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Comment by rootusrootus | Hacker News Reader

The problem with comparing housing prices to the stock market is that if I were not putting $2500/mo into a mortgage, I'd be putting it into rent, not the stock market. So the comparison might work for a second home purchased strictly as an investment, but it's not really on point for a primary home that you will be living in.

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If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you'd put in the stock market for the purposes of these comparisons.

A good "rent vs. buy" calculator will let you easily visualize these terms, e.g. this [NYT calculator](https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...) which helpfully shows you the sensitivity of the outcome on each parameter.

I think your model here oversimplifies and misses some of the key details.

In more detail, you need to consider that your mortgage is going to be more expensive than rent, so if you're renting you have an extra $X/mo to invest in the stock market. Plus you have your deposit $Y that you'd invest in the stock market as well. Then you need to make your prediction on what the growth rate per annum of stocks vs. real estate is going to be, and compound your investments accordingly over time.

> typically: 1. rent is less than a mortgage

Why do you say this is typical? It depends on what you rent, of course. If you rent a house that was purchased a long time ago, it can be less. But a lot of rentals are in apartment complexes, and are newer and more expensive per square foot than equivalent purchases. I also think typically rental units are smaller than houses for most people, so I wonder whether you're really comparing apples to apples. Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs.

> if you're renting you have an extra $X/mo to invest in the stock market.

People usually use the down payment as the capital opportunity cost that you can invest as an alternative to buying a house. My question is this: statistically, how many people actually do it and make better returns than buying a house? It's one thing to talk about it being possible, and another to actually do it. I don't know how to consistently make better returns investing than I've made on my houses, and I'm not sure I have the energy to stay on top of it every month. Note your suggestion to invest instead of rent involves monthly adjustments of your investments.

> Why do you say this is typical?

It looks like I'm just mistaken on this one, it seems that in some markets rent is cheaper.

I think you're right that it's not apples-to-apples though, I suspect that median rental stock is typically less well maintained than it would be if it were owned, in the markets where rent is cheaper. I think most people are indexing their price point on things like square footage, yard, location, etc., and not necessarily all of the factors that contribute to the cost of ownership to the landlord.

> Consider that for any given house, rent must cover the owner's mortgage, so it cannot be less than the purchase costs.

While this is true for owners that buy with a mortgage and then rent the property, I don't think this logic works in general -- it's not uncommon for the owner to own the property outright; this could be an individual that inherited a house or paid off their mortgage, or a large company where they are investing capital in houses instead of borrowing (e.g. a REIT); in that case you have a target yield to clear, but no "mortgage costs" per se.

> I'm not sure I have the energy to stay on top of it every month.

The standard recommendation here is to put your money in an index tracker, which has very low fees and essentially replicates the performance of the S&P 500 or whatever market you want to track. https://investor.vanguard.com/etf/profile/performance/voo would be one.

Anyone who bought the S&P and held it for 10 years made about 14% YoY (more like 10% if you take the last 30 years), and that's not considering the liquidity premium (i.e. you can exit your stock position whenever you need to, whereas selling a house takes time and effort).

> Anyone who bought the S&P and held it for 10 years made about 14% YoY (more like 10% if you take the last 30 years)

Anyone knows a study with other than US markets where they compare local index stock performance with housing cost? E.g. Switzerland, Eastern Europe, etc.

> 1. rent is less than a mortgage

This is highly variable. From what I've heard this is usually the case in the USA, while in Europe renting is often much more expensive than a mortgage on a similar home.

Agreed. Even in the USA, from what I've seen, if you put a 15-20% down payment towards a home in a strong rental market (or what used to be), the mortgage will be less.

I moved into a residential development about two years ago, and people were buying houses and renting them out nearly immediately. Not sure what they pay on it, but for my scenario, renting the equivalent was about $200 more per month than getting a mortgage (taxes, maintenance and all). And the difference was increasing right up until the pandemic happened, not sure where it stands now.

If you're willing to put a solid down payment into a home, you can pay less than rent would otherwise be, it's just a matter of how much.

> I've heard this is usually the case in the USA

Where have you heard that it is usually the case in the US? I have put money into two different housing markets (Dallas-Ft. Worth and northern New Jersey) and it was not the case in either.

same for the research triangle in NC.

edit: just checked an area little further out, same still applies. ~2 years ago the only home we found that would've been that "cheap" reeked of mold.

It does not surprise me for these densely populated areas, but I can imagine this might be the case in more rural areas.

I'm wondering if this is a "mortgage payment amount" vs. "total cost of ownership" difference? Not my area of expertise, but a quick search gives some conflicting and unspecific articles like:

https://www.cnbc.com/2019/02/13/how-much-more-money-it-costs...

https://www.businessinsider.com/us-cities-where-its-cheaper-...

Or in your experience in these markets are you seeing rent above the total monthly cost of ownership?

When I'm saying "mortgage is more expensive" that's really a lazy shorthand for "total monthly cost of owning a house including HOA and maintenance", not sure if that was clear from the context.

From my small sample size I'm seeing around ~500$ / month (33%) more for renting vs what you'd pay on a 30 year mortgage. This difference might be covered by total costs of ownership, but according to the nyt rent vs buy calculator, you'll only be better off renting when looking at a time frame of less than ~5 years.

Greensboro, NC is on that list (which would fall in the more remote category) and the same still seems to apply. Not sure if my numbers are right, but a 2,000 sqft house from the 60s is being offered to rent for 1,500$, which is kind of ridiculous imho. Property value should be around 200k, with a monthly mortgage <900$:

https://www.zillow.com/homedetails/1603-Milan-Rd-Greensboro-...

agreed, variable. Lived most my life in Southern California. I've seen rent being both cheaper and more expensive than a mortgage. For a long while, the mortgage was a much better monthly payment; folks without a down payment were locked out of mortgages and stuck paying higher rents.

Looking at my flyover state on craigslist + zillow, a random house I picked rents for $1.4k/mo and has an estimated mortgage of $1.5/mo. Your rent "savings" would be $100/mo and ignoring cost of maintenance if you mortgaged.

> If you're comparing rent vs. buy, typically: 1. rent is less than a mortgage, and 2. to buy you need a substantial down payment. The "rent discount" is what you'd put in the stock market for the purposes of these comparisons.

This varies by location, no doubt. My mortgage was the same monthly cost of my rent, when I bought my first house. After the tax benefits, it was less expensive, though a wash once you factored in maintenance. And it was a fixed payment, whereas the rent was increasing every year.

> After the tax benefits, it was less expensive

With the standard deduction being $12.4k/yr per person... are you really deducting more than $12.4k/yr in mortgage interest + property taxes?

My mortgage is about half what rent would be in Toronto. So that's not a hard and fast rule.

You can't just compare it that simply, use the NYT Rent/Buy Calculator for a more in-depth analysis. [1]

Renting is generally cheaper than buying, especially in very high COL areas like the SF Bay Area, NYC/Manhattan, etc...

Most people don't consider all costs associated with buying a house which include closing costs (when you sell as well, renting has no such costs), property tax, maintenance, insurance, HOA, etc...

[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

> Renting is generally cheaper than buying

That's not 'generally' true, unless youre cherry picking data or buying expensive houses. If that was true, then landlords wouldn't be renting their property out. The standard landlord advice (from any real estate book) is to charge more for rent than your mortgage costs to cover unexpected repairs. Also, several deductions for tax, maintenance, repairs, insurance, etc exist making it even cheaper. https://www.nolo.com/legal-encyclopedia/top-ten-tax-deductio...

I agree with you that owning a home is expensive and I caution friends from buying a home if they're not sure they want to live there for 5-15 years. The hidden costs are insane. Renting has a mostly stable price without the massive emergency spikes of making roof or foundation repairs.

> That's not 'generally' true

Yes, you're correct, I'm mainly referring to California as that's where I've been living for a good chunk of time.

Prop 13 "locks in" your property tax rate with measly 1-2%/year increases and there is barely any new construction, restricting supply. What this means is that a lot of landlords in CA have super low mortgage/property tax costs because they bought a while ago and they can "afford" to charge a low amount of rent because their costs are so low.

The biggest factor for me in regards to buying is the mobility that I need, especially while I'm young and uncertain of where I want to settle.

> Most people don't consider all costs associated with buying a house which include closing costs (when you sell as well, renting has no such costs), property tax, maintenance, insurance, HOA, etc...

100%. I was in escrow on what would have been my first home purchase. The amount of money that goes into just buying a house was insane.

After the sale fell through I ran the numbers for my parents home and much like the article says over the last 25 years or so they made next to nothing or maybe even lost money after interest, taxes, upkeep, etc even though the cash value went up over 30%

> so they made next to nothing or maybe even lost money after interest, taxes, upkeep, etc

Don't forget that you can "lose money" on a house and still be basically ~100% ahead of where you'd be if you had rented. The only way that renting actually comes out ahead is if you're actively and aggressively investing amounts larger than your would-be down payment, and making consistent profits for the duration that are larger than bank loan interest rates.

FWIW I'm on my 2nd house, and the costs listed have never felt like they change the balance of the equation at all. I don't have HOA, most people don't (unlike all the other costs listed, HOA is a choice, you don't have to buy into a neighborhood with HOA dues). The other costs are somewhat in the noise. Closing costs are a one time thing, think of them as part of the purchase price, nothing to think about later. Tax and maintenance are ongoing but not very large (and don't forget rent is also paying tax and maintenance, bundled). The biggest additional costs of owning a house for me have been remodeling, but so far those have come back to me with returns, in the form of a higher sale price on the house.

But what about the down payment?

If you don't have savings for a down payment, and are renting, then there wouldn't be a difference. But if you've saved/invested money instead of putting it in a down payment, you could probably expect returns on that.

20% down payments aren’t really necessary anymore. plenty of lenders will let you pay 10% with no PMI or less.

Though still generally necessary if you wish to buy with an LLC, unfortunately.

I generally do that, does the bank still have you Cosign? I put properties into an LLC and always need to cosign on the note. I was under the impression that putting 20% was mandatory for investment properties if you're getting a note from a traditional lender (ie bank, not the mob)

That depends on the bank and the structure/finances of your LLC(s). If your LLC already has a good business relationship with the lender and enough assets, you can get them to skip this.

Also you don't have to put down 20% if you're willing to pay PMI and a bank is willing to lend to you, but to be competitive some banks are foregoing PMI (likely self-insuring the mortgage? Not sure how they can but I've seen it done)...which is craaaaazy to me.

Ah, I missed the context. I was speaking from the standpoint of investment properties. If you're buying a place to live in, then, agreed, you don't need 20% down. I think there are some products with 0% down.

Do people ever write off rent with their Llc?

What are the benefits of buying with an LLC?

Privacy, potentially. House sales are public records and anyone willing to pay $30 can track you down.

If you have a Wyoming LLC holding company (which are effectively anonymous when paying for a registered agent service) that owns & manages your in-state LLCs, then good luck finding you. This is generally how celebrities hide from stalkers, etc.

This is also beneficial when you're managing your own properties that you rent out. Tenants that know you're the owner will try to walk all over you. When you just tell them that you're the property manager, you're just enforcing the owner's wishes. You're "just the middleman". It's not their business to know that you're both. This also helps protect your separation of your business entity from yourself if for some reason they have to sue your LLC. If you don't represent yourself as the owner (because your LLC is), you have fewer problems to deal with.

Also, taxes like the other poster mentioned.

Plus if your life circumstances change and you want to turn your home into a rental, you're going to want to do this anyway and not having to sell your home to your LLC will save you a chunk of cash.

> Privacy, potentially. House sales are public records and anyone willing to pay $30 can track you down.

It can also be done for free using various methods, rather quickly too.

Taxes for one. Everything you do for the home is a write-off assuming you have other income rather than an out and out loss. Water heater? WRITE OFF! New roof? WRITE OFF!

Plus you're not limited by your personal deductions which are now capped at the state and local level.

The difference is that the $2500/month (+ renters' insurance) is a non-sticky ceiling (percent increases notwithstanding) whereas the ($2500-n)/month for your mortgage is a stickly floor.

In most apartments and houses, $2500/month accounts for property tax, maintenance, and other ancillary and unpredictable expenses. Anything out of the ordinary is covered by renter's insurance. If you get an awesome job opportunity somewhere else that significantly increases your compensation, at best you can hot-swap to the new place for no extra cost; at worst, you pay 1x rent to break the lease.

The ($2500-n)/month for a mortgage doesn't include those things.

You could get homeowner's insurance, but the quality of that coverage is all over the map and usually have high deductibles anyway. This is an unpredictable cost. (I suppose you _could_ add the deductible into your monthly budgeting, but it's still unpredictable for uncovered events.)

If you need to move for that opportunity, you either have to rent the house out and hope that your tenants don't trash the place, or you have to sell it, which can take a long time.

Then there's property tax, which increases yearly by an unknown amount, just like rent.

One thing that I think you might not have considered is that wjile $2500 in rent does include the things you mentioned it is on top of the cost of the space itself. The landlord probably pays $1500 in mortgage.

I have considered this. Landlord (property management company in this case) makes margin on the difference between my rent and their mortgage, but they also assume the risks that come with that (leaky ceiling, structural issues, rework from bad tenants who trashed the place, etc). That’s what I meant by “sticky floor” vs “non-sticky ceiling”.

There’s money in it for sure, but it sounds like more trouble than it’s worth (for me).

I used the NYT calculator and eventually came to the conclusion that renting beat buying in a MCOL area (Kansas City.)

I live in the city center with my SO, rent is $2100 split 2 ways for a 1500sqft 2/2 in a nice building with a rooftop pool. There simply aren’t comps that can compete in terms of location, size, and amenities that don’t also have a $1200/month HOA and $900+/month taxes, interest, and insurance. In 5 years rent has gone up $50, meanwhile my 401k and other investments have maintained 10% year over year returns and I could now afford to outright buy houses and condos I was interested in 5 years ago. Or I could move out to the ‘burbs on a $600-900/month mortgage.

Now, if only I could work somewhere that I felt like I was changing the world in ways I’m more interested in (high tech vs automotive), I would feel less pull to uproot in my mid-30’s for a place where Google or Amazon are hiring.

There’s a lot of other points that work in different ways.

A mortgage has extremely low flexibility, it’s not something you’re able to diversify and you’re stuck with for a decades at times depending on your situation.

Also most predictions are based on people never ever moving around, which was the norm for a while. Nowadays it’s not crazy anymore to change country, or to at least move around depending on opportunities or life changes.

In these occasions, changing renting places is a matter of paying an extra month or two. Switching a mortgage will be a magnitude more in general.

We played that game with an apartment we bought, the different costs we hit at every corner wasn’t anything trivial or accounted for in most “why you should buy” listicles.

Propensity to move in the USA is actually _down_ recently (I supposed with the exception of the bay area right now). The USA is still by far the most frequent relocating nation - but it's way less then it used to be:

https://webcache.googleusercontent.com/search?q=cache:0EMOk9...

https://www.brookings.edu/blog/up-front/2018/11/19/americans...

The point about it being a illiquid asset is good though.

Exactly. We just bought in the greater DC area and our mortgage payment is is only $500 more than our previous rent for a house that is much bigger/better. Given that $900 of our mortgage payment contributes to equity, we are throwing less money in the trash than before. Also, I have essentially frozen the amount I have to pay for shelter for the rest of my life (except for property tax and insurance increases). Even if our house never appreciates, it still made more sense to buy than rent.

The above only applies if you are very sure you want to stay in the same house for the long term, otherwise the high cost of real estate transactions will kill any advantage.

> we are throwing less money in the trash than before.

This phrasing needs to die. You weren't throwing your money in the trash, you were exchanging it for a place to live. There's a big difference between throwing money away and using it to not be homeless.

Yeah, sorry. That was just my hyperbolic term for "monthly reduction in net worth in exchange for shelter".

The thing is you still "throw money away" in owning a home through maintenance, see the 5% rule: https://www.youtube.com/watch?v=Uwl3-jBNEd4. There are large, unrecoverable costs in upkeep of a home. You will have to replace the roof in 15-20 years, just to have it not go to crap. That's $20k with no actual improvement to the home. Plumbing, outdoor siding, and so on. These would normally be covered by rent.

Property tax is bundled into our mortgage payment, so even after considering the 1 % maintenance, our large house and yard worked out cheaper per month than our small rental condo and balcony. Unfortunately, we just had to replace our roof in Sept, but it only cost $6k (despite multiple quotes in the $15k range).

I will acknowledge that owning a house is sometimes like having an extra part time job. I'm forever fixing little things or gardening or changing things about the house. I consider this to be a new hobby, but if you consider it work then that's something else to consider.

edit: I put our loan details into the NYT calculator and it said "If you can rent a similar home for less than... $1,618 PER MONTH... then renting is better." That might get you a 1 bedroom condo around here, instead of a 4 bedroom house with a yard like we got.

> I will acknowledge that owning a house is sometimes like having an extra part time job. I'm forever fixing little things or gardening or changing things about the house. I consider this to be a new hobby, but if you consider it work then that's something else to consider.

This is good to know and confirms what I've noticed about homeowners. I hate maintaining stuff, whether it's my car or my furniture or whatever, and I only do it if the time/money tradeoff is worth it. Some homeowners seem delighted by it though, crafting their own castle and the like. Do you have time for other hobbies that are "big" with these tasks?

Very much so. You’re not only getting housing, but you also have an asset that you control that appreciates in value year over year. And what do you want to own and control in a zero or negative interest rate policy environment? Assets.

"You’re not only getting housing, but you also have an asset that you control that appreciates in value year over year."

This should read:

"You’re not only getting housing, but you also have an asset that you control that _changes_ in value year over year."

> that _changes_ in value

Of course, we can also mention that overall those changes less than growth of S&P, that you pay taxes for that (not for growth, for value) and that you're bound to spend a non-insignificant amount on supporting that asset. Tax and maintenance - and maybe insurance - are all eating from the value of the asset.

Outside of a few rare events, real estate has reliably appreciated historically. Like any investment, certain geographies have seen a decline in value, but overall it is as good, if not better, than equities as an appreciating asset depending on your investment objectives.

> overall it is as good, if not better, than equities as an appreciating asset

This directly contradicts the article, so please cite your sources.

https://economics.harvard.edu/files/economics/files/ms28533.... (The Rate of Return on Everything, 1870–2015)

Pages 3-4 specifically, but the whole paper is excellent. RE has returns that are reasonably (imho) similar to securities over the long term, low volatility, and you need to live somewhere (although you might see greater returns in the capital markets depending on your entry/exit points [1] and risk tolerance).

I’d caution that recent equities returns are very likely an outlier, part central bank easing, part yield chasing, part unsophisticated money, and arguably unsustainable.

[1] http://archive.nytimes.com/www.nytimes.com/interactive/2011/...

Thanks - it's very interesting that it seems to be completely opposite the article:

> Housing market returns are very bad. Between 1948 and 2004 the real increase in value in the U.S real estate market was less than 1% a year.

Perhaps you or someone else can point to the source of the discrepancy?

I think the article is about the opportunity cost of the down payment. Since compound interest is so powerful it will usually outpace the house in value after 20 yrs or so. Plus where I live, renting seems to be cheaper for equivalent houses mortgage. Maybe cause everyone has rushed to invest in real estate and is renting out vacant homes. If hypothetically houses outpace investing in businesses, we will eventually run into a problem where no one can afford a home no? Also part of your payment in your numbers there goes towards interest so it slightly weakens your argument.

In addition, if you are buying the second home to rent out, then you have to add the rental income as a return on investment. In practice any form of ownership to use yourself is avoiding a form of paying rent, and any ownership not meant for personal use usually involves receiving rent. That’s the thing with property, it is as much a service as an asset, and you can’t make a fair accounting without taking the service side of the equation into account.

Another problem is that people who buy a house for $1M don't have that amount laying around in cash to choose to put it in stocks or in a property. At the end, they will be making more money because their compound interest will be on the entire price of the house $1M vs the S&P compound interest on the amount they have in cash (a fraction of the $1M).

You also have to consider any premium for buying compared to renting, the ability to cheaply "rightsize" your living space, and transaction costs.

I remember the NYTimes (I think) had a calculator designed to account for these types of factors.

It often makes sense to put off buying until your family grows or you settle in a semi-permanent location.

But generally your point is correct.

There are other considerations as well. If renting is cheaper than buying (for a given unit size / location), it might make sense to rent and invest in the market. There is a great NYT calculator for this, but it is behind their paywall:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

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