
Throwing Money Away (Buying vs Renting) - samueladam
http://messymatters.com/2009/06/01/buyrent/
======
ssharp
I've always been an opponent of the "throwing money away" argument. In fact,
the argument played right into the housing bubble. There was a sense of
urgency that you HAD to buy a house now or else.

Renting provides you near elasticity in where you want to live. Besides your
lease (which could be month-to-month) you have nothing binding you to an area.
You also don't face the risk of a declining asset. While housing typically
increases in value, we've certainly seen the opposite happening a lot lately.
When you're young, you probably don't want to be tied down to an area. Things
change quickly at this stage in your life.

Ironically, a lot of these people who were afraid they were "throwing money
away" while renting got into situations where they literally were throwing
money away to PMI and too large of interest rates.

If renting was such a god-awful idea, it wouldn't exist. There are tons of
reasons to rent instead of buy and anyone who insists that home ownership is
the only way is foolish.

~~~
ahoyhere
Renting in the US also means you are not responsible for:

* leaky roofs

* broken appliances: clotheswashers, water heaters, etc

* maintenance of a/c, heat, etc.

* maintenance of water pipes, electricity, etc., etc.

* upkeep of lawn, sidewalks, driveways (except in rare cases)

* building safety compliance

* fixing damage from floods, storms, earthquakes, etc.

* worry about termites, the foundation, the well, property line disputes from faulty surveys (the latter occur ALL THE TIME in the US)

* building insurance (renter's insurance always a good idea tho)

* personal liability for visitors hurting themselves on the lawn, sidewalks, driveway, inside stairs (anywhere outside your actual unit)

I could go on and on... if you own a condo, you are subject to surprise
"assessments" to care for the building/property amenities, but there's
insurance for it. If you own a house, it comes out of your pocket. And if you
make claims against accidents (tree falling, storm ripping off siding, etc.)
on your homeowners insurance policy for damages, their habit of late is that
they will drop you. (Lots of scandals about this.)

Renting means very little exposure to this kind of risk, or surprise housing
costs, in addition to flexibility to leave.

Homeownership pr0n is really out of control.

------
euroclydon
Encouraging buying instead of lending discourages a flexible labor market.
Basically the government, with the mortgage tax break, is lining the pockets
of developers and home builders, and making it difficult or expensive for
families to move where there is a higher paying job or even better school
district.

~~~
yummyfajitas
It also encourages boring lives. I recently had occasion to talk with several
homeowners.

My plans over the next year? Move to Kerala, learn Kalaripayattu and work on
my startup. Several renters had similarly interesting plans.

Every single homeowner (or homeborrower) had plans to remodel some room of
their house.

I'm firmly convinced that a home is nothing more than a ball and chain.

[edit: changed 'similar plans' to 'similarly interesting plans'. A reply to
this post made me realize it was unclear.]

~~~
tptacek
That's nice, because I'm sure if you talk to 100 renters, most of them also
want to move to Asia and start companies.

Sheesh.

~~~
yummyfajitas
One had plans to move to north dakota, play guitar and learn to shoot. One
planned to follow his job to wherever. Overall, the plans of renters were
simply more interesting than those of owners.

Orthogonality is good. If your investments are tightly coupled to your
lifestyle, you will have less freedom.

------
wysiwtf
The NYT has a good rent vs. buy calculator:

[http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...](http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html)

~~~
nradov
For the mathematically inclined here is another one that accounts for more
factors.
[http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req...](http://randolfe.typepad.com/randolfe/2006/04/bubblizer_a_req.html)

------
cturner

        3. Leverage. Buying a house is the only way normal
        people can invest a huge amount of money on margin.
    

That's a reason against it, not in favour.

Would you borrow 300k so as to invest in a fixed term bond on residential real
estate with hefty exit penalties?

The cult of home ownership puts a respectable shine on brazen gambling
practices. :)

------
ars
It's really not that complicated, maybe if I write it in code people will
understand:

    
    
      if( {current value of house}*{interest rate} + {taxes} + {insurance} + {maintenance} < {rent} )
        return 'buy';
      else
        return 'rent';
    

_Ignore_ any change in the prices of houses! It has no bearing on the
decision.

~~~
igrekel
You forget costs for insurance and maintenance of the house. Plus the costs of
having your money tied up in a illiquid asset. And lets not forget that a
house takes time and is something on your mind. Time is probably the asset I
personnaly value the most. I purchased a house a few years ago (after many
many years of renting by choice) and the cost in time is VERY annoying for me.

~~~
ars
> You forget costs for insurance and maintenance of the house.

I did. I just put them in.

------
msluyter
I think his arguments are quite reasonable, but his example is a poor one. A
Manhattan apartment is a fairly atypical sort of real estate investment, imho.
I live in Austin TX, where real estate has managed to weather the storm much
better than average over the last couple of years, and I'm much better off
having bought than rented, even though I bought my condo in 06, at the height
of the housing bubble.

That's also an atypical example, I know, and so I wouldn't want to generalize
from my case alone.

------
param
I don't think the situation is so black and white. I have always preferred
this approach above everything else:

[http://www.thesimpledollar.com/2007/02/27/renting-versus-
buy...](http://www.thesimpledollar.com/2007/02/27/renting-versus-buying-are-
there-situations-where-renting-clearly-wins/)

------
vaksel
One huge plus of buying vs renting, is that when you buy you can get a home
equity line for emergencies. A huge line of credit at very low interest rate,
that doesn't expire, or change due to future events.

~~~
ars
If you were renting you would have that money (that equity) in your pocket,
and wouldn't need to borrow against your house to have access to it.

~~~
anigbrowl
Vaksel is wrong, but so are you. If you were renting you wouldn't have any
equity to appreciate (in the form of title to your house and the difference
between what you paid for it and the current market value) so it would never
be in your pocket to begin with.

~~~
ars
You missed the point. If you were renting you would not have paid the money
that otherwise went to principal - that money would still be in your pocket.

~~~
anigbrowl
But nor would you get any benefit if the value of the property you were
renting had appreciated, though obviously this is balanced out by not having a
millstone around your neck when property values crash during a recession.
Having both bought and rented, I don't think there is an unambiguous financial
benefit either way. Renting gives you more temporal freedom (as in being able
to just walk away and move to a better place or another country), a sensible
buy can give you more financial freedom (as in a large chunk of collateral).

~~~
ars
> But nor would you get any benefit if the value of the property you were
> renting had appreciated

If you want to invest in real estate you can. You don't have to live there.

------
semiquaver
At least no renter is upside down on their mortgage right now.

~~~
jbarciauskas
Yes but many many landlords are, which cause some very sad stories of people
being kicked out of their house or apartment because the bank foreclosed on
the landlord. Renters have almost no rights in that situation.

~~~
jraines
Yeah, and sometimes the renters first notice is the deputy showing up telling
them they've got 2 hours to get out before the locks are changed. Apparently
there are cops in Vegas working 12 hour days just doing evictions.

~~~
asciilifeform
> there are cops in Vegas working 12 hour days just doing evictions

They had better hope that there will never be a revolution which results in
class-traitors being correctly dealt with.

