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Huh? I think the main point of this "reason" is that it's cheaper to rent in a nice place than it is to buy. So unless things change you should just rent in a nice area.
He's not saying that you should buy in the ghetto instead of a nice area. However, if you were going to live in a ghetto for whatever reason then buying would be cheaper than renting.
I think you're being a tad disingenuous in your attempts to debunk.
SFace
2014 Aug 5, 3:29am
He's not saying that you should buy in the ghetto instead of a nice area.
Of course it is, think about what the rent/buy calculator is in its core.
20% Ghetto
3% Prime
and eveywhere between those two extreme. The yield calculator is exaclty a tradeoff between the desirability and cost to own.
Bellingham Bill
2014 Aug 5, 3:33am
location, location, location . . . location
as Spaulding Gray said back in the 80s, you can change the house, you can't change the location.
SFace
2014 Aug 5, 3:35am
location, location, location . . . location
reason #1 is the opposite of supply/demand and that's why it is easy to debunk. basically ignores location factor. Ten years ago, it was location, locatio, location. In 20 years, it is going to be location, location, location, location and location.
And you know by studying places with a longer real estate history like UK and France and see the flux between prime location and non-prime location, it is HUGE.
hanera
2014 Aug 5, 9:48am
I agree with farmer11, shouldn't stretch the conclusion. Yield has to be higher in ghetto if not why rent to folks who may default on rent, similar to how banks work, prime customers being charge at lower rate.
SFace
2015 Jun 22, 11:27am
reminds me of Jason's situation and why the ghetto calculator is useless.
First one:
"1.Because house prices are in expensive areas still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment. Landlords say a safe price is set by the rental market; annual rent should be at least 9% of the purchase price, or else the price is just too high. Yet in affluent areas, both those safety rules are still being violated. Buyers are still borrowing 6 times their income with tiny downpayments, and gross rents are still only 3% of purchase price. Renting is a cash business that proves what people can really pay based on their salary, not how much they can borrow. Salaries and rents prove that affluent neighborhoods are still in a huge housing bubble, and that bubble seems to be getting more dangerous by the day.
On the other hand, in some poor neighborhoods, prices are now so low that gross rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there could still fall yet more if unemployment rises or interest rates go up, but those neighborhoods have no bubble anymore."
It sounds good in theory, but it violates basic supply/demand dynamics. The fact of the matter is in good areas, there are less sellers and more demand and vice versa. You would think the most expensive market in the US would have an abundance of seller due to high price and no demand. but that is opposite of reality. Reality > theory
Following this advice would be disasterous based on actual results. The more appropriate measure is: Is the value added priced correctly not 3% = bad 9% = good. All #1 is saying is the Ghetto is a good buy while prime property is bad, which is exactly the opposite of reality, not just in the US, but the entire world
#housing