patrick.net

mike2 says

The problem with your scnario that renting is cheaper than owning is totally wrong bc you are forgetting that after 30 years of renting you own nothing!

Wrong, and charmingly naive. Let me guess, a realtor told you that and you believed it, right?

Just think for yourself for a minute. If the cost of renting is less than the cost of owning the same thing over the typical holding period (median ownership length in the US is only six years, not nearly 30) then the renter wins.

Assuming 3% to 4% appreciation per year is frankly insane at this point.

Just try out the calculator:

http://patrick.net/housing/calculator.php

Heck, if you're a really landlord you should already know the difference between a house that cash flows and one that doesn't.

There are a lot of other factors involved rather than just price or cost. If price were the only issue, everyone would own a Yugo and there would be no such thing as Mercedes and BMW. Nordstroms would not exist.

When you own, there is no landlord telling you what you can do or not do. You don't have to worry about having to move when the lease expires and the landlord wants to sell the place. You can paint the place any color you want. You can make structural or other changes if you feel like it.

You have more control of your own life when you are an owner and not a tenant. And ultimately the mortgage gets paid off, but the rent never stops. You tell me, what sounds better?

Honest Abe says

You tell me, what sounds better?

Renting. Your own analogy of the BMWs and Mercedes is a very helpful illustration.

Just think for yourself for a minute. If the cost of renting is less than the cost of owning the same thing over the typical holding period (median ownership length in the US is only six years, not nearly 30) then the renter wins.

But you have to agree that there is SOME value to owning the house after 30 years. Granted, you have to discount this value back to present, but it is a nonzero number. And nobody ever accounts for that in rent vs. buy calculations.

Build New For Less Than Used says

tatupu70 says

But you have to agree that there is SOME value to owning the house after 30 years.

For lenders? Absolutely. Who wouldn't lend $200k to get back $450k?

After 30 years? I might not. It depends on the risk and other investment options.

mike2 says

The problem with your scnario that renting is cheaper than owning is totally wrong bc you are forgetting that after 30 years of renting you own nothing!

mike2 says

If you use your money wisely and make responsible decesions ownng is better 99% of the time.

If you bank the savings of renting then you CAN end up better off if there is a marked difference in the cost of owning vs renting. I would buy if the cost were about the same and the market was pretty stable. But where I am living owning is a lot higher than renting and the market is still sinking a little. I've banked more than 50k in the last 4 years just by putting the difference away, plus I won't owe 6% of the sale amount if I leave. Houses have depreciated about 30% in the last 4 years here. So if I had bought an average 300k house I would be down 90k plus 15k sales costs when I move on, which I know I will in about 3 years. Even if I stayed another 26 years, it will be a long long time before the numbers come to par.

The people that would use their money wisely as owners would also use their money wisely as renters and vice versa. I think that would be self evident from the number of people who have lost their homes after buying them with nothing down then using them as an ATM machine.

mike2 says

it is very likeley and probable your home would be worth double or even triple what you paid for it after 30 years and that is at a 3-4% increase per year

When you write "what you paid" do you mean the sales price or the price plus interest?

mike2 says

I also have invested on the stockmarket and that is not anythin close to RE

Did you invest in the stock market over the same 23 year period?

Build New For Less Than Used says

tatupu70 says

After 30 years? I might not. It depends on the risk and other investment options.

You're backpedalling again.

You're delusional again.

Honest Abe says

When you own, there is no landlord telling you what you can do or not do

Preposterous. We only rent with landlords that are cool dudes and want us to be happy. It has worked out fantastically for both sides in all 5 places we have rented over the years.

Honest Abe says

You don't have to worry about having to move when the lease expires and the landlord wants to sell the place

How 'bout when you get laid off or have to move out of town for a job? You have to sell your house: say hello to fees and transaction costs! We've not once ever worried our landlord was selling or wouldn't renew our lease. It's all in how well you interview and select your landlord.

Honest Abe says

You can paint the place any color you want

Unmitigated BS. We don't rent with landlords that won't let us paint. We've even changed out light fixtures and upgraded knobs. We change it back out when we leave. As to paint, if I have to give my nice landlord $500 for repainting when we move out, that's much cheaper than the $30k roof he just put on last year.

Honest Abe says

You have more control of your own life when you are an owner and not a tenant

How 'bout when you get laid off or have to move out of town for a job? You have to sell your house: say hello to house that takes 6 months to sell or you can really make it a ball-and-chain and try to rent it out for negative cash flow.

Oy!

And buying still means you pay 3x for the house if you actually stick out a 30 year mortgage. Accounting for 2% appreciation *if* the declining American Empire EVER regains its economic bearings, the piddly mortgage interest deduction, and then adding back in the cost of maintenance, I don't think you can say buying didn't come out to cost as much as renting and saving the difference.

I would add, this only applies to overpriced metro areas. Your mileage may vary. If I lived in Orlando Florida, I'd buy in a heart beat.

tatupu70 says

After 30 years? I might not. It depends on the risk and other investment options.

Sure, so if you've got a billion dollars you only stick a hundred million there and do other things with the rest. But the whole point of loaning money so people can buy houses is that it is not risky. People really want to own houses and they make a very high priority. People are very focused on their monthly payment and that focus is rare, because most people are probably at the same time buying iPads and other shit they don't need at all. Lending practices had to get fraudulent to upset that risk and the percentage of households in the U.S. which own houses is still way past fifty.

tatupu70 says

But you have to agree that there is SOME value to owning the house after 30 years. Granted, you have to discount this value back to present, but it is a nonzero number. And nobody ever accounts for that in rent vs. buy calculations.

Actually, it's quite possible that the value to owning a house is zero, or even negative!

Lots of houses in Detroit are like that. The price is zero because owners simply take on liability for taxes and maintenance greater than what you could ever rent them out for.

But even in the non-zero case, it simply does not make sense to buy a house if the cost of owning is greater than the cost of renting the same thing over the same time period. You'll lose money, perhaps a huge amount of money.

You also definitely should never assume 30 years of ownership. More than half of owners own a house for less than 7 years. This makes the transaction costs a pretty high percent of total costs, which renters just don't have. Renters also do not risk their capital. Prices have fallen in Japan for more than 20 years running now.

I'm just saying you need to look at the numbers. There's no point in saying that A is greater than B until you fill in the values for A and B.

Build New For Less Than Used says

tatupu70 says

But you have to agree that there is SOME value to owning the house after 30 years.

For lenders? Absolutely. Who wouldn't lend $200k to get back $450k?

Particularly with fractional reserve lending they don't even have the $200,000 to begin with.

Look at the amortization schedule. Folks you have to stay in a house for a very long time to have a hope of paying it off/building significant equity by paying a monthly payment. Meanwhile if you are saving thousands of dollars by renting you can buy the property with cash eventually...much sooner than if you pay interest. I think buying is great for people that will find a way to live paycheck to paycheck no matter what their income is. Until they lose a job and can't make the payments anymore that is.

MsAnnaNOLA says

I think buying is great for people that will find a way to live paycheck to paycheck no matter what their income is.

Because it's a fact that americans don't know how to budget and save. They end up living the paycheck to paycheck lifestyle whether they rent or buy. Like a gas, their living expenses simply fill up all the cash from their paychecks.

Which is precisely why I have issues with middle class homeownership. It's like the banks and towns got together and realized that these idiots will live paycheck to paycheck no matter what their expenses are, so we might as well get in on this and become one of their expenses.

Actually, it's quite possible that the value to owning a house is zero, or even negative!

Now you are being a bit ridiculous. The value is not having to pay rent.

But even in the non-zero case, it simply does not make sense to buy a house if the cost of owning is greater than the cost of renting the same thing over the same time period. You'll lose money, perhaps a huge amount of money.

Exactly. But you won't know unless you account for all of the costs and all of the benefits. And my point is there IS a benefit to living rent free after 30 years of making mortgage payments. There should be some accounting for that.

The self righteousness of those who were lucky enough to live through the golden era of the U.S. never ceases to amaze me.

If you buy at at low price and sell for 2 to 3 x that. Yes but otherwise, it could be a trade.

tatupu70 says

Exactly. But you won't know unless you account for all of the costs and all of the benefits. And my point is there IS a benefit to living rent free after 30 years of making mortgage payments. There should be some accounting for that.

But I do account for all the costs and benefits. Just check the calculator:

http://patrick.net/housing/calculator.php

The renter who saves ends up with a giant wad of cash that he can invest in anything, giving huge flexibility and hopefully investment income. The owner has eternal property tax and maintenance costs, no flexibility, and no investment income, just the avoidance of rent payments.

You must compare the numbers to know which is better.

You must compare the numbers to know which is better

I see. Just extend the number of years to account for the value of owning outright.

And don't get me wrong. If prices are out of whack high, I'm all for renting. I rented when I lived in CA. in the late 2000s.

tatupu70 says

If prices are out of whack high, I'm all for renting.

OK, then we're in violent agreement.

One other thing.. The more people who root for home prices to drop, if they get their wish, this will only create more disgruntled rent seekers and miserable landlords.

If you think your landlord is grumpy now.. If his property drops another 50% I'm sure he'll be real quick to fix your kitchen stove and garbage disposal. Especially when more foreclosures displace more people which causes a shortage of rental units.

We've reached a odd point where there are going to be lots of unforeseen consequences to falling home prices that will inconvenience and hurt renters pocket books as well.

BoomAndBustCycle says

One other thing.. The more people who root for home prices to drop, if they get their wish, this will only create more disgruntled rent seekers and miserable landlords.

If you think your landlord is grumpy now.. If his property drops another 50% I'm sure he'll be real quick to fix your kitchen stove and garbage disposal. Especially when more foreclosures displace more people which causes a shortage of rental units.

We've reached a odd point where there are going to be lots of unforeseen consequences to falling home prices that will inconvenience and hurt renters pocket books as well.

Did you smell that milk before you drank it? You tie up your money in real estate you take your chances. Fortunes and been made and lost. Now if Coke stops paying that dividend then I'd be pissed. ;) That is like collecting rent but way easier.

Build New For Less Than Used says

They're falling dipshit.

Comment deletedfor being direct insult.

Call it Crazy says

As Patrick stated above, the average length of ownership today is 5 to 7 years. When you amortize and add up ALL your costs of ownership during that period (including closing costs, interest paid, upgrades, maintainance, 6% selling commissions,etc.) you'll see how much MORE you spent to "OWN"...

Or you'll see how much LESS you spent to OWN. Depends on when/where you buy or bought. If you bought in 2006, you almost certainly spent more to own. If you bought in 1976, you almost certainly spent less to own. Otherwise you need to run it throught the calculator.

Call it Crazy says

That's exactly my point.... How many people do you know that bought houses in 1976 are still in the SAME house versus how many people do you know bought houses in the 2000's????

Well, my Mom for one. But that wasn't my point. Take a look at home prices in 1976 and prices in 1983, then rental prices in 1976 and rental prices in 1983 and tell me which was the better option.

Call it Crazy says

In the normal 5 to 7 year cycle, it's a lot cheaper to rent!!

I'm not so sure about that--that's a pretty broad generalization. Do you have any data backing that up?

tatupu70 says

Well, my Mom for one.

Case closed. That is enough of a sample size for me. ;)

RentingForHalfTheCost says

tatupu70 says

Well, my Mom for one.

Case closed. That is enough of a sample size for me. ;)

Any argument should end when Mom is brought up.

http://cowles.econ.yale.edu/P/cd/d16a/d1630.pdf

How many people actually want to stay in the same home 30 years, and then moving forward their entire lives? Very few. Especially now, when job losses are common. If you truly know that you want to stay in the same city for 30 years , it may make sense to buy. I'm a big fan of living below your means , even if that means renting or buying a tiny little place. Pocketing and investing the extra. Doing fun stuff throughout your life with the extra money instead of dumping all of it into a house which you won't be able to fit into your coffin when you die. A house is just an object. The bigger your house, the more crap you are going to own. I think people are still programmed to think that real estate is a great investment because its the only leveraged investment they can make, and in the past , it has had good results for many. Problem is, how long will you need to wait before you "make money" on your house when you sell. I think it is longer than most are anticipating.

I think you misunderstand the argument, own or rent is based on the costs associated with it. Throw the numbers together and see for yourself individually. Sometimes owning makes sense financially, sometimes not.

When we rented, we saved the difference and it was quite large. Same we kept in guaranteed investments like CD's, some went to stocks, some simply went to keeping the shop alive. No regrets there, thrn we bought our condo all cash, never paying a dime of interest to the banking cartel.