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CDon

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Registered Mar 08, 2012

CDon's most recent comments:

  • On Mon, 13 Jul 2015, 3:12pm PDT in What should you pay for a house?, CDon said:

    Patrick says

    bob2356 says

    Patrick says

    But forever after, the renter is gaining 6% or so while the owner is getting 3% or so. So then the only question is whether the 6% that the renter is getting is being evened out by the rent he has to pay.

    That is incorrect. The owner will now have the amount that was going to mortgage to invest every month in addition to the 3% gain in value.

    no, it is correct, because the owner and renter both continue to invest the same amount every month, and they both invested $360K in an asset (house vs stock).

    so the question at that point is just whether the renter's extra income from investing in stock is enough to cover his rent.

    No, Bob is correct. Given your 30 year holding period, in the typical situation where rent/buy breakeven point is seven years, the buyer will have 23 years (year 7 to 30) to take whatever additional amount the renter is spending on rent and apply it to the 6% land of the stockmarket. In my case, the $900 I save buying vs renting now can get 6% which is in addition to the 3% I am getting buying my house. In other words, there is a timeperiod where the buyer is getting 3% + 6% and you made no attempt to even look at what the owner could do with his extra cash for 23 of that 30 years of comparison, which is disingenuous to say the least.

    Also, its worth noting the (your words) "forever after" consequences of this comparison. Its interesting that you choose to cut it off at 30 years and not look at what happens in year 31 til death when the buyer now pays essentially $0 on the house, (still getting the 3%) and has an enormous amount available for the 6% stock market on a cashflow basis. Note too the whole reason you save is (presumably) to live a decent life from retirement til death when your income is gone. Under your scenario, you would end up 85 years old paying over 5K a month in rent, all because you refused to have the discipline to pay a little extra per year for the 7 year period from age 30-37.

    Again, this has nothing to do with you personally who lives in Shangri la of under market rent where buying (probably) doesn't make sense given a holding period of a human lifespan. It does however, have to do with your extreme bias and resulting message which probably does hurt people in 90+% of the country where buying is better than renting from age 22 til eventual death.

  • On Sun, 12 Jul 2015, 6:39pm PDT in What should you pay for a house?, CDon said:

    Patrick says

    true - in relatively poor areas, where basic economics works, meaning places landlords have to make a profit to stay in business.

    as you move upscale, it gets to be a better and better deal to rent. the ratio skews because lots of people are grossly overpaying without regard to the rental value of the house. there are fewer rentals in those areas, but they are generally a good deal for the renter when they come on the market.

    Wow - Its almost as if you have learned nothing in the decade plus that you have run this site. You and I had a discussion about this just over 3 years ago.

    http://patrick.net/?p=1212971

    Point being, highest best use is but one of the many factors which dictate price. Even landlords recognize this when they decide whether to bid on "blue chip" properties or not.

    tatupu70 says

    in the long term, both the typical house price and typical rent must increase at the overall inflation rate. if you just think about it for a minute you realize that has to be true, or pretty quickly no one could buy or rent. here's a good explanation of that:

    Yes, but you need to also remember that a mortgage payment is constant as rent rises with inflation. That is why buying wins over longer timelines. Not due to capital appreciation.

    Precisely. In 1999 the rent ($2,500) vs. buy ($2,900) calculator was screaming rent rent rent!!! Today the rent ($4,000) vs buy ($4,500) is also screaming rent rent rent!!! Yet I thank god every day that I ignored it back in 1999 such that my payment ($3,100 - it rises slightly as CIC noted) is $900 less than what my rent would be had I followed the calculator. Oh and this is a blue chip area just outside of DC.

    Thus, the capital appreciation is simply gravy at this point. The $900 a month savings is the true reward here - and I only got this because I was willing to sacrifice (paying more to buy than rent years 1-7) to get the rewards (cheaper to buy than rent years 7-30... Massively cheaper to buy than rent year 31 til death). Even better than this, now that I am just over a decade away from being mortgage free, I salivate at the prospect of being in my early fifties with a payment of only a few hundred bucks a month. Had I not had the discipline to put myself in this position in 1999, I would be looking at a mid fifties payment of (probably) $5,000 a month with no end in sight.

  • On Sun, 12 Jul 2015, 4:06pm PDT in What should you pay for a house?, CDon said:

    tatupu70 says

    Patrick--your site was great in 2004-7 when lots of people didn't understand what was going on. But the stuff you're putting on here now is just wrong and doing a disservice to the site.

    Not only that, its borderline irresponsible.

    Patrick, you should certainly take heart in that you saved a lot of people a lot of money during a very unique timeperiod when prices were severely out of whack, and countless ordinary people who someday wanted to buy a house and get on with life did not know where to turn for help. But for every person you helped in that timeperiod, you screwed another with your over the top anti buying zeal.

    The fact that you cannot admit that with a forty year timeline buying is usually a better deal than renting speaks volumes about who you are and your ability to give honest rational advice for the 90+ percent of your (mostly former) readership who someday just wanted to buy a house and get on with life.

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