, a 5% return on that down payment is a $833/month opportunity cost.

Owning in SF is generally more expensive than renting. Why? Because house prices have appreciation assumptions already priced in. Plenty of people lose money every month versus rent but appreciation more than covers it.

I faced that choice years ago, and chose to rent. It was a $500k mistake (over ~5 years). The condo was near Google, and it was a bit after 2008; your results will probably vary.