
Throwing Money Away (Buying vs Renting) - shawndumas
http://messymatters.com/buyrent/
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mililani
I think this may be in response to the whole San Francisco being the most
expensive place to live. In that thread, people are arguing whether it's more
expensive to rent or buy.

I've looked at this many times, and I have done A LOT of research. Ultimately,
buying may not be more better than renting, and vice versa. It really depends.
The NY Times has a very good Buy vs Rent calculator:

[http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html?_r=0)

I highly suggest using it to determine whether to buy or not. The biggest
problem, though, is there are some assumptions that need to be made that can
drastically affect the outcomes. Most importantly: average annual appreciation
in rents and home prices. Another is average annual returns on investments and
rates of inflation.

The best way to figure these out are to find historical data. I use Redfin to
look at houses currently on the market and prices sold 20 to 30 years ago. I
also go to the local city hall to look at housing records. For rents, I do a
lot more analysis. Anyways, the bottom line is, housing prices should not and
usually DO not appreciate faster than inflation. More specifically, median
wage growth. And why is this? Because if housing prices increased faster than
wage growth, even by 1%, then after 40 years, housing would no longer be
affordable. I don't see why people have such a hard time understanding this. I
personally like this blog:

[http://michaelbluejay.com/house/appreciation.html](http://michaelbluejay.com/house/appreciation.html)

He also has a really good buy vs rent calculator with some decent assumptions.
You will want to check regional differences, because, obviously, SF and NYC
are places that may differ a bit in terms of appreciation and inflation rates.
Anyways, I would suggest anyone who is interested in the buy vs rent argument
to read that, and then look at their local appreciation rates for housing
prices/rent. Assume 2.5% inflation. And then, make a very conservative
estimate on the returns of their portfolio (4%). I would then plug and see
what the calculators say. I like Michael's calculator more than the NY Time's
calc, by the way:

[http://michaelbluejay.com/house/rentvsbuy.html](http://michaelbluejay.com/house/rentvsbuy.html)

It goes past 30 years.

Also, if you're making an apples to apples comparison, I've found that
typically, buying is way better than renting. However, if you're making an
apples to oranges comparison, renting a 1/2Br apt. vs buying a 3Br house, it
usually always turns out that renting is better than buying. I've done this
calculation many times, and invariably, that's what I've learned.

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alok-g
>> Crazy tax incentives. Mortgage interest is tax deductible in the US and
capital gains from selling your home is largely tax-exempt. As part of the
current fiscal stimulus plan, many first-time home buyers even qualify for an
outright gift from the government of $8000 just to buy a house.

Even this nay not be a valid reason for buying against renting. This would
just lead to more buying power for buyers and raise the selling prices of the
homes till a good fraction of the tax/gifts actually disappears.

If the market were 100% rational, which includes rational decision making,
having access to all needed data, etc., then buying and renting would end up
being equal except for transitory effects. Since however, more people are
inclined to buy due to various myths, renting should actually be better than
buying for those who realize that those are just myths. This is because the
myths would raise the prices of buying artificially beyond what they should be
in a rational market.

However, even this is not necessarily true since there are still more factors
coming from myths and human irrational behavior, unavailability of the needed
data, etc. because of which the problem becomes way more unpredictable to
solve rationally even for those who are rational.

My conclusion has been that you must therefore look at your specific case, and
the locality you are living in and figure what is better for you. Here [1] is
the most complete and sophisticated buy-vs.-rent calculator that I have seen,
which takes all important quantifiable things into account. The issue of
course again is that you have to feed in your own future predictions about
where the market is going to make a wise decision out of it.

[1]
[http://michaelbluejay.com/house/rentvsbuy.html](http://michaelbluejay.com/house/rentvsbuy.html)

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bicknergseng
>> The condo maintenance fees would then be $1000 or so per month.

Does this condo in Harlem come with a pool and 3 acre managed lawn?

~~~
alok-g
It does feel that maintenance expenses are sometimes overestimated. $300 per
month someone else suggested to me sounds more reasonable (I have no own
experience on this). It should be noted however also that maintenance expenses
at $X per month are not spent every month -- rather there may be some steep
expenses a few times during a 30-year loan term, which may average to that $X
per month.

