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Comment by enraged_camel | Hacker News Reader

>>There is another side of this that the article doesn't touch on: home ownership.

Oh boy. There's so much I can say about this topic, and none of it is positive.

Basically, the way our culture mindlessly promotes home ownership is insane. Absolutely insane!

Every time I hear people complaining about "throwing away money" by renting, and how they would rather put that money into a house, I want to hold them by the shoulders and shake them violently. It's like the housing market crash did not teach anyone anything!

It comes down to this: a house is a terrible, terrible means of investment. It's a fixed asset that, contrary to popular belief, is not guaranteed to always go up in value. In addition, people don't really take into account the negatives. Primarily, a house ties you down. You have zero mobility as a labor market participant if you own a house, and this significantly reduces your leveraging power when it comes to negotiating salary. Besides that though, houses have a ton of expenses, and as fixed assets they are subject to a lot of uncontrollable risk (fire, floods, earthquakes, the neighborhood depreciating, etc.).

Instead of having that money tied down on a house, people are much better investing in the stock market, which has, over the past 100 years, gone up by 7% annually.

The only time a house makes sense is when raising kids. The stability of the environment has a lot of positive benefits for their growth. It also makes social integration easier.

/rant

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A few things you're not accounting for:

* Leverage. (The most you can leverage a stock investment is 2x. For homes people can leverage their money up to an insane 20x, for example: by buying a 500k home with 25k down. The proper comparison is not to compare buying a 500k home vs 500k worth of stocks; it's buying 25k or 50k worth of stocks vs a 500k home.)

* Mortgage deduction. (Imagine if you could invest 500k in the stock market with only 25k, and then the government let you deduct your interest payments!)

* Inflation. (I've heard of people living in Manhattan in apartments they bought in the 1980s that pay a mortgage of $500. Inflation has reduced their mortgage debt to negligible levels. Time has in a very real way erased much of their debt.)

You can effectively leverage 100x with stock options. You can by deep in the money LEAPs (long-term options, expiring 18 months-2 years out) and effectively have the risk profile of the stock itself. You can then sell and roll those over to longer-term expiring options every 6 months or so.

+i for the inflation comment. This is a big driver for my current investment approach. The opportunity to pick up a large, real asset at rates below the inflation I personally experience (US gov't published inflation rate is lower than mine), in market with significant appreciation due to positive population metrics (Austin TX)

Note that you should always spread risk in your portfolio, but housing at nominally negative rates should have youngers investing if they can. Buy something small and close to the city core.

One additional negative to home ownership is transaction costs. Real Estate agents, laywers, lenders, title companies all get you comin' and goin'. They love churn!

I like redfin.com as a market changer in this space. Check them out!

Of course. The real estate lobby is behind all these programs, and the propaganda about home ownership.

Many people would be better served renting. All of the incentives are actually causing us to spend a lot more on housing than we otherwise would have, capital that is being diverted away from building productive industries.

Which is fine, since we are letting China have all that stuff anyway. We have all the empty houses and the debt to brag about.

What leverages up can (and will) leverage down. The problem with the housing collapse was that people with low or zero down-payment mortgages found that the property value fell, wiping out their entire stake (if they had any at all). More skin in the game should (though there's some research suggesting otherwise) make the market more stable by reducing the ability to speculate. This is a lesson that goes back to the crash of 1929 and the Dutch tulip bubble.

The mortgage deduction is priced into your home (as are low interest rates). Absent the deduction, real estate prices will fall. As interest rates rise, housing prices will also tend to soften.

What inflation giveth, it also taketh away: your mortgage costs are reduced, but so is the appreciation of your house.

Each of those is an contribution to risk and and potential reward, I guess it still comes down to whether people think their house will appreciate or not faster than inflation.

There is also:

* Closing costs. 5k to 10k can easily go to that only. So just buying and selling constantly could end wasted eaten "transaction costs"

* Chance of moving. Are you likely to move? If so think twice about a house. This is offset in the software world by working from home.

* You effectively get a 4% loan and pay it off in 30 years. That could be hundreds of thousands of dollars over the cost of your house you end up paying to the bank in 30 years. That completely escapes many people. Now there is inflation and the opportunity cost to do something else with the money but:

* You have to figure is your salary going to keep up with the inflation? You hope so right...right?

* Opportunity cost. Could you make more by buying some stock, and sell it after 30 years?

* Do you think housing is going to go up again or is the stock market going to go up faster. Same compounding for interest rate goes for reinvesting stock dividends.

I recently sold a condo where I paid closing costs for the buyer. Total costs that didn't go to me were in excess of $30k.

Add to the "chance of moving" cost: your opportunity cost in lost income (or additional expenses) by being unable to sell your house in the course of a move. Either you lose out on the income opportunity (which is what this subthread started with), or you're left with the higher costs of renting out your home (likely not covering mortgage) while renting at the new location.

We saw this last situation for a new hire who last year was unable to sell his underwater midwest home while finding rents in a markedly hotter housing market much higher, especially when proximity to good schools and low crime rates were factored in.

> More skin in the game should (though there's some research suggesting otherwise) make the market more stable by reducing the ability to speculate. This is a lesson that goes back to the crash of 1929 and the Dutch tulip bubble.

True, but that's not what we have in the market today. You are confusing "should" with "is".

Sorry? Your comment's not clear.

Are you saying that today we have more skin in the game and it's not helping, or that today we don't have more skin in the game (with market stability left AFAICT uncommented on)?

Excellent summary. Home ownership will probably never in our lifetimes look like a better investment than it does now. Mortgages rates are extremely low, and because of all the quantitative easing, it's possible that we will see higher than average inflation over the next 10 years.

As a result you can basically borrow hundreds of thousands of dollars, long-term for free. Inflation offsets a fixed interest rate--and the spread is probably only about a point right now, with low inflation.

The housing market is recovering, and immigration reform could create millions of new legal customers for real estate. The only downside is that the mortgage deduction will likely be capped, reduced, or taken away as part of tax reform in the next decade.

If nothing go and refinance now. At least do yourself a favor and calculate to see how much you'd save over the life of your loan.

Also not accounting for a house being a place to live, raise a family, and store your stuff. Talking about it like it's just another investment is strange.

Not to derail the thread, but on the eve of my 30th birthday, if I've learned anything it's that "stuff" is a fucking liability, and spending a lot of resources on a place to house it is just one of the manifold reasons to perpetually avoid accumulating it if at all possible.

I guess you are confusing investment and mortgage?

One thing that puzzles me is that rising house prices are treated as inherently good, and falling house prices are seen as inherently bad. But for most things, it's the exact opposite - rising prices are bad.

Is this just because newspaper articles are biased towards the perspective of real estate agents and homeowners? Or are high house prices good because houses are investments? Would cheap 3-d printed houses (hypothetically) make the country better off or worse off economically?

It's because 2/3 of Americans are homeowners, so for a majority of Americans, falling house prices are bad.

It's the same thing for most goods - the price mechanism is inherently value-neutral, and then whether it's better if prices go up or down depends upon how many people are potentially on each side of the transaction. Falling wages are seen as a bad thing, because most Americans identify with labor and not capital. The social security crisis is seen as a bad thing, because senior citizens (who get the payouts) vote in much larger numbers than young adults (who pay the taxes). Falling stock prices are seen as a bad thing because most Americans own stocks, even if indirectly. Falling CDO prices are seen as a good thing because most Americans do not own CDOs.

>It's because 2/3 of Americans are homeowners, so for a majority of Americans, falling house prices are bad.

Why? Those homeowners shouldn't care what the price of their house is. While they're living in it, it doesn't matter, and when they sell, presumably their next house will be cheaper too.

The only time home prices should matter is in comparison to the overall market. If your house got cheaper while other homes got more expensive, that's a problem for you. Otherwise, the price of your home is mostly irrelevant.

Houses are an asset in people's minds. This means that you can sell your house if you need to get extra money and you're in a bind, or to downsize from your current house to a cheaper-to-maintain one.

Let's say you bought a house for $400k with 100k down and have so far paid 50k towards the remaining 300k (plus interest, since it's a loan). The housing market has gone down, and your house is now worth $200k. (These sort of drops happen). Okay, so your house is worth $200k. You need to get out of there, but you've only paid 150k towards your 400k loan. You sold the house for 200k, so now you still owe 50k to the bank for a house you just sold for less. This does not help you out of your current situation, which was to sell an asset to pay for things, or to survive easier.

Edit: Note. This is a VERY simple and slightly inaccurate review of how paying for a house works. The intent of it was to explain why lowering prices are bad for people that already own homes.

If you're stuck in your home like in sukuriant's example, you can't move if you find a job somewhere else. You're stuck in the town you are in and you'll need to find something locally.

This is part of the problem with the American labor market at the moment.

Let's say I take out an $80,000 mortgage to buy a $100,000 house--which then appreciates to $120,000.

If I sell the house, I walk away with $40,000 in cash, which I can keep tax-free (a special privilege accorded the capital gains on your primary residence).

Now let's say I want to buy a home the same size--it's $120,000 too. But I only need a down payment of 20% to secure the mortgage--that's $24,000. So now I'm back in a house the same size as I had, but I have $16,000 tax-free in my pocket.

Before, you had $80k in debt, now you have $96k in debt. You basically just took out a home equity loan.

Yup; I also could have just refinanced the first house at the higher appraisal. All three are good reasons for a homeowner to be happy their home value is going up.

Maybe. BUT 2 things:

* Most bought and expect it to appreciate. Very important. That is the most important retirement asset they have. If their house loses half the money it could mean eating ramen for 20 years after retirement or eating steak.

* Property taxes. Some would actually not like it to appreciate too fast if they are not selling yet because they have to shell our many thousands of dollars a year. Ideally they would like the price to stay low then right before they sell, to spike through the roof.

Property values for tax purposes are reassessed less than once per decade in many jurisdictions in the US. This is true on the downside also. In some cases, houses sell for multiples of their tax assessment, yet even a transaction will not trigger a reassessment.

Excuse me, but I'm a twenty-something who pays Social Security and National Insurance taxes (separately, due to dual citizenship) because I actually want these programs to be there for me and my whole generation when I/we get old. You think a generation who graduated school into huge debts and busted wages are going to have fat 401k accounts to retire on?

I think it's more likely than us having Social Security to retire on...

If you see the mania and avoid getting involved, patiently waiting until sanity returns, you can buy more cheaply. But you are still stuck paying for these insane policies, which cost hundreds of billions.

But we are avoiding that too, borrowing a trillion plus bucks a year. We will ultimately face the music and it will be when all the wiggle room is gone, because they wiggle as much as possible without regard to long term consequences.

It's a very simple mathematical error - people compare the cost of a mortgage payment with the cost of a month's rent, failing to take into account that only a tiny fraction of the mortgage payment actually becomes equity.

If they actually sit down and work it out, most people are astonished at how much flexibility they sacrifice for that small slice of equity.

>failing to take into account that only a tiny fraction of the mortgage payment actually becomes equity.

What percentage of a mortgage payment actually gets converted into equity?

(coming from a genuinely curious person who has never owned a house)

It depends. The interest portion is very high in the beginning of the mortgage and very low at the end.

In a typical 30yr mortgage, you will make 360 monthly (roughly equal) payments. If your mortgage payment is $1000/mo, payment #1 will be approximately $950 interest and $50 principal. Payment #360 will be ~ $50 interest and $950 principal.

Most people move every five or six years (historical, might not be true with current RE market), so they complete about 20% of their total mortgage schedule. However, because of this ramped apportionment, most people still owe the lender much more than 80% of their initial purchase price.

The first time I did the math on this, I thought I had discovered a huge consumer-hostile scam. But actually it's quite reasonable -- mortgages are designed to keep payments equal over the term of the loan, so there's really no other way to do it.

I just bought a home and 40% of my payments are principal from day 1. That's at 3.5% interest. If you get a conventional loan instead of a jumbo, you can do even better than that. Mortgage interest deductions make the calculus even better. Plus tax-free capital gains.

It was quite the slam-dunk easy decision to make where I live (San Francisco), considering how hot the rental market is. My house rents for $1k more than the monthly mortgage!

Interesting. If I understand the math correctly, that means that you have an effectively variable interest rate over the life of the loan (though presumably it will average out to the 3.5%). Is there a special name for that kind of loan?

The reason mortgages front load the interest is not to victimize borrowers (that's just a pleasant side effect) but because in the early days of the loan, you are using more of the lender's money. You pay it back slowly, but you pay interest in each payment on the amount that you're using at that point in the term.

So payment #1, you pay interest on ~100% of the loan. Plus a little extra to reduce your principal. Next payment is interest on ~99.8% (100% minus 1/360th), plus a little extra (more than last time) for principal reduction so that the payments total the same amount. On and on til payment #360.

If you're paying 40% principal on payment #1, by my math, either your effective interest rate is variable over the term, or you're choosing to overpay the invoice (applying the excess to principal -- which makes a huge difference in the early years).

I'm surprised the economics of buying work out so well in SF these days. When I left, it was the other way around. Interest rates help a lot. Congrats on the house!

It's not variable, it's fixed at 3.5% for 30 years. A "jumbo" loan has a higher interest rate than a conventional simply because of its high initial principal, making it a riskier proposition for the bank. What calculator are you using to calculate principal vs interest for a fixed rate loan? Remember, the lower the fixed interest rate, the higher % of principal you are paying at day 0.

The economics of buying vs renting has changed a great deal since I moved here. 5 years ago, buying was rather questionable. I took advantage of "cheap" rents to save up for buying a house when it finally became a buyer's market. Now rents have nearly doubled, but housing prices haven't gone up proportionately.

25%

However, blindly following advice on renter-ship is as bad as blindly following advices on homeownership. Every situation is different, and you should do your math per your specific situation.

True. However, in the majority of cases the math is overwhelmingly on the side of renters. Whereas conventional wisdom goes the other way. This is one of the reasons we had the housing crash. The house of cards can only stand for so long.

At the beginning of a mortgage, the overwhelming majority of your payment will be interest; a very small slice is applied to the principal. Over the term of the loan, those small cuts whittle away the principal owed, which in turn lowers the amount of interested charged each payment (a percentage of the principal owed), until at the end of the mortgage your payment is mostly principal.

If you do the math, a typical 30-year mortgage will cost you twice the actual cost of paying cash for a home, so roughly 50% of your payment actually gets converted into equity, assuming your home value was static over the term. This is why people often advise new homeowners to make an extra principal-only payment as often as possible at the beginning of the loan: to cut down the eventual amount of interest you'll end up paying.

That's what I've done with my mortgage. I've been lucky to be in a position to make frequent principal-only payments and should be able to cut a 30-year mortgage to 15-ish or so, saving a metric grundle of cash in the process. Given the nature of the conversation happening around this thread, I suppose I should state my reasons for trading away job-seeking flexibility: I LOVE that eventually, I'll have a roof and four walls independent of my employment situation.

As someone who just bought a home -- I can also assure others in this thread, there is a lot of emotional value in owning your own place (reality check -- yes I know the bank owns it for a while) -- but for me and my wife, the value comes from being able to do whatever we want with the house.

Expand the basement? Sure! Get a bunch of dogs? Why not! Commit to getting to know the neighbors? Sounds great. All while not having to worry about a landlord doing whatever they want at the end of a lease.

It's a very rewarding thing. Is it for everyone? Absolutely not, much in the same way having kids or getting married isn't for everyone either. But for me, there is a lot of value in the actual ownership.

>>Expand the basement? Sure! Get a bunch of dogs? Why not! Commit to getting to know the neighbors? Sounds great. All while not having to worry about a landlord doing whatever they want at the end of a lease.

It's funny that two out of the three things you said are additional expenses that the house enables.

Of course, we aren't disputing the emotional value of owning a home. We're just saying that it's a poor financial decision most of the time.

>>It's funny that two out of the three things you said are additional expenses that the house enables.

Those same two things may also be valuable to the owner, regardless of expense. Expand my basement so I have room to continue working on the hobby I love? Sounds good.

You obviously don't live where I do; nearly all changes to the house require a permit which takes 6-12 months to get and is quite expensive, and for anything that changes the # square feet (like expanding the basement) will be denied.

People often pay double the cost of the house, so on average (for the life of the loan), half of your mortgage payment is equity. In the beginning the vast majority (90%+) is interest.

Here's a calculator I whipped up: http://instacalc.com/1737 (adjust the numbers as you need; this is a side project of mine).

There are lots of calculators that will show you, but for a $100,000 loan at 5% you only get about $1450 in equity the first year and only another 1550 the second year, but you pay about $4950 in interest the first year and $4900 in interest the second.

Unless you make lots of extra payments you gather equity very slowly. The break even interest vs equity per year point is at the half way point.

But the interest is tax-deductible. So you should also include tax savings in your cost-benefit analysis.

Only to the extent that its over your standard deduction. In my case,about 1/3 of the interest I pay is deductible.

Here's a fun calculator (not by me) that takes all these things into account. It's great fun!

http://michaelbluejay.com/house/rentvsbuy.html

The author offers a reward if you find an error.

love how those calculators start with 200~300k houses prices.

in most areas where i want to live, this is the going price for a buying an extra parking spot at the building garage. when you get a good price.

Precisely. If its more expensive to rent the money than rent the house, there is no gain.

Of course, the tax deduction is worth something, inducing people to do things they would not otherwise do. And no capital gains tax on profits. And first time assistance. And whatever else there is running up government deficits.

Its a big ponzi scheme. It blew up once and I guess they know how to profit on the way up and on the way down. Its Mr. and Mrs. Joe Average who get skewered.

That mathematical error corrects itself over time. I now own my house. Rent is forever.

That's an excellent point, but a mortgage is not the only route to true home ownership. You could work and rent in a city with high salaries and low rent vs. purchase prices, then retire in a very cheap area where you can just buy a house with cash saved up, thereby paying no interest whatsoever on the house and keeping maximum mobility during your career.

> a city with high salaries and low rent vs. purchase prices

This is not easy to find and the market typically corrects itself over the course of a few months to a year, unless there is rent control.

Property tax is forever too.

This is an excellent point I think people often forget about. How does property tax in a house (whose valuation you often have no control over) compare to rent?

Renters pay property taxes as well, it's just hidden from them because the landlord is a middleman. If property taxes go up, so will rents.

It comes down to compounding interest. Same as with credit cards or really any similar debt (or investment).

People are: shown the total amount they have to pay to the bank over the life of the loan. It is hundreds of thousands of dollars over 30 years. And most can see in their statement what gets applied to principle and what gets applied to interest.

If they didn't screw themselves and get a loan with early payment penalties they are always free to pay extra anytime they see fit to reduce principle (and if it is early enough it could end up dramatically reducing the total interest paid).

TL;DR: people need to know more math

That's not even it; in most towns with a 20% down traditional 30 year mortgage, you do very well versus renting if all you count are taxes+interest as expenses, particularly as interest is tax-deductible but rent isn't.

However, you also have to pay maintenance. And had you not put all that equity in your home, then it could be earning above inflation, whereas real-estate in aggregate earns approximately at inflation (if you do better or worse, then you were a winner or a loser versus the average).

> Basically, the way our culture mindlessly promotes home ownership is insane. Absolutely insane!

It's really the older generation that promote this. If you're 35 years old, chances are your dad walked out of high school into the same large company that he retired from. Why would they need mobility when they had jobs for life?

The only younger people I know that share that view are close-minded and never see the point of leaving Smalltown, USA.

> The only younger people I know that share that view are close-minded and never see the point of leaving Smalltown, USA.

To be fair, if you can find a way to make good money in a small town, you'll be living a more comfortable life than most people in big cities. If the attractions of a big city don't actually attract you, then sometimes moving to one is, economically, a bad decision.

My parents have a big house in a small town and for over a decade they owned and operated a local gas station. They were "rich," even though they didn't make a lot of money by NYC or SV standards. Do you know how much the house cost them? A little over $100k. Just let that sink in.

The only younger people I know that share that view are close-minded and never see the point of leaving Smalltown, USA.

Only if you include metros like Atlanta in your definition of Smalltown, USA. Most American cities are geared towards home ownership.

>The only time a house makes sense is when raising kids.

It really depends where you live. Here in Pittsburgh you can buy a decent house for $150k. Meanwhile, rent in that same area is $1000 for something similar. In this case, even if there was zero appreciation, the amount you pay on interest, repairs, etc... is less then the amount you would have spent on rent, but everyone should take the time to make these calculations for themselves. There was no amount of math that made a 1,500 sqft house in Calfornia at $1 mil (during the boom) better then renting.

I should also mention the area I'm thinking of has high demand for rent, so your mobility isn't really limited as you'd be able to rent out at a profit almost immediately.

Speaking as a homeowner, we didn't buy the house as an investment asset (though naturally we hope it doesn't depreciate too much). We bought it to live in, and are not paying huge amounts or over very long periods. Of course there are risks. That's why we carry insurance.

>>Of course there are risks. That's why we carry insurance.

Which also has a cost... You are not negating risk by buying insurance. You are simply offloading it to another party and paying them money on a regular basis. At the end of the day, it's still an expense.

That's right. It's economically more efficient for me to pay someone $1000 a year in order to be covered for most eventualities, because I estimate my annual risk at a bit higher than 0.3%.

The piece that I see ALWAYS neglected is maintenance. I rent and pay nothing additional to maintain the place. Washing machine breaks - landlord fixes it. Carpets wearing out (minus things that are obviously my fault) - landlord replaces it.

Everyone I talk to who owns is constantly upgrading or replacing or fixing something in their house. It seems, on average, home maintenance is about 66-75% of my rent check; and that isn't money they get back. It just prevents their home price from falling.

the landlord then retains your deposit for "spurious" cleaning or do US landlords not do this nasty little scam.

It depends on the landlord.

Just write the deposit off and if you get any back, consider it a blessing. It's odd that you give it so much weight when it's usually less than a single month's rent.

It varies a lot; in California the legal maximum is two months' rent, and it's fairly common for landlords to demand the maximum. That can be a significant hit unless you stay in the same place for years.

In Britain these days, the deposit is held by an independent agency, not the landlord or letting agent. They have to give a good reason to have money deducted - and you can then dispute this if it is spurious.

I recently moved, and the landlord (who was broke) was trying to keep money for all sorts of non-existent faults, most of which were due to his shoddy DIY work before I moved in. I raised a dispute and eventually got the vast majority of the money back. Just make sure you keep pictures of the state of the house before you move your stuff in.

The only time a house makes sense is when raising kids.

I don't have kids but one benefit I get from owning a house is I can do pretty much what I want to it without having to get permission for it from a landlord and it affords more space for entertaining friends and allowing me to build things so I think that statement is a bit short-sighted.

You are right though about the mindless promotion and the dubious investment potential. Unless you specialize in real estate investment, houses are primarily a place to live and you have to determine the value that you would get out of it from that standpoint.

Given your last point re: kids, how is it "insane" that people want to buy houses? Most people have/want to have kids.

Btw, I don't agree with your last point. It's pretty much possible to stay in a rented apartment for 5 years at a time quite easily. And kids go through wrenching changes every five years on average (home->kindergarten->middle->high school).

You make good points about the drawbacks of buying a house. However, the ability to lock in your housing expenses for the next 30 years (i.e., no impact of inflation) shouldn't be underestimated. IMHO.

> Instead of having that money tied down on a house, people are much better investing in the stock market, which has, over the past 100 years, gone up by 7% annually.

Just to be clear, that 7% is after inflation. The historical performance of the stock market is closer to 10-11% pre-inflation.

> The only time a house makes sense is when raising kids.

Retirement is of course another scenario where it makes sense. Mobility won't be nearly as important (indeed it may be totally irrelevant), and you won't have any rent or mortgage payments if you own your house.

The thing is that I don't plan to retire in San Francisco or NYC. I plan on retiring in the south or midwest. Housing is so "cheap" there compared to salaries in tech hubs that as long as you're saving a reasonable amount of cash (say $1k minimum) every month (on top of retirement accounts and investments in stocks and bonds), you'll easily be able to just go buy a decent house in a cheap area for cash when you're ready to settle down in retirement.

Is it absolutely the most efficient path, financially? I don't know, but it sure does make everything simple, as you'll have maximum mobility during your career. I can't tell you how many people I know who have basically stunted their careers due to buying homes. Money is certainly not the end goal in life, not even close, but lots of people I know could double their earnings if they weren't locked down to one location.

"but lots of people I could double their earnings if they weren't locked down to one location."

Likewise, many companies could have lower labor expenses if they'd embrace telecommuting and locate branches (or HQ) in lower cost of living areas.

Indeed, if I could find a very stable, long-term remote development job paying $80k-100k (which is quite a bit lower than the going rates in NYC and SV), I'd seriously consider moving to a small town and just buying a home for $100k. Pay it off completely in a few years and live a really, really comfortable life afterwards.

I'm just starting my career, but one of my big goals is to achieve the above either through a traditional remote development role or through independent consulting. The problem is stability--the most stable tech companies don't tend to hire remote devs, and consulting is inherently unstable, although I suppose if you work hard at the top of your game it wouldn't be much of an issue.

We are hiring in Tahoe. Housing in nearby areas is far cheaper than the Bay Area. See my profile.

The going rates in NYC/SF also have going rates for living expenses. A single person might not mind having a small apartment or sharing with someone - people with families or other priorities can't live like that.

It doesn't have to be telecommute - mid-senior developers can get jobs making $70-$80k in many major areas around the US (Minneapolis, Raleigh, Atlanta, Nashville, are just some I know of off the top of my head). Junior devs with no experience would probably be hard pressed to start off much over $50-60k in those areas, although there may be exceptions.

Consulting may be 'unstable' in that you'll have periods where you're not billing - at first that'll be because you have nothing else lined up. Later, it'll be by choice - you'll scheduled out breaks between engagements, and have a bit of a life in between. And you'll have charged enough, and budgeted your earnings enough such that it won't matter to your day to day living.

I would suggest that if you do the consulting/contracting route, that you be willing to travel. I know people can't always sell a house and move, but most people can get a car or plane to visit clients on a regular basis - it helps a lot to solidify relationships. And I'm surprised at how many people who want to do independent consulting remotely focus way too much on the remote part and not enough on the independent and consulting parts, then wonder why they can't find clients.

Keep your eyes and ears open for opportunities - they sometimes come up in places you wouldn't expect (both geographic and industry).

I second your post here-- I am currently idled through the end of summer by choice (we're moving and then traveling), but it's not a big deal-- I live in the sticks, but I do drive into Austin, TX pretty frequently. There are indeed a lot of opportunities, but you do have to focus on business development as part of what you're doing; while I don't have a lot of specific offers on my plate for the fall, I'm not worried about finding fun, interesting development projects.

I'm in TX too (not Austin, but another big city). I'm curious how you're liking consulting here and how it's going. Do you find most of your clients in Austin or are they remote? And do you feel like you would be better off just getting a salaried full-time job with benefits given the going rates here for salaries vs. consulting? If you don't mind spilling the beans (I understand if not), how much are you generally able to make (and how much work does making it involve)?

I ask because I'm seriously looking into transitioning into consulting over the next few years. I'm a little dissatisfied with the developer wages in Texas in comparison to the cost of living inside the city (Houston, probably similar to Austin). The wages are great in comparison to the suburbs or further out, but I don't want to commute 1.5-2 hours every day if I can help it.

I can't give you any insight into developer wages. But as far as commuting in the Houston area goes, I used to commute from Fort Bend County to Bush Airport (which really was an absurd commute) and it took me about an hour each way. So if you're trying to keep your commute under 45 minutes each way, you may have a wider area of acceptable areas to live in. Especially if you are thinking of companies inside the loop.

I'll be making about $83k/year this coming June (haven't graduated yet...) working in the Greenway area in the loop. I have an apartment lined up which will actually be in walking distance, so life will be easy. But I'm the sort of person who tends to think too far forward in the future, and I don't want to be renting an apartment my whole life. To me, the sooner one owns a home (and by own I mean own, not a mortgage) the better, as that's one major step towards true financial independence, as it means no rent or mortgage payment at all. And short of striking it rich, the only way to outright own a home early on in life is to make a lot of money with a permanent residence in a very cheap area.

At the same time, I really don't want to commute and don't feel comfortable spending more than double my salary on a house (I don't want to be "house poor").

In striving to satisfy all these desires simultaneously, I'm led to the consideration of consulting in the next few years. A few posters (patio11 and a few others I don't remember) here on HN have convinced me that, if done right, consulting can be a path to financial independence without the unpredictability of the startup "lottery". The idea, I hope, is that through partially remote consulting work one can make a wage which is disproportionately high compared to the cheap area in which one lives. It remains to be seen if any of this speculation is actually true.

> The idea, I hope, is that through partially remote consulting work one can make a wage which is disproportionately high compared to the cheap area in which one lives. It remains to be seen if any of this speculation is actually true.

This is precisely what I've done with my life for the last five years. It works, on one condition: you must find, connect with, and sell the Right Kind Of Customers for it to work.

If you're just a programmer (which, of course, Patrick famously recommends against identifying as), you are competing against every other "programmer" with your list of bullet-point skills, many in places a lot cheaper than even your "cheap area in which one lives"— e.g. eastern Europe, former Soviet states, etc.

http://en.wikipedia.org/wiki/Iron_law_of_wages

The trick is to position, market, and brand yourself as a specialized, boutique consultancy that incorporates various highly-sought-after technical skills in a complete "special sauce" package for businesses to achieve business-ey goals. People LOVE good abstractions, and are willing to pay for them. Be a problem solver/revenue increaser, not a "programmer". If you try to compete on a specific, easily-defined technical skillset, you'll lose to vast hordes of internet-connected Romanians, Latvians, and Ukranians every time - they can maintain a very comfortable standard of living at prices way below what you could offer your services for.

Here's my case study:

Because of my wife's business (she's a violin teacher with a large, productive studio) and because commuting is not something that I am willing to do, I feel compelled to find clients for remote work.

While it'd be fun to move to Austin and I feel like I could find a stable "good" job there pretty quickly, I like working for myself and ironically (as a musician- It's as profitable side business for me) there are probably more paying music gigs out here in the sticks.

About three years ago, I started out doing brochure marketing sites for a shyster local "social media" salesman who knew very little about web marketing but who loved to sell. At the time, my skills were basically photoshop, the (relatively extensive) programming classes I had as a child in high school, and some knowledge of markup.

I did about 80 sites for the guy over 8 months plus countless odd jobs like domain name transfers, troubleshooting email problems, writing annoying forms (the first routine I wrote that really solved a problem for me was a short bit to take a keyed array of field names and labels to generate/validate/process a form based off those values)... I spent almost all my free time on educating myself about whatever I though would be useful, and built sites for myself and some "on the side" clients in Joomla, Drupal, and WordPress.

I also had to hire and help manage a three-person technical team and deal with all the over promising that the sales guy would do. This was a good education in and of itself.

At the end of that period, I reasoned that the sales guy/owner could sell websites not knowing how they worked, I could probably sell 1/10th the number of websites and double my income. So I sold two local web sites and quit... it didn't hurt that my income was already only around $16/hr with no benefits, so replacing that was not a big deal.

For the next six months, I sold more sites and did a whole lot of cold calling and contacting folks via craigslist, and found an agency client who would pay 20/hr and give me plenty of work, and then using the same process I found an agency who would pay 30/hr, and for the last year I've been at around 65/hr and as busy as I'd like to be.

Mostly, after the first few craigslist clients, my new business comes from personal referrals. It doesn't hurt that I make myself very available, I'm quite friendly, and I do a whole lot of free consultation that I consider to be business development-- people are really happy to direct work to folks who are helpful.

I don't usually sell work directly; mostly I work with agencies in Austin who are marking up what I am doing by around 50%.

I brought in around 65K last year, which is not great, but I also worked a lot of 4-day weeks (if I don't count checking in and doing a half hour of work on a late Friday, or occasionally spending a Sunday reworking something that had to be done ASAP) and I usually am able to do my work in two 3-hour sessions... still no benefits, but I am young and paid off a substantial chunk of the student loans accrued pursuing an unfortunate PhD in English.

By studying consistently, playing with new technologies, and being willing to take on a lot of work on odd jobs troubleshooting stuff, I've gotten to where I can build modules for Magento or aMember, themes and plugins for WordPress, and generally working in clean, patterns that seem elegant and satisfying.

I've learned how to deploy AWS EC2s, how to work on the *nix command lines, git, ssh, enough SQL to understand joins and how to root through a database and make changes to an entire managed site at once... nothing awesome or special, but stuff I find interesting and fun.

My feeling is that I have just started getting a "good" grasp on programming, but if I can keep this going for another couple of years then I might actually get good at programming... I'm getting a little tired of doing marketing oriented work, but to be honest my skills up to the last year really weren't all that unique (other than the fact that people like working with me for whatever various reasons).

I hope that is helpful for you... as I said, I am currently idled for personal reasons and am both cleaning out my development machine, the last couple of projects on my plate... and reevaluating what I'm doing, so it was helpful for me to write all that out.

> A single person might not mind having a small apartment or sharing with someone - people with families or other priorities can't live like that.

Actually, people can. Immigrants are notorious for doing that in the US. If you're willing to rearrange your perceptions of what can be done... you could definitely have 3-5 people in a 800-900 sq. ft apartment. :-)

I thought that might be brought up when I was writing it, and you're right. Yes people can, but not everyone wants to, of course, and it's a pretty big sell to tell someone "pay $2500/month to live in this small apt to be close to company X" when there's far different options out there: bigger space, less pollution, better schools, cheaper food, perhaps closer to other relatives, etc. So yes, it can be done, but I think many companies are doing themselves a disservice by requiring people to be onsite and live nearby or commute long distances.

> I think many companies are doing themselves a disservice by requiring people to be onsite and live nearby or commute long distances.

Me too. But I believe that the cramped apartment is worth keeping open as an option.

"Just to be clear, that 7% is after inflation. The historical performance of the stock market is closer to 10-11% pre-inflation."

Can you link to something backing this claim up? I was thinking the wise/old 7% saying is in nominal, not real, dollars.

Every place is different but in some places there are huge advantages to buying that most people don't probably realize.

In the state of Maryland for example It's my understanding that property taxes on the first $300k of assessed value for primary residences are adjusted based on your income[0] for households making less than $60k per year. (for reference 300k will get you a pretty nice place in a trendy part of the city) The end result is you could be living in a $300k house and pay zero or near zero property tax. So you could for example buy a place straight out of college rent out the spare rooms to pay off the mortgage at a very accelerated pace and then if you wanted to you could live in that house basically property tax free once the mortgage is paid off so long as you didn't make too much money. I'm not sure if you've looked at your living cost structure but once you knock out mortgage and property tax you have an extreme amount of flexibility in terms of how much money you need to make to live comfortably and the types of career risks you could take w/o having to worry about ending up on the street. You have to be smart about what you buy and at what price of course which is where most people fail at smart decisions when home buying but if you do it right it really can be a no brainier.

[0] http://www.dat.state.md.us/sdatweb/htc.html

Addition to the other factors to consider put forth by nostromo:

-Mobility. When you need to exit a house and relocate, you can do so without waiting for a lease to expire. If you are in the right market, you can rent the first home out while you migrate, then sell it once the dust has settled.

>>Mobility. When you need to exit a house and relocate, you can do so without waiting for a lease to expire.

Yeah, instead you need to find a buyer, which in most places is not an easy task, especially in a housing market flooded with cheap foreclosed homes. In addition, you have to hope that the house has not depreciated in value during your ownership - which can happen due to factors totally outside your control (such as foreclosures in your neighborhood).

In other words: if you need to move, don't count on having the ability to sell your house quickly and without loss.

Compounding this problem are the facts that in many, and I would argue, most, US cities, renting is expensive, the there is a social stigma against renters, and the rental properties available are very undesirable.

I'm in the process of buying a house. My monthly payment will be ~$300 less than what I'm paying for rent now for a similar house, and I could probably break even (taking into account maintenance) if I had to pay a property management company to rent it out in the even that I needed to move.

And in 10 years, who knows what rent will be? I know what my house payment will be, modulo possible changes in tax and insurance rates.

Not all markets are like that, but in some cases it does make sense to buy a house.

I agree that home ownership is not a good investment. Between mortgage interest, property taxes, home owners insurance, and maintenance, the ROI will be negative. Not to mention most homes barely appreciate beyond inflation. People say that with rent, all your money is going out the window. The same can be said for owning a home.

I so agree with this argument that I think it should absolute, ie no provisos for "The only time a house makes sense is when raising kids." Long term, stable rental income is the dream of any landlord. Families provide that. So capitalism work just fine here too.

A house is a very useful durable good. Like automobiles and refrigerators.

It's funny you mention automobiles, because nobody buys automobiles as a means of investment (since they lose a ton of value quickly).

As a useful durable good, sure houses have value, but renting accomplishes the same purpose (of giving you a place to live).

i think he was being sarcastic

I wasn't being sarcastic. That was my point: houses are a durable good, which means they're not an investment at all and shouldn't be treated as such.

Really some houses are built to last :-) I was looking to buy a place (before I got made redundant) built in the 1790's (Listed building mentioned in peveinser no less) and the farmhouse next to my parents house is 1500's/1600's John Bunyan preached there back in the day

Here in Poland, you can't rent a flat even if you want. There are extremely few offers, partially because there's a culture of owning. Renting is frowned upon.

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