Re:Ask HN: What is really wrong with the US economy, really?
by jpollock on Friday February 28, 2014 @10:38AM
(#7319290)
No, it doesn't work like that, because it doesn't take the house's capital gain into account.
Given the ability to grow the housing supply, there is typically a fixed return for a property. That return will be split between capital gain and rent. Rent no longer covers the mortgage because it is the total return that determines if it is a good investment. There are also the tax benefits of renting out a house in some locations (maintenance and insurance would be deductible).
When we rented out our house, we were told that the typical return on capital was 8%, where 2-3% would be capital gain, and the rest in rent. We priced our rent at 5% to get a quick rental. Mortgage rates in that location are 6%.
If it is hard to gather a down payment, then rents can exceed mortgages because renters cannot easily swap between the two.
Given the ability to grow the housing supply, there is typically a fixed return for a property. That return will be split between capital gain and rent. Rent no longer covers the mortgage because it is the total return that determines if it is a good investment. There are also the tax benefits of renting out a house in some locations (maintenance and insurance would be deductible).
When we rented out our house, we were told that the typical return on capital was 8%, where 2-3% would be capital gain, and the rest in rent. We priced our rent at 5% to get a quick rental. Mortgage rates in that location are 6%.
If it is hard to gather a down payment, then rents can exceed mortgages because renters cannot easily swap between the two.