
Renting is Throwing Money Away, Right? (2015) - vinnyglennon
https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
======
phamilton
These articles always ignore leverage.

Generally, with 20% down you are leveraged 5:1. So even if your home is just
keeping pace with inflation of 3%, you actually experience 15% growth on your
investment. To use the example in the article, if your investment doubled
between 2009 and now, your $200k in a $1M home just became 1.2M. 6x growth
beats out 3x growth in stocks in the same period.

Sure, you can be leveraged in other investments but (1) your interest won't be
tax deductible, (2) your interest rates won't be nearly as low, and most
importantly (3) you won't be able to borrow with no recourse (depends on the
state law, but "no recourse" means your downside on a primary residence is
limited to the equity in the home. If you default on the loan they can't come
after your other assets.)

Does it mean renting is a bad idea? No. There are plenty of reasons it might
make financial sense to rent. But articles like these should accurately
discuss the financial upside of buying.

~~~
klipt
> Generally, with 20% down you are leveraged 5:1. So even if your home is just
> keeping pace with inflation of 3%, you actually experience 15% growth on
> your investment.

But if inflation is 3%, you're probably paying 3% (or more) interest on your
loan.

So suppose your home costs X. You pay 0.2X downpayment and borrow 0.8X through
your mortgage. The first year your home appreciates to 1.03X but you also pay
around 3% of 0.8X = 0.024X in interest. So your gain is 0.03X appreciation -
0.024X interest = 0.006X: which is exactly 3% of your 0.2X downpayment! Looks
like the leverage didn't help in this scenario at all.

Of course if you bought in the Bay Area a few years ago you made bank, but
that's because the growth here happened to be much _faster_ than inflation,
even without leverage.

> Sure, you can be leveraged in other investments but (1) your interest won't
> be tax deductible, (2) your interest rates won't be nearly as low, and most
> importantly (3) you won't be able to borrow with no recourse

(3) is true, but you can buy stocks on margin, the interest is deductible as a
business expense, and interest rates are often _lower_ than mortgage rates.

~~~
ProAm
Your forgetting the tax write off of mortgage interest. Which needs to go into
you equation no? That can be sizable.

~~~
dingaling
That's a uniquely American benefit. Most Western mortgage-payers have to pay
out of post-tax income.

~~~
scarface74
As well as most Americans. You can either take the standard deduction of
$24,000 as a couple or itemize. Most Americans don't buy homes where the
interest is high enough to be over the standard deduction.

------
code4tee
The “pro renting” crowd has a lot of consistent falacies in arguments:

\- Financial calculations ignore the leveraged nature of buying a home. Small
increases in property value are multipled relative to your initial investment.

\- Calculations also often assume someone just pays the minimum mortgage
payment for the full term of the loan. Even small additional principal
payments (which most mortgages allow without penalty) drastically reduces the
duration of the loan and interest paid.

\- “I don’t want to pay those high real estate taxes.” Renters still pay the
same real estate taxes, it’s just baked into the rent and can’t be deducted
from taxes.

\- The tax system is very biased in a favor of home ownership. You basically
get penalized at tax time if you don’t own your home as expenses both owners
and renters “pay” (property taxes, mortgage interest) are only deductible for
the property owner. This can make a huge difference. A renter paying $2000 a
month in “after tax” money is spending a lot more than a home owner spending
$2000 a month but paying the interest / propert tax portion of that 2k with
pre-tax money!

\- Capital gains from home ownership are also tax free (up to half a million
in gains for couples).

~~~
monkmartinez
I own my home in a relatively cheap COL area... I would rather rent. Houses
nickel and dime you to death. The expenses pile up at both the front and back
of the transaction... that is, when you buy and finally sell.

Please show me how the small increases in property value multiplies my initial
investment. The problem is most people don't move sideways or down... they
move up, thus negating any windfall in investment prowess. Timing, once again,
can make or break you and timing is a fool's errand.

Renters don't always pay the taxes. There are several rentals in my
neighborhood that are less than the mortgage. Once you cross a threshold of
monthly rent, the market for available renters shrinks rapidly (Unless we are
talking bay area). I mean... there are very few people spending $3000 a month
in Phoenix renting.

I agree about the tax system bias toward home ownership... but there are ways
to beat that. Starting or having a small business being #1. We could get into
many ways to beat the tax system... but lets suffice to say that homeownership
isn't really "beating" the tax system.

That "savings" on tax isn't savings... it is rent on top of rent... let that
sink in.

~~~
Simulacra
My renter pays for my mortgage which includes principal and interest, landlord
insurance, and taxes. Not to mention an additional $380 a month and profit
that I put towards the principal and my 401(k).

~~~
Ajedi32
This is perhaps the biggest argument in favor of ownership. Unless your
landlord is _losing_ money on the deal, the price of rent takes _all_ other
costs of ownership into account and then adds more on top of that.

If you're renting, you most certainly _are_ losing money on the deal vs. what
you'd pay if you owned _exactly_ the same property.

~~~
conceptpad
That's the simple logic of rent vs. buy, but as the article details, there are
other considerations. Opportunity cost being one primary cost that you're not
taking into account. To me the most important question is the most
fundamental: "Am I a real estate investor?" \- I am not, and the overwhelming
majority of persons are not. And yet the moment we purchase a home, we become
real estate investors. In my case the simple fact that I've only purchased one
property in my entire life means that I'll do it with less education and
awareness than my landlord did when he purchased the home I currently,
comfortably, live in. I think my landlords own and rent more than a few
properties, and they do a great job of managing them. I am not confident that
I would manage this asset as well as the professionals do, and so I cannot
claim that were I to buy this home from them with a mortgage, that I would
gain anything. In my opinion this is the key fallacy within the argument
favoring the Buy option.

~~~
lmm
If you intend to live in a home for the rest of your life then you're
effectively short one home (or half a home if you're going to share). So I see
buying your primary home as more like covering your short than making a
positive investment in real estate.

~~~
CamTin
This is an incredible way of putting it. I'm not sure if I like what it
implies, though, but I'll definitely be mulling it over. It's not a perfect
analogy to securities shorting, because no one is going to lend you a house to
immediately sell, so effectively all us renters would actually be _naked_
short-sellers!

Maybe there is a business model in lending out houses so people can short the
housing market? Again, not sure how that would work since houses aren't
fungible in the same way that securities are.

~~~
Simulacra
Lending out houses.. Explain. I'm intrigued. My long term goal (we're not
counting my husband here) is to buy a townhouse, live in it for a few years,
then rent it out and buy a free standing house - with a backyard! Now we'll
have two or more rental properties in competitive markets hopefully bringing
in some income. I've been extremely lucky with the house I own now. Good
tenant that I did not raise the rent on at renewal. $380 is plenty for me. She
knows my goal is to protect the house, not make money off of it, so maybe I'm
not the best person for an example in real estate investment.

~~~
CamTin
The way it works with securities is:

I own a stock. You think the price will go down. To make this bet, you borrow
the stock from me. You then immediately sell it at the current price. Later,
if the stock is down, you can buy it back at the new (lower) price, give it
back to be, and pocket the difference. If, unfortunately for you, the stock's
price has actually gone up, you have to either continue to pay for the carry
on the position (essentially paying me rent for my stock), or else take the
hit by buying the stock at a higher price, giving it back to me, and eating
the difference.

The analogy doesn't quite work with houses, because they're not fungible. I
don't care which specific share of stock I get back, because they're all the
same. I DO care which specific house I get back if I rent it out to you.
Furthermore, I would be REALLY mad if I rented you a house and you then sold
it to someone else, since that is just flatly illegal.

Still, I wonder if a lot of the structural problem with housing markets is
that there is insufficient short pressure. In other words, there is an obvious
way to make the bet that prices will go up (buy one), but no obvious way of
making the opposite bet, unless you already have a house, and decide to sell
it and begin renting, which hardly anybody does.

How can we let ordinary people short housing in their area?

------
Johnny555
There's another intangible benefit to owning if you know you're going to stay
in the area long term -- you can't be forced out of your home.

I was forced out of one home I rented due to owner move-in, which led to a
stressful 30 days of trying to find a new apartment in a tight housing market.
We managed to find a place outside of the city, but close enough to transit
for a manageable commute. And rent was about the same, though for an apartment
half the size.

And then, as housing prices continued to rise, _that_ apartment raised the
rent 25%. Fortunately, they gave us 60 days notice, so we started looking
around for an affordable home to purchase (even farther away, but still near
transit), and found one where the PITI+HOA was less than the new rent would
have been.

Rents have continued to rise (as have home prices, our home is now worth about
twice what we paid for it 5 years ago, this market doesn't seem sustainable,
but hopefully after the next crash we won't be underwater on the mortgage).

~~~
cperciva
_There 's another intangible benefit to owning if you know you're going to
stay in the area long term -- you can't be forced out of your home._

Well, you can. The city decides to put in a new subway line and your house is
where they want to build a station. Or (depending on your local laws) the
other members of your strata corporation vote to sell the building to a
developer who wants to tear it down and build a tower.

But sure, it's far less common for someone to be forced out of a home they
own, and when it does happen there's typically _years_ of notice.

~~~
elif
Well, in that very obscure case, you are generally legally obligated to
something like 110% of market value, so you can't really compare that to e.g.
being thrown out because tony said so..

~~~
im3w1l
How fairly are market values calculated?

------
fdr
The strictly financial part of the calculation is important, but personal cost
of volatility may be even more important for those in a position to choose to
rent or buy. I suggest it should also give pause to those who plan to build
extensive social capital somewhere long term, but continue to rent.

I view real estate ownership as a personal hedge. As we've seen in San
Francisco from displacement of those in less lucrative sectors, rent that
floats exposes you directly to the prosperity -- and inflation -- of all
sectors in a region: in the future, that sector may not be your own. Property
taxes expose you to this effect, but it is attenuated in magnitude (doubly so
by California's Prop 13). The inflation of rents rendering your employment in
a sector in a place obsolete is not so important if you can pick up and move,
but it can prove socially expensive (and not priced in) if you have roots, are
a contributor to civil society and/or have children. I feel badly for
lifetime-renters-by-necessity those whose social capital is wiped out by these
fluctuations without any compensation.

As I see it, buying reduces the cross section of your outgoing flows to more
radical local fluctuations, binding it to fixed or more moderate
internationally-floating indicators (like ten-year treasuries, or LIBOR).

Notably, no major family outgoing flow is so volatile: groceries have similar
costs nationwide. Many other goods are globalized, have substitute options,
and little friction: housing stands out as the big exception.

I also suggest that marriage-house-children is not mere tradition, though it
is that too. It is also a recognition of the increases in cost of volatility
to the family unit: finding mutual job opportunities, and then the complexity
of transplanting a child.

~~~
loxs
What if you build "social capital" in a place where most people rent... then
situation changes and most of your social contacts move away, because it's no
more economically feasible to live there? What happens to your social capital
then?

~~~
emodendroket
Yes, and what if you are shot to death?

It's very unlikely that all your contacts and family and friends are going to
move away all at once. As some people leave presumably new ones are also
coming along.

------
zw123456
I recently did the math on this myself, I just sold my Condo and right now I
am renting while looking for a house. I have all cash so I can ignore interest
rates which makes it easier, I also have a pretty good wealth manager so I
have a pretty good idea of what my return will be if I invest the money in
stocks and bonds and rent rather than buying a house. For me, renting comes
out ahead strictly looking at the dollars over time, by a pretty good margin.

But, guess what, I am buying a house anyway for one very simple reason. I want
to own my house and be able to do whatever I want. I am getting a place with a
big basement and it will be my dream lab, with all my computers, 3D printer,
test equipment, soldering station and so on. I could never set something like
that up in an apartment. To me that is more important than the money.

~~~
pwinnski
In Dallas, renting is generally more expensive than buying, and yet I'm still
happily renting. In fact, I'm moving next month from my current 3-bedroom 1500
sq ft apartment to a (slightly-nicer) 2-bedroom 850 sq ft apartment, and
cutting my monthly payment by more than a third. I previously rented a
3-bedroom 1500 sq ft house that was slightly more than the big apartment, and
before that I owned an even bigger house for 13 years.

I know the numbers make it a good idea for me to buy, but I'm renting an
apartment anyway, and enjoying the flexibility. If I still owned a 1500 sq ft
house with three bedrooms for my kids, I'd be "stuck" with that house and the
associated costs now that they've grown up and moved out. Instead I get to
downsize as easily as signing a different lease, and I still have no
maintenance responsibilities. To me, _that_ is more important than the money!

~~~
zw123456
Ya, sometimes there is more things to consider than just the money, depending
on your priorities.

------
ShadowFaxSam
This same principal can be applied to buying or leasing a car. When I first
graduated college and had my first "adult" job I wanted to purchase my first
car. The general mantra I heard was "Leasing is throwing money away". I ended
up financing my first car, (used) thinking I was making the correct financial
decision.

The problem with someone fresh out of college buying or financing a car is
they really have no idea what they're next 3-5 years have in store (change in
cities, jobs, etc).

My friends who went the leasing option were making considerably lower monthly
payments and were able to move on to another car at the end of the year with
no difficulty, or could move to another city without carrying a multi-year
financial obligation.

I ended up moving to Europe before I had even completely paid off the car and
had to sell it at a loss.

I wish I could go back and simply lease a car for my first few years out of
school before I figured out where my career would take me.

~~~
Aaargh20318
If you're talking about leasing/financing, then I'm assuming you're getting a
new car. Why does your first car out of college have to be a new car ? Why not
just buy a cheap used car outright ? You can get something that'll last you a
couple of years for €1000.

~~~
gambiting
So I can tell you the rationale for why my sister is getting a brand new car
straight after uni - she lives in a foreign country, with no family/friends
around and zero car maintenance skills. So it's far easier to buy a new car on
a very low monthly finance, where she knows that if anything happens she has
warranty for 4 years + full assistance, no need to risk getting ripped off at
some random garages. Plus the car is far far safer than some old beater you
could buy for little money, which means the insurance at her young age is
really cheap. I fully support that decision.

~~~
BeetleB
How much would it cost you to find out who the most reliable mechanics in the
city are? And to learn the (very, very) basic maintenance skills?

I think paying $1000 for that knowledge would more than cover it. Why pay a
lot more _not_ to gain that knowledge?

------
maxander
A good way of looking at the “hidden cost” of buying your home- when you get a
mortgage to buy a house, you’ve simply shifted from renting your home to
renting _the money used to buy your home_.

Since your house and that cash are (sorta definitionally) worth the same
amount, which you do makes less of a difference than you would think. (And no,
it doesn’t matter that the mortgage money is “rent to own”- as the article
points out, a home-renter could have just as easily been putting that extra
cost into stocks the whole time.)

~~~
crispyporkbites
This is the best way to think about it. You're renting the money and choosing
to invest it in a house.

Of course no one would ever give you half a million in cash with a 50k
deposit, so even if there was a better place to investment the money (e.g.
stocks) you couldn't put it there anyway.

A mortgage is probably the only way a common person can get this kind of
leverage and invest in any asset class. It's really unlikely you have access
to some other capital at a cheaper rate (even though a mortgage at 90% loan to
value can be expensive, it's almost always the cheapest form of a "normal"
person will get), so it usually makes sense to get one.

------
elvirs
I guess the main determinant should be mobility. If you are 23 and you dont
have a career yet, want to go to a law or medical school, do your phd or
whatever then chances are next 5-10 years you will be moving a lot and have no
idea where you will end up settling down. In such cases having had committed
to such an investment is a bad idea. But if you are 30 years old registered
nurse married to your high school sweetheart who is a teacher and dont plan
moving anywhere then buying is absolutely a safer bet. I dont know about other
parts of the country but here most of the good areas of North East region
mortgage is cheaper than rent. Most people buy a 4 bed 2 bath house and sublet
the top floor or something making sometimes more than half of their mortgage
payments from subletting. I think its an awesome investment if you purchase it
at the bottom of the market, not on the peak, even if you buy at the peak over
the course of 30 years you will end up having made a good investment unless
your town goes to shit for some reason. And just like any market, housing
markets goes through ups and downs and since its such a long term investment
you are better off holding off 5-10 years to wait for the lows of the market
meanwhile saving up for the down payment.

~~~
paulsutter
Several of my friends have bought a new house whenever they move, and rent our
their prior house instead of selling. It has worked out really well for them.
Past performance is no guarantee of future returns, of course, but it's worth
considering

~~~
elvirs
they get approved for a new mortgage every time they move while the old one
isnt even 10% paid off?

~~~
vageli
I don't know of many lenders that will give you a mortgage with 10% down.

~~~
gambiting
Really? In UK it's not unusual to get approved with as little as 5%.

~~~
emodendroket
I'm guessing in the UK 30-year fixed-rate mortgages are not the norm.

------
dkural
Mortgage interest tax deduction, especially for high-tax-bracket people, is
often a major factor in calculating returns and should not be looked over for
any 'opportunity cost' based arguments. It's also worth noting that most
people, compared to a mortgage, don't have access to similar financing at
similar interest rates for any other kind of investment/venture and have no
hope of breaking out of a month-to-month living situation. 15 years may seem
long, but eventually owning a home & not paying rent during retirement, having
an asset to borrow against for a child's college or a health emergency, is a
decent prospect for most people.

~~~
oillio
The article takes tax deduction into account in the calculations. It also
discusses most of the other things you mention as well

------
KKKKkkkk1
Since housing is an emotional subject, let's try to argue by analogy.

I regularly buy lots of dairy products. Milk, yogurt, cheese. Why shouldn't I
save some money and buy myself a cow instead? That way, I could satisfy all my
dairy needs, and maybe even have some extra milk to sell to my neighbors. No
more making the dairy farmers rich at my expense.

Now, assume that I sell my cow ten years later. And let's say that cattle
prices grow 3% annually. (As we all know, cattle prices can only go up.) Will
my cow investment yield me a 3% annual profit, given that my cow has gotten
older and I must have made significant investments to feed it and keep it
healthy?

~~~
chrisseaton
So what are you arguing? You’ve just posed exactly the same questions we
already had but in a cow theme.

~~~
_Tev
He is arguing that it is not clear that "buying cow is obviously better".
Because many people really do argue like that when it comes to rent vs. buy.

~~~
emodendroket
The analogy seems obviously flawed. You can get the world's best cow and give
it the world's highest standard of care but there's no way it's going to live
over 100 years.

Additionally, while I don't want to downplay home maintenance, I don't think
it's as big a responsibility as taking care of and regularly milking a cow.
And it's not like you might have a week here and there where you don't really
need lodging.

~~~
_Tev
Actually you perfectly illustrated why it's in fact great analogy - nobody
listens to other side's argument, everyone is "obviously right". Or other
side's arguments "obviously flawed".

------
imbur
Home buyers often overlook the cost of selling their home when considering if
renting is cheaper. That is 6% in realtors fees and another 2-3% in closing
costs. Renting is a great deal if you are not going to live somewhere for 5+
years before moving

~~~
simonsquiff
6% for realtors fees is outrageous! I had no idea it was anything like that in
the US.

Here in the UK, it’s about 1.5%. That can often be haggled down to 1% if you
have an expensive house that’s desirable enough to sell itself. And even that
is getting majorly distributed by online agents, who are offering a flat fee
service rather than % of property, which can be an enormous saving.

At 6% it seems a market with a huge amount of fat, just asking for a new
player to come and disrupt

~~~
rhodysurf
You are missing that the seller pays both his realtor and the buyers realtor

~~~
dagw
Why does the buyer need their own realtor for just buying a normal house?

~~~
rhodysurf
They technically dont, but if youre an engineer like me who is working full
time, having someone work for you to do all the annoying parts of buying a
house for free its a no brainer. If the seller is paying why wouldnt I use
one?

~~~
rory
Since you are paying the seller immediately before they pay the agent, "the
seller is paying" seems like a technicality. In theory, if you could remove
the seller's obligation to pay that additional 3%, you could get up to a 3%
discount on the house.

------
chrisabrams
As a technologist who is a part-time real estate investor, this article, like
many others, fails to take into account the context of the situations that
people can face. There are plenty of situations where buying is better than
renting, and plenty where renting is better than buying.

One major concept that breaks the traditional buy/rent arguments is that today
we have the internet which creates a new type of opportunity: to work in a
different city than where the company is physically located. This greatly
changes the dynamic and enables new types of opportunities. Want to see the
world? Then don't buy because you could live in 10 countries over 10 years for
the same price (or maybe even cheaper depending on where you would have
bought).

Point being, there are times where buying is the responsible decision, but
renting can also at times be the smart decision. Don't let articles like this
influence your decision. Make a spreadsheet, really dig into what are the
pros/cons. I've helped many friends do this, and sometimes buying was the
right decision, and sometimes it wasn't. What are your life goals? What are
your investment goals? There are so many variables at play.

Do what's best for you. I rented for 12 years before I bought. If I had bought
earlier, I would have been less likely to move...moving helped me advance my
career more quickly but meant I rented longer. In the long run that was the
right thing for me as I was able to buy a bigger place in a more expensive
area (NYC vs Dallas). For others that might not have been important or
necessary. Just because one person has a negative experience doesn't mean that
you will to. The responsible thing to do is to understand what _you want_ and
make sure you're making the right decisions to make that happen. Buy or rent
based on that, not the other way around!!!

~~~
saosebastiao
> As a technologist who is a part-time real estate investor, this article,
> like many others, fails to take into account the context of the situations
> that people can face. There are plenty of situations where buying is better
> than renting, and plenty where renting is better than buying.

I think the article very adequately explained exactly what you're talking
about. Did you read it all the way through? It's pretty long, but she
definitely covers how individual situations vary. Her whole point is that
buying based off of a cliche is wrong, and every person owes it to themselves
to analyze their own situation to make that decision.

~~~
chrisabrams
Sure everyone should take into account their own situation, but assuming that
most situation are going to pay the minimum each month...the author's math is
very misleading.

~~~
enderjs
Yea....you didn't read the whole article or you misread it. The author
literally says what you are saying like 10 times.

------
kaishiro
As a commitment averse 30-something perpetual renter I've always felt like I
was "throwing money away" by renting - but having breakages, plumping,
electricity, etc be someone else's problem was how I often justified it to
myself. While I'm sure, like anything, the decision to rent or own is highly
situational this article still gives me some hope that I haven't made _every_
wrong decision when it comes to "build or buy".

~~~
hb3b
I'm your age living in the NYC metro area and had the same feelings. I opted
for a renovated co-op which only cost a few hundred K and has a maintenance
charge under $1000/mo. that includes all utilities. By getting a co-op or
condo you limit your responsibility to what's within the walls. Sure you'll
have the occasional plumbing/electrical issue but for that you can hire a
maintenance guy or neighbor. No need to worry about the big issues.

~~~
GoatOfAplomb
I've experienced the downside of this. If there's a major issue related to
your unit, but it's the association's responsibility, you're at their mercy,
hoping they'll act quickly. I had a rental unit sit empty for 5 months because
of a slow-moving assocation that was reluctant to admit that certain work
needed to be done. (Admittedly, I think I could've gotten it resolved
_somewhat_ faster if I had been living in the unit myself, or at least lived
nearby.)

------
givan
In the housing market there is a useless but with big influence 3rd party that
became so ordinary that nobody questions it anymore.

In eastern europe after comunist regimes fall houses were very cheap and
nobody needed a loan to buy one, they could collect the money in just a few
years, this has changed after eu banking entered the markets and loaning
become something ordinary to buy a house just like in the west this lead to an
average of 10x increase in prices.

If banks will be allowed only to loan money to businesses then the supply and
demand alone will adjust the housing market to real buying power, this will
also lead to more money being pumped into economy instead of keeping artifical
economic bubbles.

Walls became the new gold for "investment" banks to keep their money, this
mechanism is enforced through artifical goverment scarcity and bank loaning.

~~~
a_imho
Well put. Could probably appreciate the genius behind it more if I was not on
the short end of that stick.

------
tobyjsullivan
Another factor I found missing from this article was the inflation of rent
prices over time. Back when I did my own rent vs. buy analysis, I found mostly
as the author did. However, the key argument in favour of buying ended up
being that rent increases seem to far-exceed inflation.

I could only find US trends for the period of 1940-2000 but, over that time,
rents increased 5.32% per year compared to inflation of approx. 3.5% per year.

What this means is that if I don't buy a house now, and trends continue, the
space that I was renting last year for $1500/mo will cost approx. $5,600/mo in
real dollars in 2042 (a 25-year projection) or $2,360/mo in inflation-adjusted
dollars.

This is just one more factor in a complex decision but it seems important to
the cost-benefit analysis.

I implore you to find the data and run the numbers yourself if you're trying
to decide but my prior research did not paint a good picture for life-long
renters.

Edit: It's worth acknowledging that rent protections exist and can keep rents
steady for some. However, these usually require that a tenant never moves
which is an assumption the author made a good argument against.

~~~
Bartweiss
This is the biggest weakness of the article, I think.

Rent growth is included in the Rachel/Owen example, but it's set at 2%/year to
get the 15 year equilibrium. And during the P/R discussion, that rate is
implicit in the analysis of what's an acceptable P/R to buy at. But rent
growth is obviously tied to housing price growth - the highest P/R markets
range from 5% to 10% per year of rent increases, which is exactly what's
driving renters to demand housing at high prices.

On a more theoretical level, we can observe that the article uses national
averages to show that housing prices track inflation. That only holds where
new housing stock is built to match rising populations. More accurately
housing prices track (inflation + population growth - new stock),
substantially changing a lot of these conclusions.

------
oostevo
The New York Times has a fairly detailed rent-vs-buy calculator that makes it
easy to see the effects of changing some of the variables the author talks
about in the article.

[https://www.nytimes.com/interactive/2014/upshot/buy-rent-
cal...](https://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html)

~~~
Simulacra
Very interesting. I put in all of my details. There is no way in hell I could
find anything comparable for $500 or less a month.

~~~
Bartweiss
Yeah, running that tool produces exactly the opposite conclusion from the
article. Renting is easily 50% higher than the break-even price provided.

An interesting experiment: go back and use the article's numbers for "what
does the future hold?" That is, 2% home price growth, 2% rent growth, 8%
investment returns. For me, those numbers say I could rent for $5,000 and come
out ahead. Using the recent-history numbers for where I live, the price
craters to $1,500.

I know the article says "circumstances may vary" a dozen times, but I think
it's still pretty misleading, especially the P/R section. High and rising
housing prices go hand in hand with large rent increases, and rent growth
dominates pretty much everything else in this calculation.

~~~
Simulacra
I live outside of DC now and it's very expensive. Rent is constantly being
pushed up and up, no matter how good of a tenant you are. I'm hoping to buy
again later this year to lock in a stable monthly payment.

------
lath
I own because I like knowing I can modify my living space however I like. I
took out a bedroom to make a home theater, could never do that renting. There
are definitely advantages to home ownership psychologically that can’t be
defined in a dollar figure.

His main point though was that renting isn’t throwing money away. I say if
renting is the better option for you then who cares?

~~~
Jessie_James
An additional point to remember is that many, perhaps most, landlords will put
as _little_ money into their property as possible. After all, it's an
investment, not a living space. As a renter, I had problem such as:

* The roof was leaking, and the landlord patched it ... poorly.

* The heat exchanger in the furnace was cracked and letting CO into the living space. He refused to fix it for over two weeks as I fought him. At the time I was young and did not know better, but this literally could have killed us.

* Our microwave broke, and the landlord refused to repair it. I was not allowed to replace it.

* Our water heater failed. It took our landlord over 3 weeks to replace it.

We finally decided to move and were able to purchase a house for $235k that
was literally twice the size for $200/mo less than we were paying in rent. We
lived there for 7 years and sold it for $417k. I am pretty sure we could not
have invested the $200/mo savings (about $17k) for 7 years and made close to
$170k in profits.

------
code4tee
There are a lot of short term periods where renting certainly makes more sense
than buying. However over a lifetime it’s extremely hard to make the numbers
work out if you only ever rent vs someone that conservatively owns.

That of course also ignores all the non-financial benefits of owning. Many
people just want to own their little part of the world and make it fit just
for them—decor, style, renovation, landscaping, etc. and you just can’t get
that from renting. Being a lifetime renter is just not a lifestyle most people
want—-hence the aspirational nature of home ownership.

~~~
ghaff
That's really the thing. At some point, many/most people want a place that's
their own which they can modify to their liking. And many of them will want a
house of the sort that's difficult to rent long-term. And eventually, when
retiring or looking towards retirement, they're going to want to live
somewhere that can't be sold out from under them or have rent raised to the
point they can't afford to live there any longer.

This IMO is the real rent/buy calculation. Do you value being able to pick up
and move across the country without having to deal with owning a piece of
property? Or do you want to own something that you can make your own with a
fairly predictable monthly bill--except when something breaks?

~~~
bojan
Something always breaks.

But that doesn't mean it's not predictable. If you treat it as a monthly
payment to the repairs fund, you are probably good.

~~~
ghaff
Very large and unexpected things do happen. About 10 years ago, I ended up
with about a $60K bill to correct a chimney that was basically collapsing and
pulling the house down with it.

But I agree with your general point. In the case of my paid-off house, I
figure it's about [EDITED] $1K per month (counting some big projects) for
upkeep (depending on how you count things that are nice-to-dos rather than
strictly necessary) plus taxes and insurance. It is a very old house (early
1800s) so maintenance is probably a bit higher than a more modern house would
be.

~~~
antisthenes
That should be covered by homeowners insurance, at least in part.

That your old crumbling house was under-insured is no argument against
homeownership in any way shape or form, just an unfortunate anecdote.

~~~
dragonwriter
That kind of thing isn't covered by most insurance unless it is caused by a
covered kind of event, and the additional cost of insurance to cover it would,
of necessity, exceed the expected cost without insurance because insurance
companies need to meet all covered costs, plus administration costs, plus turn
a profit.

Insurance makes certain costs more predictable at the cost of making them more
expensive.

------
libertyhouse
Renting or owning from a purely financial point of view is a relatively
straightforward problem and is answered quite nicely with the NY Times Rent
vs. Buy calculator (with the caveat that the calculator has not been updated
to reflect the new tax laws).

That being said, the biggest reasoning mistakes I run across are:

1\. "You pay the landlords expenses plus some profit." Not true. The rental
market is just that - a market that fluctuates with supply and demand. There
are plenty of landlords who are losing money on their rental property.

2\. "Once I have paid off my house I'm done paying for housing." Not true -
you still have taxes, insurance, and maintenance whose costs will most likely
increase over time.

3\. Forgetting about the opportunity costs. Great - you paid off your
mortgage. Now you have $500k in equity. Guess what - if you took that $500k
and put it in a 5 year treasury you can earn a risk free 3% or 15k/year on
that money. Better yet stick it in a broad based index fund and you will grow
6% albeit with more risk. That's your opportunity cost of your equity.

Overall this is such an emotional subject for most. I'm personally glad to see
some push-back on the "buying is always better" argument because its been
dogma for some time.

Edit: fixed typo

~~~
nkohari
> There are plenty of landlords who are losing money on their rental property.

Only until your current lease term expires, at which point your housing costs
will unexpectedly rise (and sometimes quite dramatically). Unless you live in
such an undesirable location that the landlord is desperate for _any_ tenant,
they aren't crazy enough to agree to a lease on which they'll lose money.

~~~
libertyhouse
Not true. Landlords may prefer to forgo a new tenant and keep rent increases
reasonable for many reasons. The cost of tenant turnover can be very high.
They may not want to take the risk of a new tenant over a know good tenant.
The local rental market may not support a rent increase.

I have been a landlord and not raised rents many times. I have also been a
renter and have had no rent increases or very modest rent increases for many
years while renting.

------
neffy
He's assuming that the rent stays constant.

A lot of what he says is correct, but this is a critical point. Buy, with a
standard compound rate mortgage, and you essentially freeze your rental
payment. Yes, for the first few years of the mortgage you won't pay back much
equity - but you can compensate for that if you overpay your mortgage (make
sure terms and conditions allow you to do this without penalty), say by the
amount your rent would have otherwise increased. Do that, and you can make
quite a dramatic difference in the cost, and the duration of the
mortgage...further reducing your rent.

Broadly, house prices track the money supply growth, and money supply growth
is approximately 2x a decade in the USA. Unless you're moving a lot, it is
usually better to buy if you can.

~~~
loxs
No, he is not assuming that. Go read the article again

~~~
neffy
You're right, I didn't get that far... but what he does is actually worse.

He assumes a 2% increase in rent (no, just no) - rents track real estate
increases quite well too, the common link is the cost of the landlord's
mortgage to buy the property, and an ROI of 8% on an MMF. Also no.

All of this is linked back to monetary expansion - in periods of high
inflation, when you also get high returns on MMF's, your rent is equally
increasing rapidly. In periods of low inflation, you don't get those kinds of
return without unacceptable risk.

~~~
Bartweiss
> _He assumes a 2% increase in rent (no, just no)... and an ROI of 8% on an
> MMF. Also no._

I don't think the example was an MMF - isn't it a whole-market index fund?
(The link under that phrase doesn't really clarify, it's just a driver for
internal traffic.)

Even so, I just checked examples for those, and that class of fund has been
earning about 6.5%. That's quite a difference from 8%

The 2% rate on rent isn't insane as a national average, but failure to break
it down still invalidates large parts of the article.

In particular, the P/R section is ruined by that assumption. We're told that
at P/R ~15 Owen and Rachel break even, and at P/R >20 Owen loses badly. But
high P/R is basically inextricable from rapidly increasing rents. San
Francisco, with national-high P/R of 45, has seen 10% average rent increases.
Boston, with P/R of 28, has been averaging 4% rent increases.

Individual circumstances vary, of course, but the toy example is rendered
seriously misleading by overstating market returns while ignoring the fact
that rent growth is guided by home price growth.

------
littlestymaar
> You hold a 5 percent fixed-rate 30-year mortgage

Wait, are you Americans paying 5% interest on mortgage, whitout even counting
insurance? For real?!

Edit: Having looked at other comments in this thread, it looks like interest
are taxe-deductible, which makes it more affordable, but that's also really
weird: it means the gouvernment subsidizes financial institutions to charge
American consumers a lot more than the normal prize …

~~~
rosege
interest rates vary pretty widely around the world. Im guessing you might be
in Europe where rates are pretty low still. In Australia they never dropped
anything like they did in Europe. If you're lucky you can get a loan around
3.9% but lots of ppl are close to 5% here and you can only tax deduct it if
its an investment property

~~~
mrweasel
Just as an example from Denmark: My parents have a house financed with a load
with negative interests.

~~~
rosege
how does that work? does the bank pay them for taking their money?

~~~
mrweasel
The amount is very low, and I'm sure there are fees that will eat any
"profit".

It's important to understand the it's not the bank that lend you the money to
buy your house, at least not directly. You home is financed by bonds, issued
by a sort of credit union. Investors then buy those bonds, pensions funds for
instance. The Danish housing marked is extremely stable, so it's a safe place
to put your money. So some investors will be willing to take a small lose on
buying bonds in homes, in return for safety.

------
PeterStuer
(I wrote the payment plans calculator for asset based finances for a major
financial services company, so I'm not unversed in the matter)

Having been a renter for a long time and a home owner for the last decade, I
can tell you that the latter is far better than the former.

\- The best thing: No Landlord! to tell you what you can or cannot do, fight
over for repairs, or be at the whim of eviction (this will depend on the
jurisdiction, but in most cases a landlord that wants you out e.g. to go live
there herself will manage to evict you)

\- Investing always carries risk. Any investor will tell you that the very
best thing you can invest in is the thing that you enjoy, as that is always a
gain no matter what the financial outcomes of the investment. That said, you
should match your wants to your means. I would say go for a payment plan you
are fairly guaranteed to be able to make, rather than gambling on getting
substantially more income in the future than you are making now. You can do
this by selecting a conservative formula (went for a fixed payment, variable
capped run-time myself)

\- I don't see why the author feels the need to be so derogatory to his
readers with his frankly childish 'special snowflake' diatribes

~~~
sigi45
It feels much saver to be in his/her own home.

No money? Than don't repair stuff. it sucks but is still better and cheaper
than being evicted.

------
cVwEq
Reminds me of a Harvard Daily Stat from 2012, inspired by Zillow data, which
comes to a different conclusion. The Zillow data was based on a larger sample
size as compared to the article above, which I felt was too qualitative.

The Daily Stat: After Just a Few Years, Home Ownership Beats Renting[1]

In three-quarters of American towns and cities, it takes 3 years or less for a
homebuyer to begin seeing savings over the cost of renting, according to a CNN
report on data from Zillow[2].

Factoring in such costs as mortgages, rents, down payments, commissions,
taxes, and maintenance, Zillow calculates that the "breakeven horizon" is as
low as two years in some areas. But in New York City, which has some of the
nation's highest rents, it still takes more than a decade before ownership
makes more financial sense than renting.

[1] Harvard Daily Stat, 9/12/2012 [2]
[http://money.cnn.com/gallery/real_estate/2012/09/06/buy-
rent...](http://money.cnn.com/gallery/real_estate/2012/09/06/buy-rent-cities/)

~~~
nostrademons
I'd be curious how that stat changes if weighted by population rather than
municipality.

The article acknowledges that the calculus is vastly different for major
metropolitan areas like SF or NYC. Thing is - a good portion of the population
lives in those major metropolitan areas. It doesn't do much good to know that
buying beats renting in, say, Kansas or Tennessee if you happen to live in SF
or NYC.

Similarly, I wonder how they'd compare either strategy to the "Move to SF or
NYC for 10 years, make bank, live cheaply, then buy _5_ houses in Kansas or
Tennessee, living in one and renting the rest out. Never work again."

------
tomohawk
We've been living in an era of low inflation for quite some time. When
inflation becomes more of a real issue again, renting is really going to look
like a poor decision next to buying as rents skyrocket. What if this happens
as you're getting ready to retire?

The calculations in the article assume PMI (not putting 20% down) and making
minimum payments. Purchasing a dwelling this way adds risk and expense. It's
better to wait until you have at least 20% to put down (AND 6 months of living
expenses saved up), as you then avoid PMI and prove to yourself that you
actually have the means to take on the purchase of a dwelling. Get the 30 year
mortgage, but plan on paying it off in 10 - 15 years. Its also better to wait
until the market is a buyers market.

Since purchasing a home, I've always paid less than I would have if I rented.
Its now paid off and I don't have to worry about it. Freedom feels really
good.

------
mstaoru
To me, renting vs. buying is a bit like AWS vs. own bare metal in a rack.

With AWS, you can have 1G RAM or 10000G RAM or anything in between, you can
move between data centers without much trouble, and you can cancel virtually
anytime. Once you spent $$$ on your own metal, you're stuck with it.

Renting gives so much flexibility, and even if it's a bit more expensive in
the long run, flexibility pays. Of course, there are scenarios when you don't
want to rent e.g. having kids or elderly parents living together.

------
sershe
Two things this also ignores that for me work out in favor of renting right
now (in Seattle).

1) The options for renting and owning are not the same. We have a ~1300ft
apartment that is just a bit too big for us; it is on the 4th floor and has an
expansive view and southern exposure, which is rather important for me.
There's transit access and groceries/coffee/etc. walking distance. Condos in
Seattle are few, esp. in new buildings. Most of the houses are far from stuff,
are by definition on street level so even under ideal conditions few have lots
of air and view, and vast majority are too big... So, I'm going to be paying
extra for sqft we won't use (we already have unused, unfurnished corners in
1300sqft), the yard that for me is a net negative (maintenance), and loss of
quality in other dimensions (relatively worse view and light). If my apartment
was a condo, I'd seriously consider buying it. As is, it's hard to find a
house that is not much more expensive than rent while ALSO being worse.

2) I haven't done the math for this, but in the end, you die. I don't care how
much I'm worth when I die as long as it's >= 0. So, leaving aside the case of
getting lucky with well-above-inflation appreciation (still, did houses in Bay
Area appreciate that much faster than stock market since 2000 or 2009?)... one
could sell the house in Seattle and retire to Vegas if he were living in
Seattle for job market access only. However, in that case one can probably
retire early and move to Vegas without caring for job market access, on the
difference from the house prices. If one were rooted in the community, selling
the house and downsizing is not an option (in fact I've heard older people in
Seattle complain about this - the value and property taxes go up and up but
they never want to sell out of the community so the appreciation is a negative
for them). There are various scenarios possible, and it's not clear that the
net worth in 30 years is well, worth it - liquid; you may have little time
left to use it, or not even want to sell.

------
baxtr
The topic is almost esoteric, in a sense that they are "true believers" on
both sides that always have the next argument ready why the other side can't
be right. My conclusion is: the whole thing is a classic bet. If house prices
develop really well, you are better off, if not you might be better off
renting (assuming you are comparing same lifestyles). That's like forecasting
the stock market.

~~~
ghaff
And there's also a bet on mobility versus stability. Something comes up in a
year or two that makes you want to move? Renting was the better choice. End up
staying in the same place for a few decades and customize a lot of things to
your liking? Buying was.

Personally, I think this is the biggest factor compared to a lot of financial
calculations that people argue over endlessly of which many of the inputs are
ultimately speculative at best.

------
zwischenzug
I'm fed up of having this argument in London.

I rent, and pay about 2% of the value of the property in a year. I get around
8% on shares over the last ten years.

Renting is an absolute no-brainer for me. People are shocked when I tell them
how much return I get on my savings vs how much my rent is, especially when I
tell them where I live (a 'premium' part of London).

~~~
chrisseaton
I don’t understand why you are arguing in favour of renting with those
numbers.

You pay more in rent than you would do for a mortgage, and you earn less from
your shares than you would do from London property price rises... what’s the
upside of renting in your case?

~~~
nothrabannosir
I was under the impression London house prices rose very little last year?

It turns out it was 2.5%; low compared to the rest of England. Surely the
stress around Brexit is helping depress property value.

[https://data.london.gov.uk/housingmarket/](https://data.london.gov.uk/housingmarket/)

If you could have made 8% instead: good work in 2017. Not commenting on the
rest, but for a 1y data point, it was good.

~~~
zwischenzug
London is falling at around the rate of 1% per month right now.

[https://www.markiteconomics.com/Survey/PressRelease.mvc/5918...](https://www.markiteconomics.com/Survey/PressRelease.mvc/5918dd96cb3c44419125e5ab1662edd7)

as are rents (shares not doing great either), but that's another story.

------
blisterpeanuts
In 1995, I rented an apartment and kept it for 10 years at about $1000 per
month. Total invested: $120,000.

Had I purchased in about 1998 or '99 when I was single, making good money
doing hourly contracting, my then-$200K property would have risen to $500K by
1995 (in the area that I was house hunting). By today it would be $700K or
more.

I was ill-advised by parents to not buy ("Not a good investment and you don't
know where you'll be in five years") and I foolishly listened to them.

Now I own a couple of houses but with a lot of years left on the mortgages.
Oh, how I wish I'd listened to my gut instead of lazily putting off
purchasing! Today I'd have a positive net worth of probably over $1 million,
instead of probably half or one third of that.

To young people in their 20s-30s, I strongly recommend getting some property.
Buy the least expensive condo in the best neighborhood you can find,
preferably with great schools (whether you have children yet is irrelevant).
Live in it a while, then try to buy a standalone house with a bit of land--
either trade up or, preferably, hang onto the condo and rent it out. There are
cycles in real estate, but over the long haul, prices go up.

The best time to buy a house is 20 years ago. The second best time is today.
Words of wisdom that are as true now as they were 50 or 100 years ago.

------
jimmy1
When the goal is to have a roof over your head, between renting or buying, the
better option is to buy. If the goal is to invest wisely, of course buying a
house is worse than say something like an index fund. But the problem is: I
can't sleep in an index fund. A house isn't a depreciating asset. Renting is
not an asset at all. Mortgages are fixed. Rent tends to frequently increase,
skyrocketing at worse.

This article takes the very common scenario: 30 yr mortgage at market interest
rate to compare to renting. Even on these terms its still lopsided. What about
the people who do 15 year mortgage? What about those with large down payments?
What about those who pay a little extra to their mortgage each month?

The _overall_ home market keeps with inflation, but in markets where the land
is trending towards scarcity, you are poised to make money as what happened in
my first home. I like to think those who were lucky to purchase a house in the
valley area before the extreme scarcity made a nice profit if they decided to
sell.

The author fails to find a third point: in many cases, _owning is cheaper_
than renting, especially in my city and cities like it. Rent here is around
1300 for a 1 bedroom 500 - 900 sqft apartment, depending on where you live. If
you want multiple bedrooms, well now you are in 1800-2000 territory for 1300
sqft. You can own a 1800 sqft house for about 850 a month. You can put away
half of your savings from rent for unexpected expenses, and use the other half
to pay the mortgage off sooner, or you can spend it, either way it's roughly
half the cost.

~~~
chrisseaton
> owning is cheaper than renting

This is the key thing! Obviously owning is cheaper than renting, as renters
have to cover the costs of their landlord owning, and then some profit for
them on top of that.

~~~
cosmie
The market tends to decouple from that logic in an appreciating market.

My landlord bought the house I'm in about 10 years ago. His mortgage is a
fixed monthly payment that's locked in from when my house was worth less than
half it's current value. The rent for where I live tracks really closely to
the mortgage rate it'd cost me to _buy at it 's current valuation_. For any
investor that bought a rental right now, they'd barely make anything per
month. But for my landlord that bought 10 years ago, he nets $1k - $1.5k per
month above his costs.

It's also not as straightforward in a depreciating market, either. In a
depreciating market, some property owners may rent a property out at a loss,
with the expectation that the monthly loss is temporary and less than the loss
they'd take it they sold now.

~~~
ghaff
>The market tends to decouple from that logic in an appreciating market.

I don't know how decoupled but I definitely know of cases where someone bought
and has a good longterm tenant and that tenant gets a pretty good rate because
they're profitable, a known entity, and low maintenance.

------
rbosinger
When you have kids it's nice to own because you know what school district
you'll be in and knowing you are unlikely to be forced to move you can provide
some stability for them. I never considered that aspect until I got there
myself.

------
codedokode
> You hold a 5 percent fixed-rate 30-year mortgage.

Is that really so? I've read that the mortgage interest rates are around 2-3%
in Europe (by the way, in Russia they start from 9%-11% and can be as high as
15%).

> A house in 1897 cost the same as a house in 1997, adjusted for inflation.

It is hard to believe, given new technologies that are supposed to make it
cheaper.

Also what the author didn't take into account - she assumes that she will be
able to work forever. But what if you get too old and won't be able to do your
job well? What if you get sick? What if you get fired? What if there is a
financial crisis? What if the company you work at shuts down?

In all of these cases, a renter will be kicked out on the street (I know in
some countries like Finland the government provides free apartment for people
who don't have money, but I assume in US you'll have to live in the street).
But if you own a house then you can live there even if your income drops. You
can live without renovations, you can consume less electricity, you can ask
for a tax deduction, you can rent out a room.

Also, an owner can leave a house or an apartment to his children.

The author writes about opportunity cost, that you can invest your money. But
it is very high risk. If you invest into a private fund, it can become a
bankrupt any time, if you invest into something government-related, tough luck
if the national currency crashes. Investing into a house looks like a more
safe option.

Of course, there are downsides to the mortgage. If you buy a house or an
apartment, it will be probably not in the best location, far away from the
center of the city in an undeveloped area, no good transportation around.
Because the good ones are too expensive.

~~~
vcanales
> But if you own a house then you can live there even if your income drops.

This is assuming you payed off the mortgage, no? Otherwise, at least by the 10
year example given on the article, you’re busted since you can’t make mortgage
payments...

~~~
mantas
In some countries "mortgage vacation" is mandated by law. You can just stop
paying it for 6-12 months if shit hits the fan. Some banks allow re-financinng
to prolong mortgage and lower monthly payments too. There're insurances that
cover your mortgage if you loose your incomes for legitimate reason (injury,
company downsizing etc). Neither of those exist when renting..

------
mhomde
People often fail to take into account that risk has a value. I did some
quantitative analysis (most of that is BS but that's another story) for a gig
and it was big eye opener.

People talk like:

"Well property praises will always go up. It's a good investment yada yada"
but there is a risk that they won't (which often is a sore point). There's
even a risk they'll crash. Many people (at least in Sweden) is so over
leveraged that it wouldn't take that much for the bank to require a mortgage
holder to put in more money to cover the decreased value of the property.

How large risk for a "catastrophic decrease" varies but taking that risk is a
cost in itself. It's the same as with insurance, the less healthy/more risk
you are the more it costs.

With renting you might not have the upside of investment, but you also don't
have to bear the "cost" of that risk

~~~
phamilton
> so over leveraged that it wouldn't take that much for the bank to require a
> mortgage holder to put in more money to cover the decreased value of the
> property

That's an interesting contract. For a primary mortgage that would be very
unusual in the US. (For a secondary line of credit against the home, the bank
would likely freeze the line of credit if the value dropped too far.)

~~~
mhomde
I'm not super familiar with how it works in the US. But here you loan against
the value of your property. If the value plunges you no longer have coverage
for your loan and the bank may ask you to cover the difference. This happened
in the 90's in Sweden where many even were forced to sell their homes when
they couldn't pay.

Many home owners I've talked with is not aware of that this is even a
possibility and refuse to acknowledge the risk. I guess it's one of those
thing one rather not think about :) Another major difference is that in
Sweden, in contrast to the US you can't simply give up the keys to you home
and be rid of the debt (as I think it is in the US) but it stays with you.

~~~
phamilton
It depends on the state, but at least in California there is "no recourse",
which means that if you default on the loan, the bank cannot come after your
other assets.

------
aphextron
Through complicated financial tools with all kinds of different tax
implications, fees, and mental/time burden for management, yes a small subset
of medium to high income people can attain similar returns on investment as a
homeowner while renting in certain situations. But the very backbone of the
American middle class has always been home ownership. It’s a simple,
understandable investment which holds tangible value regardless of it’s
current market price. The tax incentives in the US for the average wage earner
are so heavily skewed toward home ownership that it is almost impossible to
make it into the middle class any other way.

~~~
closeparen
I'm not sure what's simple or understandable about a basic staple of life
whose real value is skyrocketing. It's not at all clear whether the next
generation will actually be able to afford housing at anywhere near current
valuations. Maybe future Americans can afford to allocate a greater share of
their incomes to housing, but the economic effects of the disappearance of all
non-housing consumer spending (as mortgages approach 100% of paychecks) might
not be great for home values. Who knows? Anyway, not simple.

~~~
saosebastiao
Wholesale housing policy reform is what's going to happen. It might take a
decade or so, but it's gonna happen.

~~~
closeparen
Not while the current cohort of homeowners is also the current cohort of
voters.

------
ouid
Rent, in an arbitrage free economy, should be exactly equal to the interest on
the mortgage plus wear and tear on the house.

~~~
KillerRabbitt
There is an old story about a financial economist and passionate defender of
the efficient markets hypothesis (EMH) who was walking down the street with a
friend.

The friend stops and says, "Look, there is a $20 bill on the ground!"

The economist turns and coolly replies, "Can't be. If there was a $20 bill on
the ground, somebody would have already picked it up."

~~~
ouid
I realize I'm analyzing a joke, but dollars on the street aren't assumed to
exist in an arbitrage free economy because there aren't enough actors. The
joke isn't saying that the theory is wrong, it's saying that the economist is
wrong for applying it. In the case of housing markets, if anyone can borrow
money to buy a house for less than they can make on renting that house, then
there are enough people alive that they will do that.

Also, I should mention that this is the zero arbitrage principle and not the
efficient market hypothesis. The efficient market hypothesis asserts that
everything we know about the future value of a house is reflected in the
current price of the house, which is also relevant to the discussion, but not
what I was referring to.

------
sytelus
This article is classic example of misusing math to make an exact counter
point. It ignores the fact that,

\- rents always keeps increasing for renter staying at same location

\- there are significant tax advantages for high income earners

\- people are not usually qualified to make investment decisions that would
consistently outperforme real estate

\- you build significant credit worthiness

\- you get almost 2X or more living space for same or lower expenses

\- in hard times, you can sublet extra room typically generating more income
than investment dividends

\- you get great free public schools, saving tons of money in private schools

\- you have a say in how your neighborhood develops and evolves

------
gigatexal
All I know is I put 10% down, had tenants pay the mortgage by renting out the
three other rooms while I lived in the other one and sold it 3 years later for
100k more than I owed. My outlay was close to nothing on a net basis and it
proved to be a really great tax shelter when I got a raise.

Also I was able to set roots down and get to know the city and feel some
semblance of ownership in the town. That and my mortgage never rose except for
when the value of my home rose with taxes.

------
bobthechef
We can certainly debate the financial benefits of owning vs. renting. It's an
important angle to consider and this article is simply challenging the
automatic assumption that ownership is financially always the sounder choice.

However, we might want to also consider other dimensions, like the social
benefits of owning vs. renting. Is it really good for us as individuals and
for society in general when property is concentrated in the hands of
relatively few people? It's one thing to have a relatively large number of
property owners who both rent their properties out and rent their own living
space. It's a totally different thing when, say, several moguls and the
government own 75% of the apartments in a city.

Also, while mobility is important for some, others form communities, and still
others don't have that option or desire to move around. When you don't own,
you don't really have skin in the game. If something sucks, you leave. When
you own, you've put in your chips. You've bought a stake in the community.
You're going to care more about both the property you live in and the
neighborhood. If the market takes a turn locally, there will exist a greater
incentive to make the changes necessary to buck the turn instead of just
moving. If the schools suck, and you care about education, ownership is more
likely to create the incentive to improve them. If you rent, you move to
another district. For some, that move makes sense. But for many, it makes
greater sense to improve what's around them.

In other words, the assumption that owning a house is _primarily_ or _solely_
an investment can be challenged as a narrow view of ownership.

------
uptownfunk
He has a point. I learned this the hard way when I looked at the amortization
tables when i bought my first house, it still stings when I think about it.

That said, mortgage interest is tax deductible, which lead to a decent refund
this year. So assuming you’re not withholding income at your effective tax
rate (but the usual 25-30%) you’ll get a fair amount of it back, which I don’t
believe you would if you rent.

So yes, mortgages are throwing away money as well (less equity and reduction
in tax liability)

------
erispoe
Some of the countries with the lowest homeownership rates [1] are also amongst
the most financially secure on the planet. In Switzerland only 43% of
households own their home and swiss households are, on average, way more
secure than their american counterparts.

[1]:
[https://en.wikipedia.org/wiki/List_of_countries_by_home_owne...](https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate)

~~~
tempuser24
I agree with freddie_mecury I am not sure I see the argument or what you mean
by "financially secure". But if I can guess at your point I would say that if
"financially secure" means having cash then it would make sense that higher
percentage renter countries would be that.

Another point I'd like to add is the US isn't far from Switzerland on that
list. Also Singapore being in the #2 spot with 90% home ownership, but in my
opinion Singapore is considered a wealthy country[1] with a GDP close to the
US.

And lastly I will say that the sample size on is limited to about 25% of
countries in the world, though there are most of the developed ones.

[1][https://tradingeconomics.com/singapore/gdp-per-
capita](https://tradingeconomics.com/singapore/gdp-per-capita)

~~~
erispoe
Homeownership isn't necessary to achieve financial security and/or build
equity. The idea that it is, all the time, everywhere, a necessary step does
not hold. In countries where the state does not heavily subsidize
homeownership via tax incentives (Switzerland or Germany by contrast with USA
or France), many households choose to invest in other assets. On the contrary,
the fact that states have to subsidize homeownership to make it a competitive
investment for households (at the expense of renters paying taxes and not
benefitting from incentives), is evidence that in a tax-neutral environment,
homeownership doesn't make much sense.

Singapore is misleading, because 82% of the population actually lives in
public housing (HDB). I suppose they're counted as "homeownership" because
they are leased for 99 years [1], but that's a strong authoritative state with
central planning and management of housing. Lease doesn't build that much
equity because at you get closer to the term the value of the lease naturally
declines. And you're not free to sell or buy to who you want.

[1]:
[https://en.wikipedia.org/wiki/Public_housing_in_Singapore](https://en.wikipedia.org/wiki/Public_housing_in_Singapore)

------
swebs
>Are you better off:

> \- Tying up your cash into a home

> \- Finding an alternative investment, coupled with a rent payment?

This is the part I don't get. That would require renting to be cheaper per
month than having a mortgage, yet it will always be more expensive for the
same property because the landlord is paying the mortgage* plus marking up the
price to make a profit.

*Or at least charging the equivalent market value since there will be other landlords in the city who are paying a mortgage

~~~
Mvandenbergh
It really depends on the local price:rent multiple. In some places the price
gets driven up because landlords are counting on future capital appreciation
rather than cash flows from rent.

" The gross rental yield on the average London property last year stood at 3.5
per cent, according to research from Deutsche Bank. In other words, a landlord
buyer at these levels, according to the bank, will typically require 200 years
to pay off their mortgage after tax and interest are taken into account using
only the cash flows from their property, assuming a 65 per cent loan-to-value
ratio, a 35-year mortgage term and a constant rate of interest."
[https://www.ft.com/content/922574d8-5cc4-11e7-b553-e2df1b0c3...](https://www.ft.com/content/922574d8-5cc4-11e7-b553-e2df1b0c3220)

In other words - the landlords are taking a levered risk that renters are not.

------
code4tee
The financial arguments assume one only pays the minimum mortgage payment
amount. Many people add a bit extra each month which can quickly turn a 30
year mortgage into a 9-12 year mortgage.

It also ignores many of the other benefits of owning, such as having a lot
more say over what you do with the propert and not always having to worry
about rent increases or what happens when the lease ends.

The rent vs buy equation is never black and white but this article comes
across as quite one sided.

~~~
dyarosla
"...and honestly sounds like someone trying to justify their decision to not
own property."

The author literally states that they are a homeowner themselves.

~~~
saosebastiao
Not just a homeowner but a real estate investor.

[https://affordanything.com/how-we-made-43211-67-in-
passive-i...](https://affordanything.com/how-we-made-43211-67-in-passive-
income-from-real-estate-in-2017/)

~~~
gefh
Ah, so he's trying to reduce the competition :)

~~~
progre
Paula sounds like a womans name

------
chillingeffect
If you think about this from a system or landlord's perspective, it's much
easier. You don't need to do lots of accounting, just consider the system:

Your cost to live there is the same as as the landlord's, except for 1.
Landlord's profit 2. Mortgage transaction costs and 3. Efficiencies through
shared expenses.

For #1, You have the power to shop around.

For #2, You want to find a place where the landlord has owned or plans to own
for a long-time, so e.g. the realtor's fee has long since been amortized.

For #3, One larger, more efficient heater is better than a bunch of smaller
ones. Same goes for insulation. Industrial appliances like washers and driers
mean cheaper cost per use.

Optimizing the system is about balancing your landlord's fees for running the
house against your own opportunity cost to run your house as a hobby, with two
credits in your favor for shared resources and buried expenses like realtor's
fees. If you're handy, or have a partner who can work from home, running the
house as a hobby is easier. If you or all partners work out of the home, your
non-work time is much more valuable and running the house as a hobby is much
more difficult.

------
IkmoIkmo
This is one of the most annoyingly formatted and written articles. So
antagonistic and condescending, with not-as-funny-as-you-think jokes and
images inbetween, half a dozen single sentence, hell, single line paragraphs
with white space inbetween, constant repetition and using up half my screen
width.

As for content, meh. The point of the story is: it depends. Renting isn't
throwing away money in every situation, fair enough. But it begs the question,
what reasonable assumptions can be made for your situation. And here the
author mostly fails to deliver, as it builds on a tens of assumptions without
rooting them in evidence, or only partially.

So the author will happily use a timeframe of multiple decades to show
interest rates are historically quite high, and thus a 5% rate is warranted,
but then disregards a historical timeframe of a few decades and just assumes
houses will appreciate 2% per year (!) and inflation is also 2% a year, aka
houses haven't appreciated in real terms at all. Despite the fact the
timeframe she uses for interest rates, shows housing prices vastly outpace
inflation.

In short, awfully written, with a very basic point: it depends on assumptions,
and then pulls assumptions out of thin air (no surprise, as the story ends
with the buyer/renter being exactly as well off, indicating the author picked
assumptions accordingly) without evidence, which often aren't even realistic
in the first place.

But yes, agreed, renting certainly isn't always throwing away money. And
dropping out of school certainly isn't always a bad thing. And amputating your
leg certainly isn't in every single case bad for you, it can sometimes be
good, like when you have gangrene. But all of that is silly without seriously
talking about assumptions, taking 10 pages of antagonistic writing to tell
someone to run their own numbers is beyond me.

------
digianarchist
What I really want as a renter is not to buy a house but to protect myself
from rises in the residential housing market in whatever area I'm living. I
want to invest a portion of my income that will grow when the housing market
grows.

That way I can continue renting but hedge against big swings should I want to
buy in the future.

~~~
loxs
How do you protect yourself from drops in the local housing market? Especially
if you have a mortgage?

~~~
BoorishBears
Isn’t the idea that you don’t worry about it? You’ll still have your home.

On the other hand, if the market explodes and renters who are paying prices
below market start getting forced to pay more or move out, you’re left with no
options

~~~
loxs
Yeah but if the market collapses and you lose your job, you'll be forced to
sell at a huge loss

~~~
BoorishBears
How does a drop in the local housing market lead to you losing your job? A
general market crash causes many people to lose their jobs, it doesn’t
discriminate against homeowners.

The renters are probably in a worse position in that case too, stop paying
rent for a month and you’ll be evicted the next month. Stop paying your
mortgage and the bank will at least work with you for a little longer.

~~~
loxs
Yeah, like the landlord won't work with you for a little longer in a global
crash? They will be very eager to start looking for new tenants?

Of course, if your job is remote, a local crash won't make you lose your job,
but if it's local... prices just don't drop locally without reasons.

~~~
BoorishBears
Around here most management companies probably wouldn’t care.

These aren’t small mom and pop operations but companies with straightforward
rules. You’d probably get an eviction notice before a human was in the loop.

------
Simulacra
This is a really poorly written and exaggerate article. I purchased a home in
2015, I had to pay $3000 to close with no further down payment. After three
years I had to move for work. I'm now renting that house out, and earning $380
a month in profit. That house is mine. Our use that profit to pay extra on the
principal and contribute to my 401(k). Someday, that house will be paid for,
and it will be all mine. Then any profits will be completely mine, minus taxes
and insurance of course. Renting puts you at the financial wims of someone
else. How often do you see a rental company lowering your rent? By owning, you
know that your monthly outlay is going to be very stable. That makes it a lot
easier for financial planning, not just now, but for when we are older. Who
wants to be 65 and still renting?

~~~
rocky1138
One of the very first things the article states is that this is not for people
who are not living in the home as their primary residence.

~~~
jack9
> not living in the home as their primary residence.

Which makes it disingenuous to the initial headline.

> Renting Is Throwing Money Away Right?

Yes. Given a choice, you always want to own (or at least be building equity).
That's the nature of the phrase in the headline. Having money act as an
investment (growing/working) for you is preferable to not.

------
balls187
The sheer amount of fuckery that Landlords engage in was more than enough for
me never to be a renter again.

------
lsc
Look at the author's "history of home prices" graph (that amusingly is from
2006)

The author cites that graph, then goes on to make the claim that housing costs
rise with inflation. The graph certainly doesn't look like any reasonable
measure of inflation _I_ have ever seen.

------
ironjunkie
Love that article, This is one of my favorite dinner conversation and I'm
always shocked to see how most people never question the whole "buying a
house" social construct.

Once you do the math, you start to realize that most of it is a fallacy, and
that in most cases you are way better off renting a place.

Something else that people forget is that they tend to buy a house way bigger
than what they actually need. Typically a young couple would be ok living in a
one bedroom, but usually would prefer to buy a house with 3 bedrooms. This
means that they are now paying a mortgage (and downpayment) for something way
bigger than what they need and therefore losing an even bigger opportunity
cost.

~~~
justherefortart
Show your work.

------
sirwitti
While I like the idea of doing the math for such impactful decisions, it's
probably not that easy to get correct constants/values to do it so you get
meaningful numbers. For example in Austria (europe) renting prices went up
~25% in the last 4 years or so, so the 2% inflation correction (per year) the
author assumes is probably wrong for many countries/cities.

At the same time rent (in Austria) includes several cost factors such as water
supply, garbage, insurances for the house,... whereas the cost of your house's
mortgage does not.

What I'm saying is: If you do the math it only makes sense to do it in such a
detailed way that you get meaningful results.

------
IloveHN84
What about self-modifying renting contracts? In Germany, some contracts
increase 3% every year, not that cheap.

And what happens when you're in retirement and your pension isn't as much as
when you were working? Can you keep with the rent?

~~~
Simulacra
This is why I eventually bit the bullet and purchase the home. I didn't want
to be 65 years old trying to deal with increasing rent on a fixed income in
retirement.

~~~
ghaff
To be fair, you may want to retire somewhere different from where you live
when you're working--and may want, for example, a smaller place that requires
less maintenance. But, yes, there's a strong argument for the desirability of
owning your own place if you're a healthy 65 year old because you don't want
to one day wake up and find you need to move in a couple months because an
owner has sold a building.

------
adamwong246
These articles sincerely freak me out. I just bought a house and frankly, I
have second thoughts. But the entire subject is so polarized, I really have a
hard time resolving whether or not it was a wise investment.

------
kisstheblade
"You hold a 5 percent fixed-rate 30-year mortgage"

Yeah, no. I know that many people may have loans of this size and I never
understood it. And it is of course a reason for high prices.

When my parent's bought a house a typical mortgage was paid off in maybe 10
years. I myself took a loan of 12 years. And not at 5% percent! The real rate
is about 0.2% at the moment (and has been 1-2% during the ten years I've been
paying). After paying this reasonably sized loan I can buy another house with
a similar loan.

I have also heard of 60 year loans! (eg. sweden). Now that is indeed stupid
and throwing money away.

------
snarfy
The way they changed the standard deduction and personal exemptions for 2018,
for most people the tax deduction from their mortgage won't be worth it. It
will be better to take the standard deduction instead of itemize. I had to
adjust my tax withholding this year otherwise I would have owed a few thousand
next year (compared to the few thousand return I received this year).

The whole tax benefit for owning a home is gone. Not only is there no benefit,
you are now penalized.

------
reacweb
There are so many factors to take into account. When you buy, you buy
generally bigger than what you would rent because you buy for the future, you
rent for the present. Bigger houser means also more maintenance costs and more
taxes. Inflation does not always work: the value of a house getting older and
outdated may decrease. The environment may degrade. OTOH, when renting, it is
psychologically harder to spare. With a mortgage, you have no choice.

------
suff
It's less important to point out that bad real-estate deals exist. No one is
debating that. Nor is anyone debating the sliding scale that shows your first
year is mostly interest. ASLO, no one (even the OP) is debating (assuming you
are savvy enough to avoid a bad deal) that in 30 years, home owners have a
massive nest-egg, not to mention 30 years of effectivley fixed monthly
payments (even if taxes go up slightly).

Would LOVE to compare net worth with the OP.

------
Overtonwindow
It really depends on your situation. If you can afford to buy, and plan to
live at least in the short term in that property, I think buying is a good
thing. If you need flexibility and want to move around, or you can’t afford to
buy, then renting is better. Personally I think buying is the best thing in
the long term, and by long-term anything longer than five years. Rent keeps
going up. A mortgage doesn’t really change that much.

------
quickthrower2
A point that is not mentioned is being smart about where you buy your house.
If you can do some research and estimate the future demand for the area you
are buying, buy a place with more of the cash going into the land value than
the residence, not buy brand new (generally) etc. then your carefully chosen
residence/investment might beat the stock market especially when leverage is
applied.

------
nmeofthestate
I bought my first flat (got a mortgage on my first flat - £34.5k) in the mid
nineties, I moved once, and now have no mortgage and a house worth £250k. If I
had rented, I doubt I would now have savings to that amount.

Also I'm kind of a saddo who likes being able to change my home to how I like
it.

People who rent often seem embittered by the experience, and angry that houses
are too expensive to buy.

------
Simulacra
There's another post recently that's discussing the same topic. For an FHA
back 30 year fixed mortgage, you don't need to put down 20%. I think the most
I had to put down for my house was about $3000. It's turned out to be the best
investment of my life, because I had to move away and so I am renting it out
and make a nice profit each month.

------
davidjnelson
The biggest issue I notice is that the rental inventory is _much_ lower
quality than the for sale inventory. Might be a Bay Area thing.

------
pascalxus
Here in the bay area, you can Think of it as the cost of employment. When you
work at Google and get paid X, roughly 50% goes to rent. But, as long as the
rest of the 50% is enough to live comfortably and build large assets, then
it's still a good deal. Then when you've built up enough assets, leave and
retire somewhere.

------
flyGuyOnTheSly
I know a handful of people in their 60s...

The ones who made a point to buy instead of renting their entire lives are
laughing all the way to the bank.

The ones who are still renting are still working nearly full time and will
probably be doing so until the day that they die.

Buying and committing to a mortgage forces you to save money for your future,
plain and simple.

~~~
phamilton
> I know a handful of people in their 60s...

To be fair, I know a ton of people in their 20s who took advice from people in
their 60s and now have mounds of student debt and no career.

I'm not saying buying a home won't work out well. I'm just saying that the
baby boomers seem to have had a unique path towards financial stability that
doesn't appear to be sustainable for the generations that followed.

------
dajonker
If you are renting, you are renting it from someone who owns the place. I am
going to assume that whoever is the owner will at least break even, but more
likely will make a profit off the rent income. Therefore, buying is cheaper
than renting.

Can anyone explain to me what's wrong with this argument?

~~~
AndrewDucker
Assume, for a moment, a situation where buying is more expensive for the first
five years, but then becomes cheaper (as rents rise, but the amount you repay
on the mortgage stays static).

In that situation people buying to rent will make a profit after about ten
years. It's therefore not worth it for the short term.

Also, buyers are responsible for maintenance on the building, and for some
maintenance, which renters aren't.

So there are trade offs.

(Also, a landlord has to find renters, deal with some of them not paying,
invest time and effort into managing their small business, etc)

------
kudokatz
A deliberately-one-sided note of the downsides of home ownership:

[http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-
terrib...](http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-
investment/)

------
roman_g
The whole article is a statistical fallacy. You should never compare "average"
growth rates but extreme outcomes. What is the best possible outcome and the
worst one in case of renting and in case of mortgage?

P.S. Read Nassim Taleb (and Daniel Kahneman) for the sake of reason.

------
tim333
People often don't take property cycles in to account and they can be a huge
factor in many markets and semi predictable. When stuff is cheap (price to
wages) and going up buying is a no brainer. When it's expensive and topping
out its questionable.

------
kazinator
Article assumes that if you're a renter, you don't pay insurance.

Which is true for a lot of renters; but they will lose everything if the place
burns down. The landlord's policy will not cover the belongings of the
renters.

Comparing insured versus uninsured is stupid.

~~~
wldcordeiro
No it specifically mentions renter's insurance near the beginning but the
number cited seems like a minimum policy.

> Rachel pays $307 per year in renter’s insurance.

~~~
hudibras
That's about right.

------
herbst
Renting = paying 'premium' to stay flexible. The reason I don't care about
buying is that I don't even know which country I want to live in next year.
Also i prefer to not have dept, for whatever reason.

------
VLM
Nothing could be better suited to the Boomer condition than buying real
estate, so for the class of people who would rather die than think which is
the ideal for most americans, cliches about buying always being better than
renting ARE true if you're propagandizing legacy boomers about how wise they
were to follow the herd a long time ago and BTW here is some delicious
clickbait advertisements etc. For everyone else, yeah, not so much.

Schillers graph and assumption miss the point that we're in a long term multi
decade credit crisis where the $ of GDP per $ of (new or existing) debt is
collapsing. That leads to collapsing interest rates because you can't squeeze
blood from a stone, low rates of investment return, hyper focus on risk
control and limitation outside VC type gambling, etc. And housing prices are
based on a constant $X/month being available to dump into mortgage (or rent)
payments, so collapsing interest rates from normal levels when a gen-Xer was a
kid to insane low levels now mean insane high real estate prices. House
purchasers do not rationally evaluate the worth of a house like Graham and
Dodd securities analysis from the 30s... Its a simpler calculation, I make the
95th percentile of income or whatever, I can afford $X/mo the COMMISSIONED
real estate agent found me a great home which is also at the 95th percentile
of luxury and quality and neighbors which costs $(X _1.1) /mo (see comment
about being commissioned salespeople, LOL) and at insane present interest
rates $(X_1.1)/mo magically turns into some insane and detached from reality
purchase price. You're always buying the biggest loan you can afford, to live
in the same house you'd live in regardless of current interest rate. And if
you individually are a cash buyer or some other situation, it doesn't matter
the market is swamped with loan buyers who control the price of the market
regardless of your different personal situation.

We have too much debt for the size of economy we have, and the aging of
generational shifts result in new leading and declining markets, leading to
crazy weirdness. That's the current bubble economy in one line.

The main financial puzzle of life in the 10s, 20s, and beyond, is how to
profitably short, or at least not get stuck in the carnage, of the post Boomer
era in ... everything. Having a giant dollar value illiquid asset stuck like a
millstone around your neck is probably not the best strategy for the future
even if it was the best strategy for the past, that's all the article is
really saying. Leverage is always only numerically illustrated by rising
prices; post boomer the prices will fall.

------
IncRnd
Rent payments are set high enough to pay the owner's mortgage and give them a
profit. If you already need to pay a mortgage, why not buy the house to get
the interest deductions and equity?

~~~
conanbatt
Rent can never be lower than mortgage payments for the same property because
then the bank would never give out mortgages and would just buy up all the
properties.

Rent can be higher than the mortgage payment of a portion of the house, but
not to the mortgage payment of the entirety of the house.

~~~
IncRnd

      Rent can never be lower than mortgage payments for the same
      property because then the bank would never give out
      mortgages and would just buy up all the properties.
    

That's not how things work. Banks give out mortgages based upon the repayment
ability and credit-worthiness of each borrower. The mortgage amount won't be
too far out of line of comparables.

\---

    
    
      Rent can be higher than the mortgage payment of a portion
      of the house, but not to the mortgage payment of the
      entirety of the house.
    

Who says so? Even one tenant in a multi-family home can pay for the entirety
of the mortgage.

If you own and rent out a single-family home, you most certainly can charge
rent higher than the entirety of your mortgage payment! Sometimes, landlords
without mortgages rent out their property...

~~~
conanbatt
> That's not how things work. Banks give out mortgages based upon the
> repayment ability and credit-worthiness of each borrower. The mortgage
> amount won't be too far out of line of comparables.

The banks most trusted debtor is itself: if buying up property were so
fruitful with no labor and above rent the bank would not need to invest a
single dime into offering mortgages and would just buy the houses itself.

> Who says so? Even one tenant in a multi-family home can pay for the entirety
> of the mortgage.

Its just logical: if money is cheaper to borrow than to pay rent, then nobody
pays rent and all borrow money. Fundamentally the one that can do this the
most is the bank.

What is often not taken into account in terms of landlorship is that you have
occupancy rates, brokers that have to find you clients, communication with
tenants, etc etc. But even accounting for moderate work, if the mortgage had a
lower rate than the cost of rent, and no cost of acquisition, there would be
no renters.

------
franzmafka
Author writes like hyperactive undergrad, couldnt really get past it.

------
lbill
This article actually made me think quite a bit! I'll read it again an do the
math when I'll search for a new place to live, and when I'll have some cash to
invest.

------
shmerl
And in some places rent is way lower than paying mortgage for the same kind of
dwelling. Mortgages can simply be not affordable, while rent is.

------
ashelmire
Bad assumptions in the article. Firstly, rent in major cities (like where many
of us live) is higher, sometimes much higher, than the mortgage payments for
similar properties (home prices in my area give a mortgage payment of around
1500... rents are at 3k).

Secondly, you can get homes for way less than 20% down without huge jumps in
total cost these days through various programs. The people making the choice
between renting and buying are those who would be taking advantage of programs
like FHA loans.

------
kerbalspacepro
This article has a bunch of pictures and stupid shit in between paragraphs and
makes it hard to read. Not HN worthy at all.

------
coryfklein
You know what else is throwing away money:

* Every house paying to own and store all the tools for maintaining a yard.

* Every home owner spending 1-4 hours each maintaining said yard, when economies of scale make outside labor about 400% more efficient. Unfortunately, much of these savings don't apply when 20% of the houses in a neighborhood outsource, and they all use 8 different companies.

* The ridiculous cost of building, heating, cooling, and maintaining an 8 sided cube (read: house) vs when building them adjacent to each other (read: townhouse) and pooling resources for half the maintenance.

* Every house even having its own yard, as opposed to plotting residential spaces with a shared "small park" adjacent to 4-10 residences, with even larger parks dispersed throughout. (Those houses with a tiny yard the breadth of a human wingspan are exempt from this criticism.)

I swear whoever is designing rural areas needs to take a look at master-
planned communities like Daybreak in South Jordan, UT [1]. Sure some folks may
have a libertarian, give me some land leave me alone I'll take care of myself
kind of mindset, but we humans evolved in tribes. We need to build more
communities that encourage random interactions with the other homo sapiens
around us, while getting rid of this wasteful (both economically and from a
time-wasting perspective) emphasis on owning a home and maintaining a yard.

[1] [http://www.daybreakutah.com/daybreak-
story/](http://www.daybreakutah.com/daybreak-story/)

------
6841iam
another thing this article fails to address is what is the supply of homes in
a given region and how wealthy are people there. if you take mountain view
where google is headquartered there are many wealthy people near by thanks to
rising stock prices of goog, fb, aapl, Netflix etc. because of this and the
lack of homes getting built house prices are just going up.

in 2017 less than 250 single family homes sold in mountain view. just put that
in perspective. 250. thousands started working at google but only 250 homes
sold. and the average days on market for a home was: ~10 days.

if these firms continue making money and if they continue to see their stock
prices going up then you'll continue to see house prices rise in these
markets.

articles like these fail in markets like mountain view / Palo Alto. they
probably make more sense for markets that have abundant housing like Las Vegas
/ Denver.

------
jlebrech
renting is paying a premium for the right to move easily.

for a freelancer that moves from country to country that's important.

------
6841iam
if you view buying as a consumption decision then a lot of this doesn't apply

------
iamaelephant
As soon as someone quotes the Dow Jones I stop reading because I know they
have nothing worthwhile to say.

------
krallja
(2015)

------
wheresmyusern
i would say both renting and buying a house are bad ideas. when you rent, you
have to pay a huge amount of money to pay for your landlords premium gasoline
for his lambo. when you buy (in a city), you are having to take on the cost of
every other person who bought before you -- nobody ever willingly sells a
house for less than they bought it, so houses are like ratchets that go up and
up and up in price. when you buy a house in a city you are also paying for
someones premium gasoline. its an endless cycle of people buying the house and
making it more expensive.

i would say that buying a remote home is where its at. with solar power,
electric cars, self driving (even in its current state), and the soon-to-be
mesh of satellites that will provide decent internet to every corner of the
globe, along with a whole lot of other things, remote land and home ownership
is a very exciting prospect indeed.

most of the cost of a house in a city or heavily populated area is in the land
(location) and in paying for the profit margin of all the buyers who came
before you. so building your own house on remote land is extremely affordable
because there were few previous owners and its not close to anything -- you
dont _need_ financing like with a regular house.

i saw a story, i believe it was here actually, about a woman who bought a
cheap house somewhere remote but good, and just did a four hour commute on the
train. you can make just about anything work. and from my perspective, having
your own land and a place to sleep that is truly your own is so fundamental
and vital that extreme measures feel justified.

i currently share an apartment with a bunch of people. our complex holds at
least 200 or 300 units. at an average of two thousand dollars for each unit,
all 200 of them. the people who own this complex bring in almost half a
million dollars every month before taxes. a while ago, a pipe broke in our
kitchen -- a pipe behind a wall, underground that carries sewage. our entire
kitchen and dining area were flooded with foul water. it took them almost a
month to even get someone to look at it, even though i visited the office
every day to remind them that half of my home was flooded with foul water.
their response was that getting a plumber to do a job like this is very
expensive, so they had to go though a bidding process instead of just hiring
someone asap. i dont have a lot of money or free time so i was powerless in
this situation. eventually, the pipe was fixed. when you rent, you are
powerless. the power dynamic is obvious both in principle and in experience.
why then are so many people eager to enter into this demented arrangement in
which they are essentially a modern peasant?

i think everyone should own some kind of house somewhere because there is
absolutely nothing worse than getting stuck without somewhere to stay. life is
chaotic, rent is very expensive in many areas and housing can be difficult to
come by and there have been times when i almost wasnt able to find housing.
definitely one of the worst feelings ive ever experienced. unlike some people,
i have no nets to catch me. if i had a remote home, not finding housing in the
city would transform from a ulcer-inducing nightmare into a short vacation
back to the country while keeping an eye out for good housing on craigslist.

------
bane
The answer in most cases is "yes".

This post is full of the kinds of flawed arguments that usually accompany pro-
rent arguments -- which do a real disservice in identifying those cases where
the answer is "No".

Breaking down the problems by section:

 _Equity_

"Here’s the rub: Only a small slice of _your mortgage payment builds equity._
"

There you go, the article defeats itself not even a full screen below the
correct answer.

    
    
       If you rent, 0% of your monthly payments build equity.
       If you own, X% of your monthly payments build equity.
       X > 0
    

It attempts to list all the parts of a mortgage payment as if itemizing it
makes the equity earned meaningless.

    
    
       Your mortgage consists of four parts:
    
       Principal (the equity-building piece)
       Interest
       Taxes
       Insurance
    

This is basically correct, but the case for "Your rent consists of the same
four parts + two additional parts where the property owner may make a profit
off of you as well as some additional money to cover various expenses that
they'd rather not pay for out of pocket."

Again, nothing in this section invalidates that building equity is better than
not.

One way of thinking about renting is that you pay all of this, plus the extra
stuff and in the end you've built equity for somebody else and none for you.

 _Opportunity cost_

I didn't bother to read this to be honest, these sections are almost entirely
filled with notions that "if I just invested my money in horse farms or
leverage backed security instruments I'd make more money in the long run" blah
blah blah. The logical flaw in these are usually pretty easy to spot as they
involve a scenario setup that's not like-for-like (meaning the same house as a
renter vs. as a buyer) and focus on weird time frames like the lifetime of the
loan not the life of the person.

In other words, at the end of 30 years, the rent may have made more money in
some scenario of a perfect investor, but then they still have to rent to have
a place to live. The homeowner now owns their property free and clear and can
do all kinds of things with it, and their now future income is entirely
liquid.

 _Should I rent of buy_

Do what you want! But don't follow the flawed arguments in this blog. Here's
what it really comes down to, do you want your money to be more liquid and
your location to be more mobile? Then rent.

Do you want to own large amounts of assets that can be liquidated in a few
months (in most places) or that you can live in virtually free in the future?
Then buy.

Bonus: if you buy, you can end up in a situation where you just have other
people literally giving you money to pay your mortgage away...it's called
being a landlord. You can even do it with parts of your property, like a
bedroom or a basement. Over time you can own a property outright, rent it out,
and use that rent to service another mortgage in a property where you live
meaning you live virtually free and accrue assets at a frightening rate.

 _edit_ once again, here's probably the best post written on the subject.

[http://assayviaessay.blogspot.com/2014/04/rent-or-
buy.html](http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html)

~~~
conanbatt
> In other words, at the end of 30 years, the rent may have made more money in
> some scenario of a perfect investor, but then they still have to rent to
> have a place to live. The homeowner now owns their property free and clear
> and can do all kinds of things with it, and their now future income is
> entirely liquid.

Not perfect investor, _any_ investor that put their money in an index fund.
Vanguard had a trillion and a half assets in 2010~ and those assets tripled
while houses doubled.

Edit: I took a look at the link you provided below and its not thorough. The
author should have found something weird in the fact that in the calculations
he concludes that being a property owner is 1.6 million richer than the
renter, and not meaning that inequivocally everyone would conclude that
renting is so bad it should be illegal.

The most glaring mistakes are that he takes mortgage payments and renting as
the same, which cant be true in a reasonable market, and that the renter
starts with 0 while the mortgage taker starts with the downpayment.

~~~
bane
> Not perfect investor, any investor that put their money in an index fund.
> Vanguard had a trillion and a half assets in 2010~ and those assets tripled
> while houses doubled.

You are still making the typical errors. Here, I'll put it in simple terms and
maybe this will help the scales fall from your eyes about why real estate is a
very popular investment strategy and real estate investors aren't all just a
bunch of morons who should have pumped their money into Vanguard index funds.

As a renter, _YOU ARE BUYING SOMEBODY ELSE 'S PROPERTY FOR THEM_.

~~~
conanbatt
Hah, I'll give you another explanation.

You always have a a due to pay rent. There is no way too avoid that. When you
buy a property you become the recipient of the rent you pay: if you pay rent
to yourself, you still have to take it from your paycheck, and the landlord
gets his profit. If you dont, then the landlord(yourself) is giving you a
place for free.

This explanation is practical in the following sense: you are thinking of
buying property, and on the same block you see 2 houses that are identical in
every regard except one: one is offered at rent at below market price. Which
is the best strategy?

------
onetimemanytime
what sucks is that any savings is taken by property taxes, especially in NJ,
NY etc. And they go up every year. That alone is in many cases as much as rent
(albeit on a smaller place, but still)
[http://www.nj.com/politics/index.ssf/2018/03/nj_towns_with_t...](http://www.nj.com/politics/index.ssf/2018/03/nj_towns_with_the_highest_property_tax_bills_2017.html)
Hey, at least state officials will have nice pensions wen they retire.

~~~
chrisabrams
Your property taxes and mortgage insurance are deductible where rent is not.
If you look hard enough in NJ/NY areas you can find places where the principal
is near the rent price and you deduct the rest. In the long run that works out
to your favor.

Not everyone can afford such a situation and the new Trump tax changes don't
help either. Just saying "I should rent" is irresponsible because you think
you're bumping the state pension funds. When you rent you're helping an owner
pay off their mortgage as well as the very taxes to pay that pension fund.

~~~
jwong_
What do you use to find these areas?

Is there any particular neighborhoods you're willing to share?

~~~
chrisabrams
Start with mashvisor.com to get a good feel for what areas with fit the
stragetgy(ies) you have.

