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Comment by douche | Hacker News Reader

With the state of rental rates at the moment, if you can scrape any kind of down payment together, it's worthwhile to buy rather than rent. Even if you are on a 3.5% down FHA loan, the mortgage + taxes + PMI is considerably less than renting the equivalent property.

If you're smart, buy a duplex, and basically get your tenant to pay the mortgage for the whole building.

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That very much depends on where you live. I have a pretty thorough spreadsheet for modeling this kind of thing.

Even if I had a 20% down payment, fully accounted for tax deductions, payment against principal, etc, and ignoring costs like maintenance, my lease in Seattle is significantly less than the monthly cost of a mortgage for the same place.

This is true more often than people expect. Many landlords are not covering a mortgage payment as large as yours would be, or any mortgage at all, with your rent check. Their cost basis is not your cost basis so it is not unexpected that the market clearing price for rent is below the monthly cost for many people to buy the same property.

> Many landlords are not covering a mortgage payment as large as yours would be

Why not? I can understand already owning the property, but do property-management companies just get better mortgage rates or something? Does that mean I could theoretically save money by buying a house as a company and then renting that house to myself as an individual?

At least where I live, many landlords have no mortgage at all, because they just buy properties with cash. Another scenario would be a landlord making a very large down payment, and thus, financing a much smaller amount, and thus a much lower monthly payment.

There are a number of reasons beside owning the property outright. They can make a bigger down payment than you can, so the total debt is lower. They bought it at a much lower price many years ago. Their total capitalization is much larger than yours, which drives interest rates toward zero. Their tax basis is different than your tax basis would be.

It is straightforward financial math. If they have more capital than you or a different tax basis, they can have a lower monthly cost basis than you.

Also, the landlord could have bought the property before the price went up. Their mortgage does not necessarily reflect today's price.

Maybe they bought it 20 years ago - in CA that would be lower price and lower property tax.

Rents are set by the market not the interest rate.

Out of curiosity, did you deduct the expected end value of the owned property from the end total expenses?

What's the likelihood your rent in, say, five years will still be less than your mortgage would be now? Your mortgage payments won't appreciably increase. In high demand areas, though, rents will.

If renting is cheaper than buying right now, a better question is whether rent will increase faster over the next five years than an index fund portfolio funded with the difference.

There are calculators for this, NY Times and Washington Post have them. Your anecdotes can be played around with variables on their data visualizations.

The break even point is typically 11 years in NYC and SF. Find and play around with the calculators yourself.

> my lease in Seattle is significantly less than the monthly cost of a mortgage for the same place

With an amortization period of how many years?

This is very interesting to me, because the median rent in Seattle just crossed $2K while the median condo price just reached $410K. Since you said your ignoring all the extras and just talking about payments after 20% down - that means with the current median 3.28% interest rate in Washington for 30 YR loan you would only be paying $1,433 a month way lower. Sounds like either your math is bad or you just have a good deal :)

Typically HOA fees don't exist in rentals where as in condos that's an extra fee you're paying every month in addition to your mortgage. The $400k condo is going to have a substantial HOA fee.

I only have knowledge of my local area, but for condos around the $200k price range here have HOA fees around $500/mo. That would put him right back at a wash for monthly price if they didn't put any down payment on the condo.

$500 a month to an organization that tells you all the things that you can't do with your own property? That is absurd.

I agree (which is why I live in a single-family), but to be fair, the HOA/condo fee also typically pays for things like the outside maintenance, snow removal, common area maintenance, roof, painting, landscaping, pool/tennis court/gym/what-have-you, trash removal, insurance and other expenses relating to the shared/public areas.

The value in that is that they also tell your neighbors what they can't do with their property.

For some condominiums (especially apartment-style, many-units-in-one-building condos), HOA fees often largely go to maintaining common areas and shared structure.

This is often less true with detached, single-family homes with HOAs.

Great point! Just looked it up and the last information I could find showed just below $500 as the average HOA in Seattle. In theory based on the original guidelines you still end up ahead - but it's very close. I recently bought a SFH in Seattle and it ended up way in my favor over renting for things people choose not to include in the other direction (having to pay for parking, having to pay per pet, etc)

Depending upon how well / poorly managed the HOA is, HOA fees for $200k condos can easily exceed $500 / mo. The condo I sold for a substantial loss in the Seattle area in 2010 at $175k had a $280 / mo HOA due for a pretty terrible set of amenities due to a lawsuit that was eating up all the funds. As the HOA dues go up, it can further suppress gains. Then comes some special assessments like new roofs. As such, I consider HOA dues not too dissimilar of a hit on an investment like expense ratios / management fees in a fund, except I've heard of few HOAs that could improve your property value the more money you paid in unlike something like a unicorn actively managed fund.

You are making many improper assumptions. My case is not "median", the distribution of rents and prices are often not the same, and the relationship between rent and price can vary significantly between locations within Seattle at any particular point on those distributions.

The breakeven mortgage based on my rent by my best calculation would be around $700k, depending on a number of factors. For better or worse, places like I rent sell for much more than that. Having been looking at condos all over Seattle, the relationship between price and rent vary significantly by location.

Your right I'm making assumptions in your favor, it just so happens the size of places people buy tend to be much larger then the ones they rent. In fact it's hard to even find many 2 bedroom rooms for rent in Seattle while they are the norm for condos. As someone who's recently bought in Seattle I've looked in most of the in demand areas (Fremont, Ballard, Capital Hill, Green Lake, Wallingford, Revenna, and Belltown) - and across the board it's significantly cheaper based on your guidelines to buy. So unless your talking about the same exact building - or maybe only new building I would be very surprised to find out otherwise. (

Link to spreadsheet? =)

I'm always curious to see how others have modeled this decision.

Unfortunately the economics don't really work out for those in the Bay Area.

Depends on where you are though.

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