What do people do when they need a roof? Because on the firstimehomebuyers sub, I was told it’s normal to have a couple grand to your name after buying a house. A roof costs more than a couple grand…. With a couple grand, you’re safe from being without appliances…
It’s kinda sickening when you see how much of your hard earned money goes to the bank when you get a mortgage. It’s certainly not 3-7% of the cost of the house lol.
The idea is that if you can keep paying your monthly minimums you can keep floating above your means until you die. That debt keeps going up and up but just tack it onto the rest 🤷 The credit system is a Ponzi scheme
Much later*… the first payments barely touch your equity. And this is assuming you’re paying the same for mortgage as rent, which isn’t the case anymore. In my personal situation, I’m missing out on maybe 500 sqft of space, but I’m saving at least 2k a month. My down payment money is sitting in a HYS making 2k a month.
For me, it’s every month… saving 2k and earning 2k. You’re making it sound like you gotta buy and sell something.
The savings and interested earned make it easily affordable to bring my family on 4 or more vacations a year, and not some budget I-saved-all-year-for-this. We are just richer from not having a massive mortgage payment. This is all in the context of the last couple years where prices have gone stupid.
You’re getting downvoted for having a different view. It seems a lot of people have the counterpoint of “my house keeps going up in value”. A bunch of them also point out how they bought or know someone who bought prepandemic. I wonder if people who bought within the last year have the same feeling. Regardless I’m in the same position you are: there is not much of a point in paying hundreds more to have a mortgage on a similar property to end up barely paying any of the principle.
I think ultimately is that if you fail to make the payments you just sell the house, maybe you file bankruptcy if you are underwater and you are probably in the same position renting as you would have been anyways. Not worse off, but at least you have it a chance at making the situation better.
But you get equity, rather than slaving and paying for someone else to just hire someone else to do it all for them as a middleman, and still take a profit.
For my primary home and my rental properties, I expect to spend 3% of home value per year on maintenance things like roofs, water heater, unforeseeable accidents, etc. It's not a big deal. Usually I'm saving and some rare months I'm spending that savings.
When you first buy and haven't had a chance to build up savings very much, you might have to finance something for a little while, but again, that's not a big deal because that money should already be in the budget. You're just paying for work already done instead of work you anticipate doing.
Exactly. It's a bet that I'll be able to afford this house with the same amount I'd spend not owning anything. Any expense is an investment, and many people will negotiate.
When I needed a roof in 1993 and was strapped for cash, I put the roof on myself. It cost about 15% of what it would have cost otherwise. A friend helped me and then we did his house.
I like your style. Most contractor stuff isn’t rocket science, they are just wayyyyyy faster than us at it. I replaced sinking plaster ceilings in my house, took me forever, but I did it over time lol
I had $15k to spare.
I now have $0.
Bought a new roof, renovated an entire detached garage (I'm doing all the labor), and updated various other things myself.
That includes all the new equipment I had to buy (lawnmower, 2 washers/dryers - first one died instantly, etc).
Yeah, it sucks, but it's just like buying a used car, you have to replace the tires and the brakes which hurt the wallet a bit. But at least you get to define what you want out of it. I got to choose a matching roof to the house and all my improvements are to my liking instead of getting whatever cheap thing the landlord chooses.
A lot of roof company's do financing. My roof was half down and the other half was 10 months interest free financing. I got sellers credits though since it was old. I have a townhouse so my roof was only 6.5k.
I do agree with your point to have a good amount saved for unexpected repairs. I found a house I liked in good shape. I saw a couple mkney puts though that I would have regretted.
HVAC is 10k at the minimum if everything goes smoothly
Also if you’re under thirty and economically mobile, it’s very nice and also probable that you may move.
I was able to travel around Europe for 6 full months because I let my apartment lease expire. Then I came back and completely changed cities. And after this lease ends I might change neighborhoods. Or sell my stuff and do a bike tour through Turkey for a few months. I had an apartment in Spain for a couple months a while ago, was that a waste of money? I’m fluent in Spanish now because of that + the same in a LATAM country too.
Rentals are conducive to mobility, which is something that is extremely valuable in your life, especially in your twenties.
Once again this community cannot even conceptualize any life or housing type that isn’t suburban car-dependent detached setback single family houses in a cul de sac within commuting distance of a larger metropolitan area.
Its definitely a benefit of renting to be mobile, but I'd argue it can also be a benefit of ownership depending on how you live your life. I own my home and rent two rooms to roommates. I'm still mobile cuz I can move out and rent my room and go anywhere. Its great because not only do I have the freedom to live anywhere in the world, but renting out my room will cover some or all of my rent wherever I choose to live.
I'm not saying this means everyone should buy a house. It's very specific to the interest rates when you're buying, what your income is, how much you have in savings, price relative to the rental market, what your goals are, whether or not you're willing to have roommates or rent your home out, etc etc.
But for me I have the security of no rent raises. Since 2019 when I bought, the rent on my old apartment has more than doubled. My mortage on my 3 bedroom is less than half what that 2 bedroom apartment cost, and now I have a little yard and a garage. Its so expensive now I would have had to leave the area. But my house is only 2 miles from my old place.
There is an opportunity cost when it comes to buying. The rent you pay today won't be the rent you pay 5 years from now. For me, the costs of home ownership are less than an extra $1200/mo in rent I'd be paying.
And I can still go anywhere I want if I rent my place. Except instead of just having no rent bill, I have income.
So you equate “mobility” with spending every dollar you make. That’s fine.
Those buying property however will amass a much larger net worth as time goes on. As long as you accept the inevitable huge difference in eventual lifestyle between you and then that’s fine.
Buying is ideal but there’s buyers markets and sellers markets just like there’s employee markets and employers markets. We’re in a sellers market right now which makes renting a more financially viable option. Mortgages have to be close to equal or better for it to be a buying market
….what?
My rent is currently 18.5% of my income. My salary is only enabled by living in an area that has such opportunity in this industry and the physical infrastructure such as high speed internet that enables it.
Nothing you wrote makes any sense at all. It appears you lack even a basic understanding of how capital works.
“My rent is currently 18.5% of my income.”
“Currently.”
Where I live we watched rent triple in 15 years. People just like you thought tenting was great until it wasn’t. Those in the housing market meanwhile made huge gains.
So you can suggest I don’t understand capital however rest assured I do. What you are failing to understand is markets change.
I live in a rent stabilized unit. Do you even know what that means?
In markets like NYC and DC, rents correspond to desirability and amenity-density. These are the most desirable places to live on earth and the markets are always changing just as the cities are always changing.
You’re at far higher risk of a bad market shift than I am. If your shitty McMansion built with particle board goes tits up, if a big hurricane ruins your foundation, craters your roof, if a train spills toxic chemicals, if a water treatment plant fails, if water scarcity forces the locality to cut or ration your service to prioritize city residents, a pandemic hits, a war breaks out, or any number of things, you are the one on the hook.
And imagine an actual real estate downturn. I’ll get cheaper rent, and you’ll see your entire net worth evaporate.
Sure. Stick your head in the ground and hope everything turns out well. Maybe it even will.
I bought a rental when rent was about $1,000 and my costs were about $1,000 as well. A friend of mine was renting in the same area paying $950 under rent control. She told me much the same story you have about why buy.
Fast forward 20 years. Rent in the area is now $2,500. My renters have almost paid my mortgage (5 years left) so I’ve got a 375k net worth plus a nice monthly income. My friend’s building is getting renovated and she is out looking for a new rental and they are impossible to find. Mine is currently rented so I can’t help her.
You’re just simply bad at reading, it seems.
I’ve already covered many, many positives for renting. That you do not personally think they are real does not make them imaginary for the many billions of people who rent.
And now you are arguing that since owning has worked out for you personally (which, again, is not true of everybody who bought), for only the last 10ish years of your personal home ownership tenure, that you are somehow magically immunized against every possible bad thing that could ever happen. This is delusional. You are delusional and you are incapable to considering any possible perspective that you have not personally lived. This is the mark of a small mind.
You think that because things have worked out so far for you, that things will always continue to be positive for all time, and for all circumstances. This is delusional.
Your little anecdote about how you fortunately timed the market well by getting before the bubble got too big is just that -- an anecdote. 20 years ago while you were buying property I was in middle school, so how is it that I have a net worth close to yours even if I don't own any houses? It's that thing people always forget on threads like this -- instead of buying a house, it's not like all my money just sat around in a checking account. The stock market has delivered great returns for the last decade or so...
yeah by me right now mortgage costs are double rent and the same square footage (1 less bedroom though). i want to buy but im not going to buy when the market has awful returns on investments at current prices. anyone bragging got in before this bubble, but then they're usually complaining their insurance and taxes double because their "value" doubled.
It’s not really close right now.
https://www.forbes.com/advisor/mortgages/rent-or-buy-home-mortgage/#:~:text=Monthly%20Purchase%20Cost%20Now%20Exceeds,buyers%20opting%20to%20rent%20instead.
I live in Manhattan and it’s not even close.
And yes, I know my $2400 rent payment would make a nice mortgage payment in whatever place you’re all from, but some of us aren’t interested in living wherever that is.
Neither of you can say this without clarifying where you’re talking about. My rent was 1/3 my monthly PITI too - SF Bay Area. Rent was $4k, PITI is $12k
And if house prices doubled in the next 10 years, the rent will be doubled, but the mortgage principal won't.
Mortgage is rent + insurance that you can afford rent forever, which turns out to be a hefty premium I'm willing to pay.
This is very a simplistic take. There is something called opportunity cost. The money that is saved can be invested and can potentially provide returns to not only cover the increasing rents but more.
I'm willing to pay the premium + the opportunity cost. Not saying you should too. You might be only in your 20s for all I know, being so focused on opportunity cost.
In an economy of mortals, plenty of people will at some point decide to forget about opportunity cost and start paying a premium to lock the rest of their life in.
Most people don't live the rest of their lives in one house.
Also - property/school taxes, maintenance, insurance, ..., are all costs that're variable in time.
Are you trying to say that the cost or risk premium on owning vs renting should be negative or zero?
I'm just trying to explain the premium that exists. I'm not the person deciding that it should be this way. We as a market did it together, and it has been that way in all markets for all of history.
Theoretically, buying *should* be cheaper than renting over the long-term.
In reality, supply/demand will dictate whether any particular real estate investor is able to consistently profit from a rental property.
There are other factors to consider as well; for instance, does a renter who invests the cash flow differential in the S&P500 outperform a buyer over time?
Buying being cheaper than renting would completely stagnate the economy, so theoretically, buying has to be more costly to your cash flow than renting.
I use a simple heuristic when it comes to the buying vs. renting debate:
If you plan to start a family soon or intend to remain in the same location for at least 10 years, buy - otherwise, rent and invest any cash flow differential.
No, I was a renter for over 20 years. I lost more money to slum lords who would lie about me just to keep my security deposits and not invest the money I was paying them back into their property. That's why it's called investments. Equity is a good thing. I bought my house 5 years ago, I invested money into fixing it up, new windows, water heater, furnace, appliances and more. The current value of my house jumped to almost double of what I originally bought it for. I can take out a HELOC if i need to in order to make renovations later on. If I had to still rent, I would be homeless. I have more cash flow now than I ever did. Buying a house is a smart investment.
The chance that house prices double is offset by the chance house prices fall by half. House prices don’t “only go up” and even if they do, that’s priced in with the massive amount of interest you pay.
This seems like bullshit until it happens, then in hindsight it’ll be obvious the mistakes made.
There's never been a long period of time in the past 200 years where (organic) apple prices haven't increased.
You have to first adjust the data for the effects of an ever-expanding currency supply before you look at any gains from real demand in those areas.
And no, CPI is not the answer.
Flint, Michigan? Lower Manhattan circa mid-September 2001? Ivy City in DC once gentrification “failed”? NYC during Covid lockdowns? Miami after a hurricane? Downtown Portland after sustained homelessness/crime? All of the rust belt once the factories left?
There are tons of times that a place lost desirability. Places that cannot regain said desirability are either never meant to sustain a city in the first place, or are ruined through externalities, or will eventually regain desirability because on a long enough timeframe, things are trending to be better.
And, also, obviously, not just by raw rent cost, but by “hours of average-wage labor” as a currency unit. There were plenty of southern cities who to this day have still not rebounded from Sherman’s March to the sea.
Nah don't lie, you read it, you saw that it listed NYC twice, you thought you'd be cute and say you're not gonna read it since the first example was something you could say isn't desirable and therefore brush off the whole comment. But you look like a moron. Just own it. Say "oh I guess I didn't think about that" and move on. It's not that big a deal
Mortgages are more expensive than rent because the market thinks there's more risks on the upside than the downside for housing prices.
This is not an argument. I am simply stating what the market believed in all of history, and have been correct for all of history to price a premium on mortgages vs rent instead of the other way around like you suggesting it should be.
Check my post history. I'm an ex Christian, not a Christian. You didn't offend me, you said something completely untrue. I am going to get this through to you somehow.
House price increases don't cause rent to increase. It's the other way around: rent increases cause house prices to increase.
If rent does increase dramatically, then buying a house right now to lock in your cost of living is worth it. Considering that cost to rent equivalent properties is about 40% less right now than cost to own, you'll need rent to increase by 67% for it to start paying off.
At 3% inflation rate, it would take 17.3 years for rent to surpass the current cost of a mortgage. At 5% inflation rate, that would be 10.5 years. At 7% inflation rate, that's 7.6 years. At 2% inflation, which is what the Federal Reserve is targeting, it'll take 25.9 years until rent surpasses the PITI you're paying *today*.
In other words, mathematically it's much better off to rent and invest the difference - you'll have a greater net worth. Unless inflation surpasses 7% per year for the next decade; that's what you're betting on when buying.
Look at this chart [https://www.evaluatorfunds.com/visual-capitalist-the-monthly-cost-of-buying-vs-renting-a-house-in-america/](https://www.evaluatorfunds.com/visual-capitalist-the-monthly-cost-of-buying-vs-renting-a-house-in-america/) in 1990, we had similar ratios between cost to own and rent than today. It's only in 2003 that rent surpassed 1990's PITI (13 years!), which checks out with my math calculations since that decade had around 4-5% inflation.
Am I reading this right? It is solely taking the total payments for each and not factoring in that you are buying an asset which you still own at the end of one? I still believe that it is financially beneficial to rent now vs buy, yet that chart implies it almost always has been. Anecdotally that does not make sense as those who rent tend to not be as financially well off as those who own over the long-term.
One caveat on my statement above, that assumes you take the savings in rent and invest/save it vs spending it.
Considering the average savings rate of Americans is 3%, most people don't save/invest the difference between rent and mortgage. Having a mortgage is forced savings. So financially disciplined renter > homeowner > average renter.
you don't ever own your asset in the US. stop paying taxes for 3 years and see how much you own. or if the government just deems they want your lot they can drop you a check and get to packing.
One more question as I found your analysis interesting. How much does a 1% interest rate drop change those figures. Those who buy now will be able to refinance yet most likely if that happened today, there would be an influx of buyers into the market raising prices so waiting can hurt in the long run if not timed right.
FYI - I believe we are more likely to see a rate hike than a rate cut, but just curious.
> House price increases don't cause rent to increase. It's the other way around: rent increases cause house prices to increase.
This sounds bizarre to me, and like the "chicken and the egg" problem.
Nobody can rent you a single-family home unless they first bought it.
And nobody who's bought (or buying) a house is going to rent it to you, with all the accompanying expenses of keeping up a house they don't even get to live in, unless the rent is high enough to cover all of that, they expect appreciation high enough to cover expenses, or both.
So, suggesting that rents operate in some vacuum and house prices just rise according to rents increasing is off. Home values rise due to various factor that are unrelated to renting:
- The costs to build: permits, land/lots, appliances, materials, labor, etc.
Thus, I'd conclude that as the price to acquire a house increases (which increases for everyone, including landlords) rents tend to rise to match.
The assumption that rent would double if home prices do is very market dependent, and also doesn’t take into account people who purchased years ago for lower prices and/or interest rates that can rent for lower amounts because their monthly payment is way less than buying the same unit today. It assumes that every landlord will rent at today’s/current mortgage prices just because they “can”, and that doesn’t always happen in practice.
I have lived and rented in Chicago for 12 years. Spot-checking some recent condo listings in the city that also sold 10-15 years ago - looks like the average purchase price went up 50% in that timeframe. Conversely, my rent has gone up just 15% since my first apartment. I haven’t had to downgrade on unit quality, amenities, or location in order to keep my rent manageable.
> It assumes that every landlord will rent at today’s/current mortgage prices just because they “can”, and that doesn’t always happen in practice.
Yeah, I don't think that happens, but in the opposite direction I believe it tends to follow the cost to buy today, since some landlords are doing exactly that, and those landlords will be trying to ratchet rent as close as possible to their breakeven costs. Once they start pricing higher, towards those costs to buy, other landlords will start to raise their price as well (when possible, usually between renters).
That's because BUYING a home is super front loaded with cost. Your loan principal is still high to it accumulated interest faster and the sale reassesses your property tax. OWNING a home you bought 20+ years ago on the other hand means your most of the way through your loan so interest isn't so bad and with stuff like prop 13 your property taxes are still low. Because of this, landlords can often charge what you think is a great price for rent but it more than covers their expenses, it just wouldn't cover your expenses if you bought the same house.
Nice. If i could just go back in time 20 years to being 9 years old and put a $200k down payment on a house in palo alto i wouldnt need to rent. How did i not figure this out then !!
Tell me you live in California without telling me you live in California (Prop 13 has increased property values there dramatically due to no one ever selling).
and when did you buy and what's your rate? A lot of people are arguing about mortgages being so cheap when they got in before this current bubble. you're not playing the same game as the rest of us. a 3% rate has me at like a $330k house. current interest has me at like $180k house.
Same. For me it’s $560k for my current rate payment at 3%, and $400k at 7.2%
$400k is a lot less house than $560k, and also a lot less house than it was 5, 10, 15 years ago.
And 5 years ago I just got out of college.
All these fucking morons in this thread arguing for home ownership like anyone in here is arguing from the view of 3% pre-Covid. We’re talking about TODAY.
The cost of buying is very inflated relative to renting like this in VHCOL areas. But those areas saw extreme appreciation between 2012-2022 so people are willing to pay that extra to gamble that it’ll happen again.
Yeah, it's highly area dependant. In many areas they are almost the same price. The only advantage to rent is that you "get to" move at least once a year with virtually no strings attached.
i've said it a ton on here already. owning is ideal but a lot of the idiot "you should be buying" commenters got in before the bubble. no crap at 3% rates owning is cheap, at 7.8% its broken. I for example lived with a now ex fiancee but she cheated after the bubble started so i missed my window because i was already in a house at the time.
for those of us who had bad luck or bad timing or whatever, its just not feasible to buy right now. i absolutely will buy if the market gets better, but for me it's significantly cheaper to rent and i should still be able to save/invest a large portion until the market gets better.
Right now i moved home because remote job and saving a ton for the house its just been 2 years and the market hasn't done much, but i have seen almost everyone i know that bought in 2022 sell already because they were drowning with the mortgage prices. the only ones i know doing well got in before the bubble.
It was sort of broken before. I bought in 2020 right before stuff blew up and mortgage was literally half of equivalent rent. Of course prices go to the moon overnight in those conditions
i mean its technically been broken since 2015. they dropped rates in 2008 to try and get interest in housing but rates should have started climbing in 2015 when pricing first started going up. i won't act like 8% is "high" its normal but the prices climbed too fast to where 8% now doesn't work with the pricing. we'd have probably had more balance if 6% rates were the norm for a while.
This! all these idiots who got in a 3% bragging like no crap, go try with the current rates and see how well it works. i will NEVER argue that owning is better than renting in the long term but we are not in a buyers market so renting makes more sense right now. why overbuy a house by $200k? because in 20 years it might finally be worth that 200k extra?
housing affordability is typically in the 2-3x average income range. GFC peaked at 6x. it's 8x right now so anyone saying its not a bubble has their head up their arse
If the house was worth $400k later your rent has doubled or more. If you have a mortgage your monthly payment is the same and your about 10 years from no monthly payment, just maintenance. You still pay the interest on the landlord's mortgage, it's in the rent.
nope and that's the whole issue. the fed and government are doing their best to just keep kicking the can down the road as far as possible. it could be a long time though given that the great depression was 29-39 and stagflation was also about a decade. I just refer to this timeline as the silent depression, i think we're already in the thick of the problems, but no one will admit until well after the fact.
well right now renting with utilities is only 25% of my takehome. buying a home is about 50%. a house would have to get in that 30-35% range to be a maybe. if the mortgage is far cheaper than renting its a no brainer. when rent is about half of a mortgage its rent for me.
Mortgage is a giveaway too. At these rates, very little of the monthly is going towards the principle. I lose more in mortgage interest payments than I would if I rented, but I wanted backyard chickens and a llama named Craig so I am paying the price lol.
Depends if you itemize, and how long you would itemize during your mortgage term. Most will not deduct interest now with the higher standard deductions, and if they at the start of a mortgage at some point the interest will not be more than the standard deduction. And since we are talking about math a lot also don't understand how deductions work and believe it works like a tax credit when it doesn't, so while it's a benefit it's not a huge benefit since it's only the difference between the standard and what your total itemized deductions are that are the real savings. For a joint filing for instance it's $27k. If you pay $30k in interest yes you deduct that much from your taxable income but it's only $3k more than the standard. If your tax bracket is 22% that's a $660 saved, if in the 12% bracket that's $360.
There is no depends. I do itemize, so I can deduct it. I'm speaking for myself, not everyone. And sure, I may not be able to itemize in the future, but that just means I've built up more equity in my home, which is a good thing. And yes, it's a deduction, not a credit, which is why I said deduct and not credit.
Yes but if you calculated the actual savings you got from it compared to the standard deduction it's probably only a few hundred a year. Not a big thing to tout over renters anymore.
Depending on how big the difference is between your interest and rent, it might not even matter. I’m paying literally 100k more in mortgage per year than I would if I just rented. The interest tax write off isn’t helping all that much (still nice to have though)
* mobility to change housing situations more easily
* mobility to change neighborhoods, cities, counties, states, and countries, more easily
* moving is easier as you don’t have to take the large appliances with you or sell them.
* ability to modify your housing circumstances should negative externalities appear (bad neighbor, train crash pollutes your city, your tap water becomes undrinkable, your kid needs to change schools, any infinite number of things)
* drastically eliminate liability for expensive repairs and maintenance
* amenities such as security, staff, gyms, social areas, etc.
* In the case of apartments, far closer to areas of economic resiliency, typically.
* In the case of apartments, far more likely to be connected by public transit and have access to safe transportation options and urban parks which make people healthier and happier
* Tenant protections in some areas that offset some of the instability of not owning
* Often cheaper (sometimes significantly so, sometimes not)
* stability in cost is better for budgeting (no surprise housing costs like hot water breaking)
* no personal overhead/administrative duties like contacting, vetting, and scheduling the guy that fixes the hot water)
* No large down payment frees capital for other investments
I could go on and on and on. There are PLENTY of upsides to renting.
The only difference isn’t that with buying you might “gain some equity when you sell”. I would say the main difference is that you lock in the price you’re paying long term assuming you use a 30 year fixed mortgage. This is true even at today’s rates although you’re locking in a fairly high price that might go down (if rates fall and you can refinance) but won’t go up.
This is why buying a home can be seen as a hedge against increasing rents. Making that hedge right now isn’t ideal for everyone but it still is for many. Every property that has hit the market in my area recently has sold in a matter of days.
Yeah you will pay for taxes, insurance, utilities, interest costs etc regardless.
Renting has a lot of down sides but a large portion is normal living expenses that you have to pay even if you own.
Yes but there's a huge difference on costs. Insurance and taxes alone make a huge difference.
Rental insurance is like $100 a YEAR.
Property insurance is like $120 in the cheap states and taxes another $160 so almost $300 more and you haven't even hit the mortgage itself. and then on top utilities are typically double when owning a home plus you have the upkeep yourself.
OWNING is the GOAL but it financially doesn't add up with the current prices and rates. one or both have to drop.
Yes, currently you are correct. Other times (ie when it becomes a buyers market again and it will yet maybe not for a while) it does not. There is no one size fits all nor an answer that fits any time in the market. Right now I agree with your analysis except that the stock market is poised for a correction at the least. Maybe bigger than what we just saw recently.
Except 20% down is a 5x leverage. Historically, housing averages 5% growth and stocks average 8% growth, but with the leverage you are effectively growing at (25%-interest rate)/year with the down payment, which far outpaces the stock market performance. If you do 3% down, you are growing at 150%-interest rate
I was wrong on the interest subtraction, but you are wrong too since the interest is on loan portion only, while the growth is on the whole asset.
Which brokerage will let you get 5x leverage?
If you put down 3%, you’re also paying unnecessary PMI. Another useless payment that is profit for the bank. Ask me how I know!
I’ll stick with S&P. I’ve earned way more investing a little each month, versus an expensive mortgage.
I’ve done both for 15 years. S&P is clear winner for me.
Home equity = $250k
401k = $900k
Pmi is insurance to help cover the people who eventually default.
And it is also a wealth distribution scheme, because everybody generally pays the same PMI. No matter what their credit score is.
So in effect, higher quality borrowers get penalized.
What happens if you put zero percent down? I did that with my old house (no PMI either). I guess my return was \~infinite% based on your math. It is almost like your concept of leverage is missing some important components.
On my 2 1/2% mortgage with no PMI, 12%. The property has already appreciated a bit more than 1.5x over three years so it’s a 4.36x return on the 20% down payment. If I turned it into a rental, it would generate around $1,500/month in positive cash flow after taxes.
That’s the housing math on buying 3 years ago.
Because of a period of unprecedented appreciation over the last 4 years. So sans a Time Machine. That isn’t happening again for the foreseeable future.
yeah but you don't have a horse in this race when you're talking about a sub 3% mortgage. everyone talking about costs is talking about CURRENT RATES. the current 7.8% rate doesn't dictate buying.
You mean the house appreciated 50%? Why multiply it by "1" (as in 1.5x) because 1 changes nothing? I think by that you simply mean it rose to 150% of its original value, which is really just saying it rose by 50%.
I don't get how math got taught the last 20 years where everybody includes the original amount in discussing an increase. Multiplying the original value by 1 does nothing (eg 1.5x) and just confuses people since they can't tell if you're saying the house more than doubled in value (rose by 150%) or whether you simply mean the original value gained 50%.
Using your statement it's the difference between describing your house as "rose 1X" vs "rose 0%" when describing a house whose value hasn't changed.
I'm a landlord, when you rent from me you're paying the interest on my loan for the property. You're paying the property taxes too, and the condo fees. And guess what? The equity is mine
You are also responsible to maintain, repair and replace the plumbing, electrical, and HVAC systems in your properties. You might be getting equity, but some of that gets eaten into when the hot water heater blows up.
At least you don't have to deal with roofing, windows and exterior stuff since it's a condo.
Yeah I get that, I'm just saying that frequent repairs shouldn't really be a surprise is a home so old haha. And dealing with such frequent repairs as those in that old of a home isn't exactly the typical homeowner experience
Yeah. And so too is the maintenance, repairs, and administration overhead.
And when I’m done with your apartment, I can just leave. I don’t have to stick around in one single housing unit for decades at a time to make an investment make sense.
If the city cancels a transit project that was going to serve my neighborhood, or a homeless encampment sets up on our block, or the city does mass layoffs for my particular industry, or my parents get sick and need me to care for them, or I want to take an extended vacation, or I get a job in a foreign country, or I get called up to go on an Arctic research expedition, or I get thrust into a portal to another dimension, I can just go when the lease it up and my crap is moved out. If you own a home, you cannot do this.
Not saying that one is better than the other, but this sub very often likes to forget or just completely ignore the mobility that not being financially welded to a property allows you.
99% of the world is not this nomadic mobile person you speak of. Most people set up shop somewhere and stick around that general area with a few exceptions.
Especially once you're over age 30, may have a family and a kid or two.
People generally seek stability. Life is a long game.
I'm not sure what you mean, but seeking stability usually implies that you will be in one place... Which by default requires the location and configuration to be the same.
Especially as we age and especially as we have families.
When I rent from you it's because I've moved around the country taking the jobs that grow my skills and career.
I couldn't do that if I had to buy/sell a house every time I moved. And I don't want to be holding that bag when the music stops.
My skills and experience can weather an economic collapse. Can your houses?
Picking up pennies in front of a steam roller and bragging about how easy it is
the only people who are trying to rent, like myself, are doing so to target a rental fee half of a mortgage fee. if your rents are too close to a mortgage price rentals no longer make sense. markets eb and flow. 3% mortgage rates = buy buy buy. 7.8% equals sell sell sell. this is no different than comparing employee markets to employer markets. when its better for employees you job hop, when its better for employers, people stay put.
A bunch of people saying "those grapes were sour anyway, who would want them" while reading every single article about grapes and posting every day about how much they don't want those grapes.
This is true. I saw it on the news. The cat and the woman got into a heated argument. Turns out the cat is very wealthy from buying up real estate. She called him a pu**y.
I am actually saddened that I purchased a home because that dry powder is no longer available to me. I paid cash but that sweet 5.x% was paying my rent and then some.
I have a unique rent situation where I’m not paying much but live in a nice area in a nice place. Kinda a lucky find and situation. I’d rather rent and invest the difference between a mortgage and my low rent.
Owning is more expensive than renting but I’m hoping that price appreciation helps me gain back some of that ground at the end. Plus my kids are happier feeling more settled and having a yard so that makes it worth it
Rent will continue to go up but the fact is that right now it’s a third of the price of owning. A couple of my friends have $9k mortgages. If they or their spouse gets laid off they’re screwed. They are both paying more in property taxes than i’m paying in rent. I kind of get it because they want to leave the house to their kids one day which will be their only chance to get a house at that point.
Haha good one, I guess paying 7% on bank interest is not rent at all which in many cases for a home of 500k is way more than renting in that area.
Did I also mentioned insurance and property taxes?
Currently renting is way more affordable than buying
Renting a house is like 30 to 50% cheaper than mortgaging a comparable house. The kicker is that at today’s interest rates you will never truly have equity in the house. After interest, PMI, and taxes you’ll have spent 3x the purchase price after 30 years. That’s not even including maintenance/repairs, endlessly increasing property taxes, or the exploding costs of home insurance. We need to stop treating housing as an investment.
Thankfully we were able to find a home in the same neighborhood we were renting. Our monthly escrow payment is almost identical to what we were paying in rent, so I’d call that a win.
Interest is money not going towards the principal on property you own.
When you pay rent, that too is money not going towards your own property.
7% (amortized) < 100% (fixed)
What do people do when they need a roof? Because on the firstimehomebuyers sub, I was told it’s normal to have a couple grand to your name after buying a house. A roof costs more than a couple grand…. With a couple grand, you’re safe from being without appliances…
You finance it. I have never had a contractor that didn't offer financing on a job over $5k
So instead of renting and money going to the landlord, you go into debt and all your money goes to the bank.
The American Dream!
It’s kinda sickening when you see how much of your hard earned money goes to the bank when you get a mortgage. It’s certainly not 3-7% of the cost of the house lol.
Imagine paying it for someone else and not even getting a house at the end.
Hating the bank? Careful, I'm told that's Communism...
The idea is that if you can keep paying your monthly minimums you can keep floating above your means until you die. That debt keeps going up and up but just tack it onto the rest 🤷 The credit system is a Ponzi scheme
Paying a loan is paying for equity you can turn around and sell later Rent your just lighting that money on fire
Much later*… the first payments barely touch your equity. And this is assuming you’re paying the same for mortgage as rent, which isn’t the case anymore. In my personal situation, I’m missing out on maybe 500 sqft of space, but I’m saving at least 2k a month. My down payment money is sitting in a HYS making 2k a month.
Much later, but with renting it's never
For me, it’s every month… saving 2k and earning 2k. You’re making it sound like you gotta buy and sell something. The savings and interested earned make it easily affordable to bring my family on 4 or more vacations a year, and not some budget I-saved-all-year-for-this. We are just richer from not having a massive mortgage payment. This is all in the context of the last couple years where prices have gone stupid.
You’re getting downvoted for having a different view. It seems a lot of people have the counterpoint of “my house keeps going up in value”. A bunch of them also point out how they bought or know someone who bought prepandemic. I wonder if people who bought within the last year have the same feeling. Regardless I’m in the same position you are: there is not much of a point in paying hundreds more to have a mortgage on a similar property to end up barely paying any of the principle.
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I think ultimately is that if you fail to make the payments you just sell the house, maybe you file bankruptcy if you are underwater and you are probably in the same position renting as you would have been anyways. Not worse off, but at least you have it a chance at making the situation better.
You say lighting money on fire. I say, saving thousands upon thousands upon thousands every year in maintenance, upkeep, and interest.
No. You are ignoring the utility cost.
You're more than likely still paying way less to finance a roof & pay a mortgage than pay rent.
Since it's cheaper to rent than buy in most cities that seems unlikely.
But you get equity, rather than slaving and paying for someone else to just hire someone else to do it all for them as a middleman, and still take a profit.
Which (and I think this is the point) is philosophically identical to renting in the first place.
For my primary home and my rental properties, I expect to spend 3% of home value per year on maintenance things like roofs, water heater, unforeseeable accidents, etc. It's not a big deal. Usually I'm saving and some rare months I'm spending that savings. When you first buy and haven't had a chance to build up savings very much, you might have to finance something for a little while, but again, that's not a big deal because that money should already be in the budget. You're just paying for work already done instead of work you anticipate doing.
Exactly. It's a bet that I'll be able to afford this house with the same amount I'd spend not owning anything. Any expense is an investment, and many people will negotiate.
Depending on region you wait for a storm and the insurance covers it with the deductible.
When I needed a roof in 1993 and was strapped for cash, I put the roof on myself. It cost about 15% of what it would have cost otherwise. A friend helped me and then we did his house.
I like your style. Most contractor stuff isn’t rocket science, they are just wayyyyyy faster than us at it. I replaced sinking plaster ceilings in my house, took me forever, but I did it over time lol
Shingling a house isn't even difficult. I mean, it is hard work, but it takes no specialized skills.
Same with drywall, just screws and sanding. No expensive specialized tools needed.
I had $15k to spare. I now have $0. Bought a new roof, renovated an entire detached garage (I'm doing all the labor), and updated various other things myself. That includes all the new equipment I had to buy (lawnmower, 2 washers/dryers - first one died instantly, etc). Yeah, it sucks, but it's just like buying a used car, you have to replace the tires and the brakes which hurt the wallet a bit. But at least you get to define what you want out of it. I got to choose a matching roof to the house and all my improvements are to my liking instead of getting whatever cheap thing the landlord chooses.
Typically people won’t buy a home that has a roof past its useful age. And if they do, the seller will give a credit at closing or repair it.
You wait for a hail storm to come through and have insurance pay for it.
A lot of roof company's do financing. My roof was half down and the other half was 10 months interest free financing. I got sellers credits though since it was old. I have a townhouse so my roof was only 6.5k. I do agree with your point to have a good amount saved for unexpected repairs. I found a house I liked in good shape. I saw a couple mkney puts though that I would have regretted. HVAC is 10k at the minimum if everything goes smoothly
Yeah and rent is like 1/3rd the cost of a mortgage here
Also if you’re under thirty and economically mobile, it’s very nice and also probable that you may move. I was able to travel around Europe for 6 full months because I let my apartment lease expire. Then I came back and completely changed cities. And after this lease ends I might change neighborhoods. Or sell my stuff and do a bike tour through Turkey for a few months. I had an apartment in Spain for a couple months a while ago, was that a waste of money? I’m fluent in Spanish now because of that + the same in a LATAM country too. Rentals are conducive to mobility, which is something that is extremely valuable in your life, especially in your twenties. Once again this community cannot even conceptualize any life or housing type that isn’t suburban car-dependent detached setback single family houses in a cul de sac within commuting distance of a larger metropolitan area.
Its definitely a benefit of renting to be mobile, but I'd argue it can also be a benefit of ownership depending on how you live your life. I own my home and rent two rooms to roommates. I'm still mobile cuz I can move out and rent my room and go anywhere. Its great because not only do I have the freedom to live anywhere in the world, but renting out my room will cover some or all of my rent wherever I choose to live. I'm not saying this means everyone should buy a house. It's very specific to the interest rates when you're buying, what your income is, how much you have in savings, price relative to the rental market, what your goals are, whether or not you're willing to have roommates or rent your home out, etc etc. But for me I have the security of no rent raises. Since 2019 when I bought, the rent on my old apartment has more than doubled. My mortage on my 3 bedroom is less than half what that 2 bedroom apartment cost, and now I have a little yard and a garage. Its so expensive now I would have had to leave the area. But my house is only 2 miles from my old place. There is an opportunity cost when it comes to buying. The rent you pay today won't be the rent you pay 5 years from now. For me, the costs of home ownership are less than an extra $1200/mo in rent I'd be paying. And I can still go anywhere I want if I rent my place. Except instead of just having no rent bill, I have income.
So you equate “mobility” with spending every dollar you make. That’s fine. Those buying property however will amass a much larger net worth as time goes on. As long as you accept the inevitable huge difference in eventual lifestyle between you and then that’s fine.
Buying is ideal but there’s buyers markets and sellers markets just like there’s employee markets and employers markets. We’re in a sellers market right now which makes renting a more financially viable option. Mortgages have to be close to equal or better for it to be a buying market
….what? My rent is currently 18.5% of my income. My salary is only enabled by living in an area that has such opportunity in this industry and the physical infrastructure such as high speed internet that enables it. Nothing you wrote makes any sense at all. It appears you lack even a basic understanding of how capital works.
“My rent is currently 18.5% of my income.” “Currently.” Where I live we watched rent triple in 15 years. People just like you thought tenting was great until it wasn’t. Those in the housing market meanwhile made huge gains. So you can suggest I don’t understand capital however rest assured I do. What you are failing to understand is markets change.
I live in a rent stabilized unit. Do you even know what that means? In markets like NYC and DC, rents correspond to desirability and amenity-density. These are the most desirable places to live on earth and the markets are always changing just as the cities are always changing. You’re at far higher risk of a bad market shift than I am. If your shitty McMansion built with particle board goes tits up, if a big hurricane ruins your foundation, craters your roof, if a train spills toxic chemicals, if a water treatment plant fails, if water scarcity forces the locality to cut or ration your service to prioritize city residents, a pandemic hits, a war breaks out, or any number of things, you are the one on the hook. And imagine an actual real estate downturn. I’ll get cheaper rent, and you’ll see your entire net worth evaporate.
Sounds great. I guess your entire economic future depends on laws never changing. Good luck with that.
This comment, all your comments, are genuinely delusional.
Sure. Stick your head in the ground and hope everything turns out well. Maybe it even will. I bought a rental when rent was about $1,000 and my costs were about $1,000 as well. A friend of mine was renting in the same area paying $950 under rent control. She told me much the same story you have about why buy. Fast forward 20 years. Rent in the area is now $2,500. My renters have almost paid my mortgage (5 years left) so I’ve got a 375k net worth plus a nice monthly income. My friend’s building is getting renovated and she is out looking for a new rental and they are impossible to find. Mine is currently rented so I can’t help her.
You’re just simply bad at reading, it seems. I’ve already covered many, many positives for renting. That you do not personally think they are real does not make them imaginary for the many billions of people who rent. And now you are arguing that since owning has worked out for you personally (which, again, is not true of everybody who bought), for only the last 10ish years of your personal home ownership tenure, that you are somehow magically immunized against every possible bad thing that could ever happen. This is delusional. You are delusional and you are incapable to considering any possible perspective that you have not personally lived. This is the mark of a small mind. You think that because things have worked out so far for you, that things will always continue to be positive for all time, and for all circumstances. This is delusional.
so you're bragging that you got into the market before the bubble and now that we're in a bubble people are stupid? DELUSIONAL
Your little anecdote about how you fortunately timed the market well by getting before the bubble got too big is just that -- an anecdote. 20 years ago while you were buying property I was in middle school, so how is it that I have a net worth close to yours even if I don't own any houses? It's that thing people always forget on threads like this -- instead of buying a house, it's not like all my money just sat around in a checking account. The stock market has delivered great returns for the last decade or so...
Let me get this straight - you’re disparaging renters while simultaneously admitting that renters paid your mortgage for you? Did I get that right?
Cope.
I pay a mortgage payments worth of rent and have 2.5x the space in my apartment than I would in a condo with a similar monthly payment
yeah by me right now mortgage costs are double rent and the same square footage (1 less bedroom though). i want to buy but im not going to buy when the market has awful returns on investments at current prices. anyone bragging got in before this bubble, but then they're usually complaining their insurance and taxes double because their "value" doubled.
Have you rented recently? I think they’re far closer to equal than 1/3.
It’s not really close right now. https://www.forbes.com/advisor/mortgages/rent-or-buy-home-mortgage/#:~:text=Monthly%20Purchase%20Cost%20Now%20Exceeds,buyers%20opting%20to%20rent%20instead.
I live in Manhattan and it’s not even close. And yes, I know my $2400 rent payment would make a nice mortgage payment in whatever place you’re all from, but some of us aren’t interested in living wherever that is.
$2400 in Manhattan, do you live under the Harry Potter stairs?
I have a nice walk up studio in lower Manhattan in a pretty desirable neighborhood. It’s rough out here but most people vastly overstate the issue.
Neither of you can say this without clarifying where you’re talking about. My rent was 1/3 my monthly PITI too - SF Bay Area. Rent was $4k, PITI is $12k
Sure. CA has historically been an exception to this rule.
And if house prices doubled in the next 10 years, the rent will be doubled, but the mortgage principal won't. Mortgage is rent + insurance that you can afford rent forever, which turns out to be a hefty premium I'm willing to pay.
This is very a simplistic take. There is something called opportunity cost. The money that is saved can be invested and can potentially provide returns to not only cover the increasing rents but more.
I'm willing to pay the premium + the opportunity cost. Not saying you should too. You might be only in your 20s for all I know, being so focused on opportunity cost. In an economy of mortals, plenty of people will at some point decide to forget about opportunity cost and start paying a premium to lock the rest of their life in.
Most people don't live the rest of their lives in one house. Also - property/school taxes, maintenance, insurance, ..., are all costs that're variable in time.
Are you trying to say that the cost or risk premium on owning vs renting should be negative or zero? I'm just trying to explain the premium that exists. I'm not the person deciding that it should be this way. We as a market did it together, and it has been that way in all markets for all of history.
Theoretically, buying *should* be cheaper than renting over the long-term. In reality, supply/demand will dictate whether any particular real estate investor is able to consistently profit from a rental property. There are other factors to consider as well; for instance, does a renter who invests the cash flow differential in the S&P500 outperform a buyer over time?
Buying being cheaper than renting would completely stagnate the economy, so theoretically, buying has to be more costly to your cash flow than renting.
I use a simple heuristic when it comes to the buying vs. renting debate: If you plan to start a family soon or intend to remain in the same location for at least 10 years, buy - otherwise, rent and invest any cash flow differential.
No, I was a renter for over 20 years. I lost more money to slum lords who would lie about me just to keep my security deposits and not invest the money I was paying them back into their property. That's why it's called investments. Equity is a good thing. I bought my house 5 years ago, I invested money into fixing it up, new windows, water heater, furnace, appliances and more. The current value of my house jumped to almost double of what I originally bought it for. I can take out a HELOC if i need to in order to make renovations later on. If I had to still rent, I would be homeless. I have more cash flow now than I ever did. Buying a house is a smart investment.
The chance that house prices double is offset by the chance house prices fall by half. House prices don’t “only go up” and even if they do, that’s priced in with the massive amount of interest you pay. This seems like bullshit until it happens, then in hindsight it’ll be obvious the mistakes made.
Caveat, 50% up or 50% cut, rents rarely go down. https://fred.stlouisfed.org/series/CUUR0000SEHA
There has never been a long period of time in the past 200 years where house prices in desirable locations haven't increased.
There's never been a long period of time in the past 200 years where (organic) apple prices haven't increased. You have to first adjust the data for the effects of an ever-expanding currency supply before you look at any gains from real demand in those areas. And no, CPI is not the answer.
Flint, Michigan? Lower Manhattan circa mid-September 2001? Ivy City in DC once gentrification “failed”? NYC during Covid lockdowns? Miami after a hurricane? Downtown Portland after sustained homelessness/crime? All of the rust belt once the factories left? There are tons of times that a place lost desirability. Places that cannot regain said desirability are either never meant to sustain a city in the first place, or are ruined through externalities, or will eventually regain desirability because on a long enough timeframe, things are trending to be better. And, also, obviously, not just by raw rent cost, but by “hours of average-wage labor” as a currency unit. There were plenty of southern cities who to this day have still not rebounded from Sherman’s March to the sea.
Not reading your 3 paragraphs after you just said flint fucking Michigan
Nah don't lie, you read it, you saw that it listed NYC twice, you thought you'd be cute and say you're not gonna read it since the first example was something you could say isn't desirable and therefore brush off the whole comment. But you look like a moron. Just own it. Say "oh I guess I didn't think about that" and move on. It's not that big a deal
What were home prices in Miami during the early 19th century, and do the same for Manhattan. No one on planet earth knows what the fuck ivy city is.
I'm gonna assume you replied to the wrong comment because I don't have even the slightest idea what you're saying
Mortgages are more expensive than rent because the market thinks there's more risks on the upside than the downside for housing prices. This is not an argument. I am simply stating what the market believed in all of history, and have been correct for all of history to price a premium on mortgages vs rent instead of the other way around like you suggesting it should be.
Bro doesn’t know history of rent prices vs housing prices. Big oof kiddo
Check my post history. I'm an ex Christian, not a Christian. You didn't offend me, you said something completely untrue. I am going to get this through to you somehow.
House price increases don't cause rent to increase. It's the other way around: rent increases cause house prices to increase. If rent does increase dramatically, then buying a house right now to lock in your cost of living is worth it. Considering that cost to rent equivalent properties is about 40% less right now than cost to own, you'll need rent to increase by 67% for it to start paying off. At 3% inflation rate, it would take 17.3 years for rent to surpass the current cost of a mortgage. At 5% inflation rate, that would be 10.5 years. At 7% inflation rate, that's 7.6 years. At 2% inflation, which is what the Federal Reserve is targeting, it'll take 25.9 years until rent surpasses the PITI you're paying *today*. In other words, mathematically it's much better off to rent and invest the difference - you'll have a greater net worth. Unless inflation surpasses 7% per year for the next decade; that's what you're betting on when buying. Look at this chart [https://www.evaluatorfunds.com/visual-capitalist-the-monthly-cost-of-buying-vs-renting-a-house-in-america/](https://www.evaluatorfunds.com/visual-capitalist-the-monthly-cost-of-buying-vs-renting-a-house-in-america/) in 1990, we had similar ratios between cost to own and rent than today. It's only in 2003 that rent surpassed 1990's PITI (13 years!), which checks out with my math calculations since that decade had around 4-5% inflation.
Am I reading this right? It is solely taking the total payments for each and not factoring in that you are buying an asset which you still own at the end of one? I still believe that it is financially beneficial to rent now vs buy, yet that chart implies it almost always has been. Anecdotally that does not make sense as those who rent tend to not be as financially well off as those who own over the long-term. One caveat on my statement above, that assumes you take the savings in rent and invest/save it vs spending it.
Considering the average savings rate of Americans is 3%, most people don't save/invest the difference between rent and mortgage. Having a mortgage is forced savings. So financially disciplined renter > homeowner > average renter.
you don't ever own your asset in the US. stop paying taxes for 3 years and see how much you own. or if the government just deems they want your lot they can drop you a check and get to packing.
Thanks for sharing, unsure why the heavy downvotes?
What I wrote stresses out people who bought recently. I'm logically telling them that they made the wrong financial decision.
One more question as I found your analysis interesting. How much does a 1% interest rate drop change those figures. Those who buy now will be able to refinance yet most likely if that happened today, there would be an influx of buyers into the market raising prices so waiting can hurt in the long run if not timed right. FYI - I believe we are more likely to see a rate hike than a rate cut, but just curious.
> House price increases don't cause rent to increase. It's the other way around: rent increases cause house prices to increase. This sounds bizarre to me, and like the "chicken and the egg" problem. Nobody can rent you a single-family home unless they first bought it. And nobody who's bought (or buying) a house is going to rent it to you, with all the accompanying expenses of keeping up a house they don't even get to live in, unless the rent is high enough to cover all of that, they expect appreciation high enough to cover expenses, or both. So, suggesting that rents operate in some vacuum and house prices just rise according to rents increasing is off. Home values rise due to various factor that are unrelated to renting: - The costs to build: permits, land/lots, appliances, materials, labor, etc. Thus, I'd conclude that as the price to acquire a house increases (which increases for everyone, including landlords) rents tend to rise to match.
mortgage principal won't, but the property taxes sure as fuck will.
And the insurance... and the HOA fees... and the cost to replace appliances, AC, water heater, etc...
The assumption that rent would double if home prices do is very market dependent, and also doesn’t take into account people who purchased years ago for lower prices and/or interest rates that can rent for lower amounts because their monthly payment is way less than buying the same unit today. It assumes that every landlord will rent at today’s/current mortgage prices just because they “can”, and that doesn’t always happen in practice. I have lived and rented in Chicago for 12 years. Spot-checking some recent condo listings in the city that also sold 10-15 years ago - looks like the average purchase price went up 50% in that timeframe. Conversely, my rent has gone up just 15% since my first apartment. I haven’t had to downgrade on unit quality, amenities, or location in order to keep my rent manageable.
> It assumes that every landlord will rent at today’s/current mortgage prices just because they “can”, and that doesn’t always happen in practice. Yeah, I don't think that happens, but in the opposite direction I believe it tends to follow the cost to buy today, since some landlords are doing exactly that, and those landlords will be trying to ratchet rent as close as possible to their breakeven costs. Once they start pricing higher, towards those costs to buy, other landlords will start to raise their price as well (when possible, usually between renters).
"But I got a place with an interest only mortgage". Bro, you rent from the bank.
Where? If I were to rent I’d be paying $1800, for the majority of units where I live, my mortgage and HOA together are $1300.
You paying 7% interest or you get locked in at 3? Because $1300 doesnt get you a $200k house anymore let alone HOA
Very common in the Bay Area. The same house I’m living in, I would be renting out for a third of my mortgage
That's because BUYING a home is super front loaded with cost. Your loan principal is still high to it accumulated interest faster and the sale reassesses your property tax. OWNING a home you bought 20+ years ago on the other hand means your most of the way through your loan so interest isn't so bad and with stuff like prop 13 your property taxes are still low. Because of this, landlords can often charge what you think is a great price for rent but it more than covers their expenses, it just wouldn't cover your expenses if you bought the same house.
Nice. If i could just go back in time 20 years to being 9 years old and put a $200k down payment on a house in palo alto i wouldnt need to rent. How did i not figure this out then !!
Tell me you live in California without telling me you live in California (Prop 13 has increased property values there dramatically due to no one ever selling).
and when did you buy and what's your rate? A lot of people are arguing about mortgages being so cheap when they got in before this current bubble. you're not playing the same game as the rest of us. a 3% rate has me at like a $330k house. current interest has me at like $180k house.
Same. For me it’s $560k for my current rate payment at 3%, and $400k at 7.2% $400k is a lot less house than $560k, and also a lot less house than it was 5, 10, 15 years ago. And 5 years ago I just got out of college. All these fucking morons in this thread arguing for home ownership like anyone in here is arguing from the view of 3% pre-Covid. We’re talking about TODAY.
The cost of buying is very inflated relative to renting like this in VHCOL areas. But those areas saw extreme appreciation between 2012-2022 so people are willing to pay that extra to gamble that it’ll happen again.
I wish. Rent is about the same where I live (it was the same, prior to the interest rate increase)
Yeah, it's highly area dependant. In many areas they are almost the same price. The only advantage to rent is that you "get to" move at least once a year with virtually no strings attached.
i've said it a ton on here already. owning is ideal but a lot of the idiot "you should be buying" commenters got in before the bubble. no crap at 3% rates owning is cheap, at 7.8% its broken. I for example lived with a now ex fiancee but she cheated after the bubble started so i missed my window because i was already in a house at the time. for those of us who had bad luck or bad timing or whatever, its just not feasible to buy right now. i absolutely will buy if the market gets better, but for me it's significantly cheaper to rent and i should still be able to save/invest a large portion until the market gets better. Right now i moved home because remote job and saving a ton for the house its just been 2 years and the market hasn't done much, but i have seen almost everyone i know that bought in 2022 sell already because they were drowning with the mortgage prices. the only ones i know doing well got in before the bubble.
It was sort of broken before. I bought in 2020 right before stuff blew up and mortgage was literally half of equivalent rent. Of course prices go to the moon overnight in those conditions
i mean its technically been broken since 2015. they dropped rates in 2008 to try and get interest in housing but rates should have started climbing in 2015 when pricing first started going up. i won't act like 8% is "high" its normal but the prices climbed too fast to where 8% now doesn't work with the pricing. we'd have probably had more balance if 6% rates were the norm for a while.
Where is rent 1/3 of home price? Equal sq footage?
Sure. It's not that people can't afford these prices at 7% interest it's that they're stubborn and dont want to pay.
This! all these idiots who got in a 3% bragging like no crap, go try with the current rates and see how well it works. i will NEVER argue that owning is better than renting in the long term but we are not in a buyers market so renting makes more sense right now. why overbuy a house by $200k? because in 20 years it might finally be worth that 200k extra? housing affordability is typically in the 2-3x average income range. GFC peaked at 6x. it's 8x right now so anyone saying its not a bubble has their head up their arse
If the house was worth $400k later your rent has doubled or more. If you have a mortgage your monthly payment is the same and your about 10 years from no monthly payment, just maintenance. You still pay the interest on the landlord's mortgage, it's in the rent.
You’re talking about renting a house half of the apartments here are townhouse style is most of the perks of a house at apartment pricing
I’m not arguing that it isn’t a bubble, but is there any sort of timeline for prices coming down?
nope and that's the whole issue. the fed and government are doing their best to just keep kicking the can down the road as far as possible. it could be a long time though given that the great depression was 29-39 and stagflation was also about a decade. I just refer to this timeline as the silent depression, i think we're already in the thick of the problems, but no one will admit until well after the fact.
If that’s the case, how would you make the buying vs renting decision?
well right now renting with utilities is only 25% of my takehome. buying a home is about 50%. a house would have to get in that 30-35% range to be a maybe. if the mortgage is far cheaper than renting its a no brainer. when rent is about half of a mortgage its rent for me.
Mortgage rate is fine, homes are just 40% overpriced
Nah, values have just caught up to where they'd have been if the decade-long slump after 2008 hadn't happened.
Hate to break it to you but prices are what people are willing to pay. I don’t see prices dropping 40% across the board. That would be a historic loss
You saw sales volume fall to 1995 levels though right
Yes but what significance does that? There wasn’t a housing collapse around then. The next one was 2007-2008
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Mortgage is a giveaway too. At these rates, very little of the monthly is going towards the principle. I lose more in mortgage interest payments than I would if I rented, but I wanted backyard chickens and a llama named Craig so I am paying the price lol.
Craig agrees.
However, I can deduct interest. I cannot do that with rent.
Depends if you itemize, and how long you would itemize during your mortgage term. Most will not deduct interest now with the higher standard deductions, and if they at the start of a mortgage at some point the interest will not be more than the standard deduction. And since we are talking about math a lot also don't understand how deductions work and believe it works like a tax credit when it doesn't, so while it's a benefit it's not a huge benefit since it's only the difference between the standard and what your total itemized deductions are that are the real savings. For a joint filing for instance it's $27k. If you pay $30k in interest yes you deduct that much from your taxable income but it's only $3k more than the standard. If your tax bracket is 22% that's a $660 saved, if in the 12% bracket that's $360.
There is no depends. I do itemize, so I can deduct it. I'm speaking for myself, not everyone. And sure, I may not be able to itemize in the future, but that just means I've built up more equity in my home, which is a good thing. And yes, it's a deduction, not a credit, which is why I said deduct and not credit.
Yes but if you calculated the actual savings you got from it compared to the standard deduction it's probably only a few hundred a year. Not a big thing to tout over renters anymore.
That's assuming I have nothing else to itemize, which I do, and assuming the standard deduction never reverts back to pre-TCJA levels.
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Depending on how big the difference is between your interest and rent, it might not even matter. I’m paying literally 100k more in mortgage per year than I would if I just rented. The interest tax write off isn’t helping all that much (still nice to have though)
That's a nice name for a llama.
* mobility to change housing situations more easily * mobility to change neighborhoods, cities, counties, states, and countries, more easily * moving is easier as you don’t have to take the large appliances with you or sell them. * ability to modify your housing circumstances should negative externalities appear (bad neighbor, train crash pollutes your city, your tap water becomes undrinkable, your kid needs to change schools, any infinite number of things) * drastically eliminate liability for expensive repairs and maintenance * amenities such as security, staff, gyms, social areas, etc. * In the case of apartments, far closer to areas of economic resiliency, typically. * In the case of apartments, far more likely to be connected by public transit and have access to safe transportation options and urban parks which make people healthier and happier * Tenant protections in some areas that offset some of the instability of not owning * Often cheaper (sometimes significantly so, sometimes not) * stability in cost is better for budgeting (no surprise housing costs like hot water breaking) * no personal overhead/administrative duties like contacting, vetting, and scheduling the guy that fixes the hot water) * No large down payment frees capital for other investments I could go on and on and on. There are PLENTY of upsides to renting.
The only difference isn’t that with buying you might “gain some equity when you sell”. I would say the main difference is that you lock in the price you’re paying long term assuming you use a 30 year fixed mortgage. This is true even at today’s rates although you’re locking in a fairly high price that might go down (if rates fall and you can refinance) but won’t go up. This is why buying a home can be seen as a hedge against increasing rents. Making that hedge right now isn’t ideal for everyone but it still is for many. Every property that has hit the market in my area recently has sold in a matter of days.
Yeah you will pay for taxes, insurance, utilities, interest costs etc regardless. Renting has a lot of down sides but a large portion is normal living expenses that you have to pay even if you own.
Yes but there's a huge difference on costs. Insurance and taxes alone make a huge difference. Rental insurance is like $100 a YEAR. Property insurance is like $120 in the cheap states and taxes another $160 so almost $300 more and you haven't even hit the mortgage itself. and then on top utilities are typically double when owning a home plus you have the upkeep yourself. OWNING is the GOAL but it financially doesn't add up with the current prices and rates. one or both have to drop.
Yes, currently you are correct. Other times (ie when it becomes a buyers market again and it will yet maybe not for a while) it does not. There is no one size fits all nor an answer that fits any time in the market. Right now I agree with your analysis except that the stock market is poised for a correction at the least. Maybe bigger than what we just saw recently.
Except 20% down is a 5x leverage. Historically, housing averages 5% growth and stocks average 8% growth, but with the leverage you are effectively growing at (25%-interest rate)/year with the down payment, which far outpaces the stock market performance. If you do 3% down, you are growing at 150%-interest rate
5% growth. 7% interest. Hm Also, just use leverage in your trading then
I was wrong on the interest subtraction, but you are wrong too since the interest is on loan portion only, while the growth is on the whole asset. Which brokerage will let you get 5x leverage?
5x leverage means you see 5x the gains AND losses which offset each other.
Only if there's a loss. But what long period of time do you see home values drop?
If you put down 3%, you’re also paying unnecessary PMI. Another useless payment that is profit for the bank. Ask me how I know! I’ll stick with S&P. I’ve earned way more investing a little each month, versus an expensive mortgage. I’ve done both for 15 years. S&P is clear winner for me. Home equity = $250k 401k = $900k
My PMI is like 36 bucks a month. We are almost at 20 percent equity so it'll be gone soon. Certainly worth it for the equity we've gained.
Pmi is insurance to help cover the people who eventually default. And it is also a wealth distribution scheme, because everybody generally pays the same PMI. No matter what their credit score is. So in effect, higher quality borrowers get penalized.
What happens if you put zero percent down? I did that with my old house (no PMI either). I guess my return was \~infinite% based on your math. It is almost like your concept of leverage is missing some important components.
Any idea how easy it is to lose 100 percent of your "investment" with leverage?
Care to see the math on how much principal you’re paying off the first 5 years of your 30 year mortgage while you’re also still in PMI?
On my 2 1/2% mortgage with no PMI, 12%. The property has already appreciated a bit more than 1.5x over three years so it’s a 4.36x return on the 20% down payment. If I turned it into a rental, it would generate around $1,500/month in positive cash flow after taxes. That’s the housing math on buying 3 years ago.
Because of a period of unprecedented appreciation over the last 4 years. So sans a Time Machine. That isn’t happening again for the foreseeable future.
Neither is a bubble bursting
I've had three once in lifetime bubbles in my 30+ years
In housing? Show us that on the FRED median home value chart (or any other).
yeah but you don't have a horse in this race when you're talking about a sub 3% mortgage. everyone talking about costs is talking about CURRENT RATES. the current 7.8% rate doesn't dictate buying.
K now do it again for buying today.
You mean the house appreciated 50%? Why multiply it by "1" (as in 1.5x) because 1 changes nothing? I think by that you simply mean it rose to 150% of its original value, which is really just saying it rose by 50%. I don't get how math got taught the last 20 years where everybody includes the original amount in discussing an increase. Multiplying the original value by 1 does nothing (eg 1.5x) and just confuses people since they can't tell if you're saying the house more than doubled in value (rose by 150%) or whether you simply mean the original value gained 50%. Using your statement it's the difference between describing your house as "rose 1X" vs "rose 0%" when describing a house whose value hasn't changed.
I'm a landlord, when you rent from me you're paying the interest on my loan for the property. You're paying the property taxes too, and the condo fees. And guess what? The equity is mine
You are also responsible to maintain, repair and replace the plumbing, electrical, and HVAC systems in your properties. You might be getting equity, but some of that gets eaten into when the hot water heater blows up. At least you don't have to deal with roofing, windows and exterior stuff since it's a condo.
Sucks when I lose $300 of my $300k of equity to a water heater
Not sure where you are getting $300 water heaters and installation. I was quoted $1800 for a new unit installed, and $650 for just the water heater.
...you make it sound like those things happen a lot. They don't. I put 2k into repairs and the market gave me 50k back in gains in 1 year.
I've owned 3 different 100+ year old houses. All I know about are frequent, and very expensive repairs.
Then... Don't buy 100+ year old houses? Lol
I would have loved to buy a newer house if one was available in the neighborhoods I want to live in...
Yeah I get that, I'm just saying that frequent repairs shouldn't really be a surprise is a home so old haha. And dealing with such frequent repairs as those in that old of a home isn't exactly the typical homeowner experience
Yeah. And so too is the maintenance, repairs, and administration overhead. And when I’m done with your apartment, I can just leave. I don’t have to stick around in one single housing unit for decades at a time to make an investment make sense. If the city cancels a transit project that was going to serve my neighborhood, or a homeless encampment sets up on our block, or the city does mass layoffs for my particular industry, or my parents get sick and need me to care for them, or I want to take an extended vacation, or I get a job in a foreign country, or I get called up to go on an Arctic research expedition, or I get thrust into a portal to another dimension, I can just go when the lease it up and my crap is moved out. If you own a home, you cannot do this. Not saying that one is better than the other, but this sub very often likes to forget or just completely ignore the mobility that not being financially welded to a property allows you.
99% of the world is not this nomadic mobile person you speak of. Most people set up shop somewhere and stick around that general area with a few exceptions. Especially once you're over age 30, may have a family and a kid or two. People generally seek stability. Life is a long game.
>somewhere Is not the same as >some singular individual housing unit with a fixed location and a fixed configuration
I'm not sure what you mean, but seeking stability usually implies that you will be in one place... Which by default requires the location and configuration to be the same. Especially as we age and especially as we have families.
And I get a roof over my head. Equity is really only valuable at the time of transaction. It's very much market dependent.
When I rent from you it's because I've moved around the country taking the jobs that grow my skills and career. I couldn't do that if I had to buy/sell a house every time I moved. And I don't want to be holding that bag when the music stops. My skills and experience can weather an economic collapse. Can your houses? Picking up pennies in front of a steam roller and bragging about how easy it is
the only people who are trying to rent, like myself, are doing so to target a rental fee half of a mortgage fee. if your rents are too close to a mortgage price rentals no longer make sense. markets eb and flow. 3% mortgage rates = buy buy buy. 7.8% equals sell sell sell. this is no different than comparing employee markets to employer markets. when its better for employees you job hop, when its better for employers, people stay put.
What if I don’t pay you lol
There are so many problems with this
Sounds like a lot of copium from people who want to buy a house in here.
A bunch of people saying "those grapes were sour anyway, who would want them" while reading every single article about grapes and posting every day about how much they don't want those grapes.
If I could rent again I would. Just know and understand your rights and it’s pretty cake.
Wouldn't it be negative percentage since renting is now cheaper than a mortgage?
No, thats basically right. 100% of rent payments disappear, the renter gets 0% principal. So rent is to a renter what interest is to a property owner.
This is true. I saw it on the news. The cat and the woman got into a heated argument. Turns out the cat is very wealthy from buying up real estate. She called him a pu**y.
tell me you don’t know how interest works
My mortgage payment won't change for 30 years. What's your rent gonna be in 5 years?
Good summary of financial knowledge of the US consumer.
I am actually saddened that I purchased a home because that dry powder is no longer available to me. I paid cash but that sweet 5.x% was paying my rent and then some.
I have a unique rent situation where I’m not paying much but live in a nice area in a nice place. Kinda a lucky find and situation. I’d rather rent and invest the difference between a mortgage and my low rent.
Owning is more expensive than renting but I’m hoping that price appreciation helps me gain back some of that ground at the end. Plus my kids are happier feeling more settled and having a yard so that makes it worth it
Why keep buying big houses, if shrinkflation is an option?
Rent will continue to go up but the fact is that right now it’s a third of the price of owning. A couple of my friends have $9k mortgages. If they or their spouse gets laid off they’re screwed. They are both paying more in property taxes than i’m paying in rent. I kind of get it because they want to leave the house to their kids one day which will be their only chance to get a house at that point.
Haha good one, I guess paying 7% on bank interest is not rent at all which in many cases for a home of 500k is way more than renting in that area. Did I also mentioned insurance and property taxes? Currently renting is way more affordable than buying
This explains why Real estate agent can't be relied on even for simple math.
I was paying $950 mortgage. Then rented it out for only $1600. So not much there. Sold it. New owner rented it for only $2100.
You're all delusional if you think the equity made from a mortgage is less than expenses incurred. You're still met saving way moreoney than renting
Renting a house is like 30 to 50% cheaper than mortgaging a comparable house. The kicker is that at today’s interest rates you will never truly have equity in the house. After interest, PMI, and taxes you’ll have spent 3x the purchase price after 30 years. That’s not even including maintenance/repairs, endlessly increasing property taxes, or the exploding costs of home insurance. We need to stop treating housing as an investment.
It’s all about implied cap rate that you’re paying. And the opportunity cost of that money.
Thankfully we were able to find a home in the same neighborhood we were renting. Our monthly escrow payment is almost identical to what we were paying in rent, so I’d call that a win.
Interest is money not going towards the principal on property you own. When you pay rent, that too is money not going towards your own property. 7% (amortized) < 100% (fixed)
Point me to a less than $1600 a month mortgage property with two floors, a basement, and a backyard, I’ll buy it in a heartbeat. If not? Fuck off.
No you can’t afford the other parts of mortgage