Comment by statusquoantefa | Hacker News Reader

Comment by statusquoantefa | Hacker News Reader

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statusquoantefa

well, it's difficult to predict on the one hand.

on the other hand, it is easy to predict that: when the average joe holds "home ownership" up as the sterling example of "making it"; then the average politician will determine that the best way to make voters happy is to increase home ownership by lowering barriers, and exempting home ownership from risk, taxes, estates, bankruptcy, medical expenses, etc. all in the name of "obvious" fairness;

then [it's easy to predict that]: mortgages and mortgage backed institutions will become unsound.

TL;DR a crisis like this is going to happen again, and it happened before, see previous "savings and loan" crisis.

bonus lesson in finance/accounting: if the problem is framed and worded properly, it's easy to see that money paid for rent is not actually "wasted money down the drain", and that it is a fallacy that it is better to put the money toward a mortgage.

Let's say out of college you live in your old room at mom's while you save money to get your own place. Your job turns out well and you're making good money, but instead of renting your own apt, you stay at mom's to save for a down payment on a first house. You save up, and you buy a place. OK so far?

Now owning your own place, do you move into it? Well, think about it, you could stay at mom's and rent this new place you own out to somebody else and let them "waste the rent" while you collect all this fingerquotes "free money". Id est, i.e., if you move into your new place, you are essentially depriving yourself of the rent that you are entitled to earn from it; you effectively pay rent to live in your owned home. You are the one "wasting the rent money".

And the extra details actually work against you: mortgage interest expense is tax deductible, right? Well, if you rent the place out, ALL expenses are tax deductible, that's more deductions than if you live in a place.

As an additional point, is rent "such a waste of money to the tenant" that wealthy people (let's use Bill Gates as an example) buy lots and lots of houses and apartments to rent out to the rental suckers? no, they don't.

TL;DR purely financially, owning is not better than renting; rent is not wasted money, at least not more than the fingerquotes rent you spend when you live in your own place.

The one case where ownership has really shone over the past decades is that it's the only form of leveraged investment that's readily available to the public. In many places an "average" house has "earned" more in appreciation than an average salary every year.

Thats often due to ridiculous accredited investor laws designed to make sure the rate of return on capital is greater for the rich than the poor, who are only given government approved and thus lower returning options.

Those are designed to prevent people from getting scammed, after numerous incidents. Because the absolute best "mark" is someone who thinks he's a sophisticated investor because he's watched some videos on youtube. People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out.

Also, leverage: if you're borrowing money to make an unsecured investment in a scheme, disaster awaits.

> People like to cite "higher returns" but only after conveniently ignoring all the ones that didn't pan out.

The United States allows 'microfinancing' via kickstarter, where poor people are allowed to give money to new ventures without any expectation of return on the given capital. Meanwhile, the rich get the opportunity to invest for actual returns on capital. Do you think an accredited investor is going to give money on kickstarter when they could offer cash as an investment?

So why is giving money allowed, but spending the same money on acquiring shares not? The answer that 'some people got scammed' does not excuse the fact that people are still allowed to spend the same money today, without consumer protections, while not receiving any benefit. In other words, we have created yet another way to privatize the benefits of new ventures (by only allowing rich people to profit off of them) while socializing the costs (the people asked to contribute to new ventures without any ownership interests via microfinancing platforms). The response that this is for consumer protection is crap, and anyone not blinded by legal confirmation bias can see that

Maximal investment limits based on income are perhaps appropriate, but wholesale banning is morally reprehensible, and a direct contributor to income inequality.

yes, but the point of my post is that the unwarranted enthusiasm for "home ownership because rent is a waste" leads to political destabilization of sectors of the finance markets. In terms of the point you raise, the "rent is a waste" belief means that your leveraged investment in housing just keeps you on the escalator because, while your investment has appreciated, you would need to roll it over into your next house, i.e. you rarely/never get to treat it as disposible income.

and all the bankruptcies and home foreclosures in an economic downturn shows the cost of high leveraged investing. A better way to achieve leverage is high beta stocks. Beta behaves just like leverage, except it automatically rebalances debt/equity on the way up and down. And the base rate of growth of the stock market is substantially higher, so you are leveraging a higher rate, even though you can't lever as much as a home.

and don't forget, owning a home and living in it as real estate prices rise means that you are "throwing away" higher and higher virtual rents that you would be entitled to collect and which factor into the value of your home.

Renting has a lot of overhead. You are not only paying the landlord's profit (~100/month excluding equity is the figure I hear thrown around), you are also paying for the time your unit is vacant, and for some of the costs assosiated with bad tenents.

Put another way, as a landlord you are the best tenent you will ever have.

> purely financially, owning is not better than renting; rent is not wasted money, at least not more than the fingerquotes rent you spend when you live in your own place.

Only if you're having no kids which you plan to leave some wealth to inherit. Owning a home is the way for the lower/ middle class to build up trans-generational wealth. Let's just take the following example:

1. I buy a home today and pay it off in 30 years (standard schedule).

2. I get a kid in three years.

3. The kid is ~30 when I become a pensioner and move off to Croatia to smoke pot all day and night... meaning the kid can either move with his family into my fully paid off home, rent it out or sell it off at 4-5x the "original" value. Either way, my kid can keep a vast proportion of his paycheck and either save it up or investing it, thus creating wealth.

If I will spend the rest of my time renting, however, I will leave nothing for my kid to inherit and use as leverage to build their own wealth.

I mean if you rent you could leave your kid actual cash or investments which are higher returning than houses. Then they can buy three houses

Which cash should I leave them when all I make is going to rent?! For people who are not in the US tech/finance bubble, there is no way to accumulate any money other than paying a mortgage on a home. Hell even the US tech bros have difficulties finding an affordable price to live, if one goes by common Reddit/HN sentiments.

But you had to have saved up money in the first place in order to make a downpayment on the mortgage. If your rent is so expensive that you can’t save any money then you aren’t going to be able to get a mortgage anyway. And if you can save money for a downpayment then you have to compare the opportunity cost of investing those savings versus using them to buy a house.

> But you had to have saved up money in the first place in order to make a downpayment on the mortgage

Now you understand why my generation is so truly fucked.

>And if you can save money for a downpayment then you have to compare the opportunity cost of investing those savings versus using them to buy a house.

The house will always win if you are in any metropolitan area. In 20 years property prices in Munich, for example, have tripled or quadrupled, if not more. If you're not in a metro area you don't have the rent problem anyway.

> Now you understand why my generation is so truly fucked.

No. I find it incredibly difficult to understand why my generation seems to be so truly 'fucked'. Especially, the type of people who are on HN should be able to save money and make a down payment.

you are exactly right, but when people have bad ideas lodged in their heads, it's difficult to dislodge them.

How does it work out when your mom lives 5 hours driving distance from that place where your good job is?

How does it work out when your mom is renting herself and when you went to university she started renting a smaller place without extra room, to save some money?

rent vs own comparison may look a little different when you actually need a place to live

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