

Buy (and rent) vs buy: a hacker's view on housing - michokest
http://micho.biz/buy-vs-rent

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garethsprice
Don't forget the down payment you'll need for a house (conservatively, 20% -
potentially more as a foreign investor) and another 1%-5% of the purchase
price in fixing stuff that's inevitably broken or in need of upgrading. Given
how mobile you are, buying real estate to live in might not be a good thing
for you. I bought at a similar age, and it's definitely a major consideration
when considering moves now.

Real estate as an investment provides quite fantastic leverage (no-one's going
to lend you 80%+ of your capital to buy stocks) and is a great way to build
long term wealth, but make sure you have enough cash around to avoid getting
into trouble if something major breaks or to pay the mortgage if your property
is vacant for months at a time (especially if you're doing vacation rentals).
Take what you estimate you'll need as a cash buffer, and triple it.

Don't underestimate the hassle involved with absentee landlording, even with a
property management company. The property management industry, especially at
the lower end (single unit residential or vacation rental) is largely
unregulated and there are plenty of horror stories about corrupt managers who
skim rent, take kickbacks, etc - or just collect rent for several months and
disappear.

Highly recommend anything by John T Reed (johntreed.com) or William Nickerson
(out of print) to learn about real estate as an investment. The field is full
of scammers and smoke-blowers (even moreso than tech...). Those two stand out
as offering pragmatic, actionable advice.

I really like the slow-paced, long term wealth building approach of real
estate combined with the fast-paced, high cashflow, low equity field of tech
consulting. It's early days for me, but the combination seems to work well
together.

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skurry
_What’s happen if the market went down and I sold it after 5-10 years for a
25% loss? In that case I’d be more or less breaking even, since the money I
spent was spent on an investment (an unfortunate one), but not entirely lost
as if I had just rented a place._

Eh? In that scenario a buyer is MUCH worse off than a renter. Depending on the
variables (interest rate etc) you'd lose your down-payment, all the payments
you made so far and still be five figures in the hole. And in Spain, the bank
will go after your other assets to make up for their lost money, unlike in
some US states where you can just walk away.

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hjkl
I'm interested in the rent vs. buy thing too, so here are some of my thoughts:

>What if I hate the place and want to move away from it? Then a high demand
for housing would play in my favor.

You'd still have to sell your house, which I've heard is rarely easy. There is
time/money cost associated with selling the house (including repairs, real
estate agents, etc.).

>What if I move to another city? Then it’d be good if I could rent it out
easily, ideally making a profit with it or at least not losing money.

You'd still have to manage the rental property or pay someone to do that. This
is another time/money cost.

> What if prices go down dramatically? Then I’d be stuck with the place, since
> I’d lose money by selling it. So I need to really like the place, or be able
> to make enough money by renting it to others.

You also have to be able to absorb any catastrophes to your financial
situation. If you all-of-a-sudden couldn't afford your mortgage, you're still
on the hook for it. If you were renting, you could just move somewhere cheaper
(less the costs of the move).

I didn't see maintenance/repairs factored into the cost of buying a home. If
the water heater dies, that's going to be a major expense. Same with paint
jobs, pipe repairs, acts of god, etc. Might be worth considering what these
factors would do to the math.

Finally, there's the opportunity cost. If you put a 60€ (20%) down payment on
€300k, that money is now tied up in your house. If you had rented, you could
have put that money towards another type of investment that could potentially
earn you more money or at least be more liquid.

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andyakb
this is a very simplistic way to look at the rent vs buy, although its more
thorough than most. using a mortgage calculator and amoritization table it
seems that after 10 years of paying 1200/mo you would have about 45k in equity
(+ your downpayment) with the rest going towards interest. this is a far cry
from 100k+ in equity that you stated.

if you are working with a vacation property manager or airbnb, expect to give
them a hefty cut of the rents you collect and while it may cover your mortgage
you still have to rent someplace else to stay.

maintenance costs are also not minimal, and a reasonable estimation is about
2% of your purchase price every year. on an older home, this is going to be
more.

those things apply to everybody in the rent vs buy debate, but for hackers
specifically we need to think about opportunity cost. with an apt you may have
security deposits, etc, but you dont have a massive down payment. that
downpayment could be used for giving a startup a longer runway or even just
helping give you peace of mind that you would have a cushion if things at your
job didnt work out.

buying a house isnt "bad," but it isnt as good as most people like to think
(meaning the default play for everybody shouldnt be to buy a house). if you
dont know where you will be in a few years, let alone 5-10, then it is almost
definitely not the best decision to buy a house unless you have enough money
where it just doesnt matter.

in short, most people underestimate the true cost of a house and overestimate
their likely returns. buy a house when you can afford to pay for the comfort
of home security. dont buy a house as an invesment unless you can prove that
it will yield a better return on your money than your other options.

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sardonicbryan
From a very macro level, buying a house is like making a highly illiquid,
incredibly non-diversified investment. The returns can be strong, but it's
definitely a higher risk play than other investment vehicles.

Personally, I'd only do it for a place I really wanted to live in, and a place
I could afford without worrying about rental income or appreciation. Then, you
have a longer time horizon to recoup your investment, and at minimum you are
buying cost certainty, which is something that you won't get in most rent
situations.

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antifuchs
Be careful that you're not falling for the "honeymoon" part in the culture
shock curve: <http://en.wikipedia.org/wiki/Culture_shock>

I've known quite a few people who moved somewhere, made big commitments, only
to find out that they just couldn't deal with the new place after a year.

IME, it's best to first live there (rent!) for a year, figure out if it's
right for you still, and then go for it (-:

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r00fus
An alternative (more feasible in suburbia): buy a duplex or multi-unit
dwelling, live in one and rent out the other(s).

That's what we did, and though a bunch of our savings lost it's liquidity (now
encased in real-estate as a down payment), our equivalent rent is about half
of what paid before (esp. including tax deductions)... it's like an investment
with a great return, even assuming 0 or mildly negative house price
appreciation.

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pyrhho
For the interested, Khan Academy has an excellent series analysing renting vs
buying at [http://www.khanacademy.org/video/renting-vs--buying-a-
home?p...](http://www.khanacademy.org/video/renting-vs--buying-a-
home?playlist=Finance)

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pors
Here's a couple of reasons not to buy a home:
[http://www.jamesaltucher.com/2011/03/why-i-am-never-going-
to...](http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to-own-a-
home-again/)

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Zarathust
There is also the possibility that the mortgages rates will hike. This seems
unlikely right now but if you take a 30 years mortgage... it's longer than the
average marriage these days so anything can happen

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Turing_Machine
IMO, this would definitely be a poor time to get into an ARM. I expect severe
inflation coming down the pike over the next few years. If you decide to buy,
it should be fixed rate all the way. :-)

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goodweeds
Your number for SF is a bit outdated, add an extra $1k.

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michokest
Last time I visited it was a homeswap :) I'll edit that, thanks!

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timr
The parent is wrong. $2-$3k is still quite reasonable as a rent number in SF.

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goodweeds
I've spent the past 4 months obsessively browsing craigslist. This summer I
moved out of an apartment (non rent-controlled) because my rent was increased
from $2850 to $4,150.
[http://sfbay.craigslist.org/search/apa/sfc?query=&srchTy...](http://sfbay.craigslist.org/search/apa/sfc?query=&srchType=A&minAsk=2000&maxAsk=3000&bedrooms=2)
is a search of 2br apartments in the city of san francisco, all neighborhoods.
It returns 253 listings. Raising that to 3000 -> 4000 gives you 265 listings.

If I exclude the neighborhoods where I wouldn't live due to distance, safety,
or a dislike of feeling like I'm in the burbs (bayview, excelsior, ingleside,
north beach (fuck tourists), portola, richmond/seacliff, sunset, tenderloin)
treasure island) then those searches
([http://sfbay.craigslist.org/search/apa/sfc?query=&srchTy...](http://sfbay.craigslist.org/search/apa/sfc?query=&srchType=A&minAsk=3000&maxAsk=4000&bedrooms=2&nh=1&nh=2&nh=149&nh=3&nh=4&nh=5&nh=6&nh=8&nh=11&nh=12&nh=14&nh=15&nh=16&nh=10&nh=20&nh=24&nh=17&nh=18&nh=19&nh=21&nh=164&nh=25&nh=27&nh=29&nh=118&nh=114&nh=30))
drop down to 106 and 184 apartments, respectively.

The competition for apartments is fierce right now due to a combination lack
of credit keeping people leasing rather than owning, and the current tech
bubble having imported 10s of thousands of new dot-commies happy to spend 50%
of their salaries on housing, because they're young and stupid.

If you make under $150k, are fiscally conservative and don't want to live with
roommates, then you're priced out of San Francisco.

