If you buy, you can do whatever the heck you want to with the house or your yard. That's true freedom and to some people - myself included - worth every penny.
Its really interesting the different things people value. I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I value one day waking up and deciding, hey, I think I want to go try living in Portland, or just a different neighborhood here. I value not worrying about housing prices. This is just me of course, I totally accept that the other side of the equation has perfectly valid points.
You can do that when you own as well. You have to sell your house. After all you can't just get out of a lease whenever you want it goes according to a fixed time period. You have constraints as far as lease renewal, term and things like that. If you own you can decide at any point to sell (although certain times of the year are better obviously).
"I value not fundamentally worrying if there were to be an earthquake and this place would be destroyed. I"
Well first that is only a concern seriously in certain areas and second I wouldn't call that exactly something that is a common occurrence either. It's like saying "if I rent (edit fix) I don't have to worry about rebuilding if there is a fire".
"hey, I think I want to go try living in Portland, or just a different neighborhood here."
Ok so I understand your point now (but will leave the above comments for discussion). You actually are looking more to experience different things and not get tied down. Similar to the fact that some people would rather go to a different vacation spot each year rather than own a vacation home in the same place.
In that case an argument can be made that it makes sense to actually pay more to rent than to own because you are deriving some other benefit from not owning that is actually worth more (maybe that is what you are saying..)
Yup, I think you've come up with a really helpful analogy, that's definitely how I feel. Like the OP, I wanted to show that there were some things I valued that would make me want to rent even if it proved to be more expensive in the long run.
Your point re: renting (and my point) as I pointed out in a reply in my other comment is really the gist of what I didn't like about this article. It reduced everything down to a dollar amount when the decision for everyone is much more complicated. It's actually one of the things I don't like about "Internet advice" it's really hard to come up with a comprehensive analysis of all the reasons people make certain decisions.
This is so incredibly wrong. Selling a house can be a massive and expensive undertaking. Assuming agents are involved, you can expect to pay 6-9% of the value of the house in costs (agent fees, closing costs, etc), assuming the buyer doesn't find something that is against code or something that is starting to fail (furnace, roof, etc).
You buy a house tomorrow for $200k and want to sell it in 18 months because of a job opportunity or family emergency? You better hope the house value went up... Otherwise you're taking a $12,000-18,000 hit when you sell it. Sometimes, house values go DOWN-- and then you are under water.
Well it goes without saying (and this is always true for anything you read on the web, right?) that the specifics of each persons circumstances need to be taken into account.
Along those lines there are people that:
a) Own their own business so they aren't employed by anyone and don't have a job opportunity to consider.
b) Those in "a" have businesses that they intend to stick with and further may be tied down by either family or their wife's occupation (or children)
c) Have considerable assets or family they wouldn't have to bail out.
In any case along the lines of "family emergency" how would thinking of that situation allow anyone to ever take a chance or buy a house?
What about having a startup (as only one example) and then having a "family emergency"?
"Otherwise you're taking a $12,000-18,000 hit when you sell it"
The main problem that I had with this article's slant is that it tried to quantify things in a way that made you think that all that mattered were dollars. Not everyone thinks like that. Or cares if they were to lose 12 to 18k they'd rather be a homeowner and live in a community as a homeowner rather than a renter in either an apartment building (with more transient residents) or as a renter in a condo or even as a renter in a neighborhood. And they are willing to part with money in order to do that. Same way some people might decide to spend $5000 on a vacation or $50,000 for an airplane (when flying the airlines obviously is cheaper in most cases).
The vast majority of folks (americans, anyways) AREN'T in good financial shape, however, and often overestimate the permanence of their current situation. If you have to sell your house inside 5 years, you're in iffy shape. It can be financially catastrophic if you have to move during a down market. About 30% of folks are out of the house by the end of their 6th year, when they probably thought it was going to be their home for decades (source: http://www.nahb.org/generic.aspx?genericContentID=110770&cha... ).
I'll just buy another house at my new location. In the end I'll now own two houses I do whatever I want with and my renter will own nothing.
Uh, you realize that when you buy a house, you end up paying tens, sometimes hundreds of thousands of dollars in interest beyond the value of the home?
That's what the renter owns: money, in his pocket, compounding interest for decades.
This is the reason why there's an economic calculation to be made. If you're paying the $1000 per month to rent a place that you could buy for a monthly mortgage, maintenance and tax cost of $1000, then, yes, you're an idiot for renting. But this doesn't happen in the real world, outside of the recent history of extremely fast-rising house prices and low interest rates.
"buying is almost always better"
"This nyt analysis isnt correct"
I think the point of what you are saying simply is if you find the correct set of circumstances in terms of the rent you are able to get for the house as well as the market conditions, cost, interest etc. it makes sense to find a renter (taking a whole host of other specifics into account as well) and, assuming housing continues to increase in price it's a strategy to have an asset many years later (could be 15 to 25) that you have no mortgage on and you are collecting rent.
This is a pattern that I have seen many people do and, once again, given the specifics of what you are buying (and when) is something that seems to make sense in many cases.
Oh, one other important thing that I don't feel people are taking into account.
When you use your strategy you also have a form of forced savings because your money is tied up. So when you wake up 20 years later with a paid off asset you have that asset and haven't spent the money on other things.
Here is another example of forced savings.
You own a business and that business has a value at the end of 10 or 20 years and you can sell it. Vs. you are a consultant and have no asset value to your business but make more money than the business owner does.
The consultant could of course take a part of his earned income every year and sock it away. But many if not most people aren't disciplined enough to do that. So making less and building an asset is a form of forced savings.
People can do all the math they want to justify any decision of course but taking psychology into account and people's spending habits (given money in their bank account) is also important as well.
There are cases where renting makes more sense. But they're usually in very short term situations, 1-2 year domiciles or in freakishly weird markets, weirder than SF or NYC markets to be honest.
It can't be said enough in this discussion also, the notion that a renter will have all this extra money that they can invest highly liquid, better than housing, investment options just doesn't work out in general. The post I linked to elsewhere in here goes into that in some depth, even goes over a couple scenarios.
Business property I don't think is a good proxy for housing. Business value can swing wildly up and down and there's far less of a guarantee that your business will even be worth what you put into it than in housing. You can literally pour tens of millions of dollars into a business year after year and have it be worth $0, but I can almost guarantee that I'll be able to sell my house after 30 years for at least what I paid into it (the principle, I agree that interest is harder to recoup). More likely, I'll be able to sell it for something far in excess. Even people who bought at the very peak of the property bubble will likely make a small profit.
But I also do agree that it's not a very liquid asset. It's hard to get money out of your house, but not impossible:
- After it's paid off, all the money you were paying is now liquid
- You can rent out parts of your house, in sometimes non-traditional ways, I know one guy who rents out parts of his unfinished basement as temporary storage for people doing overseas employment. Another rents her property as horse grazing pasture. Another uses their very nicely decorate home as a shoot location for local photographers and charges a small site fee. The list goes on. Not all of these are impossible for renters, but a great many of them are.
- You can use equity in your home for personal loans. It's not the same as liquid capital, but being able to raise a few hundred thousand dollars quickly can be useful and something renters can't do at all.
- if you have lots of land, sometimes you can sell off parcels for other people to build on, or you can repurpose it into business use
- you can sell it outright. One thing my wife and I are considering is retiring to a place with very cheap rent and just converting our home value into a long retirement in Spain or Italy. Basically our mortgage payment will get used twice.
No matter what, after any period of time, the renter still has lost every single dollar they put into their housing. Which typically represents the single largest expense for most people, consuming usually between 30-50% of their net income.
You're right, the numbers don't lie. And the "numbers" say that buying and renting homes doesn't provide outsized capital returns in relation to other investments over the long-run. Period.
This isn't rocket science; the buy/rent decision must be based on many individual factors, most of which relate to the individual housing markets, individual countries (outside of the US, the rest of the world can't write-off their mortgage interest, nor do they have 30 year fixed terms at historically low rates), and the current and expected price of money.
A house sale is also a negotiation. Price matters. There is no "always better to buy", for in that case the "seller" would always be losing. Oh, unless house prices go up, always and forever.
Why are banks or other financiers lending to you at 3.5%, when they can just buy up property and rent it out for whatever returns you believe you are able to obtain? Blackstone and others are attempting to do this as we speak. The outcome is unknown. What is your competitive advantage?
Again, there is no free lunch. The world is filled with people who think they've found a way to "beat" the market. Maybe you have, but I doubt it. Some people can make a living buying properties and renting them out; others will lose their shirts. A catch-all "X is better than Y" does not exist. Putting 200k into a house should provide you with a risk-adjusted return similar to putting 200k into the S&P, including imputed rent.
(And as an aside, from what I have seen, the lowest rent on the least viable living space does not save enough to be worth the other costs in comfort, location, etc. to be worth it.)
Renting not give me an extra $1000/mo to invest and compound for decades. That is THE amount a month I must pay to live, somewhere.
And from what I have seen in the high-cost areas like SF or NYC, one is still paying out a substantial amount of monthly income just to live, somewhere, with no room to invest a difference.
To my mind, if you can't afford to buy, you're screwed.
On the renting side, terminating a lease early is generally trivial. I've terminated several of the leases I've signed over the years mid-term by finding a new tenant for the landlord beforehand and having that person take over or sign a new lease. Landlords are usually happy to do so since they can increase the rent without losing any income.
I purchased our offices and wanted to install a door and just did it. I want to put in an alarm system I know it potentially adds to the property value. New carpets? Sure since even if we move it has value to a new owner (not 20 years later of course...) I didn't have to clear it with anyone and I didn't have to think about all the fine print in a lease or anything else.
But I do see your point.
Edit: Here the question isn't whether you should buy a house, but whether you should live in the house you buy?
The concern about the place being damaged/destroyed by an earthquake is a big one in California. Unlike fires, earthquakes are not covered by standard home insurance. And standalone earthquake insurance is prohibitively expensive for many (less than 1/5th of CA homeowners have it). Add to that the fact that (again, unlike a fire) an earthquake is likely to damage many homes in the same area at the same time which will inflate the cost to rebuild in a timely manner and you start to see the large amount of risk many owners are exposed to here.
In most cases you can only sell your house if someone is willing to buy it. Although renting it out is an option but you'll still be tied to, and responsible for, the property.
Personally, I don't see the big deal; there are pros and cons both ways.
I don't think I've ever been aware of a situation where the cost of breaking a lease was actually, in practice, more significant than the costs in time and money associated with selling real estate. Obviously if your property has gained in value in the meantime you may still come out ahead when it's all done, but on the flipside you may also lose a lot of money.
The costs of breaking a lease are much more predictable.
Whenever you want, huh? Everyone thought the same thing in 2007.
Are people honestly trying to argue that owning a home leaves you more mobile than renting? Preposterous.
When you need to get out of a rental lease (of which I've never seen go beyond 12 months, but I'm sure they do), the landlord is obligated to make every effort to mitigate his losses and replace you as a tenant. You aren't "stuck".
So if I summarize, you can't do what you want with it and you need to pay your landlord.
Why are people calling this 'owning' a house?
Historical reasons? Delusions? Sales tactics?
Even the city state kings of the first communities needed to provide defense and such, taxation is the obvious way to do that. Taxation of property is quite reasonable compared to head taxes.
Ok, yes, you are right...70 years, not 99; though there is some suspicion/optimism that the government will extend the leases indefinitely. The property tax in CQ/SH is only on second properties and easily avoided right now through transfers or sham divorces. It will be interesting to see if the gov is really serious about property taxes.
If I buy a computer, I own it.
Far from a 'situation that basically no-one is in' I would say. I suppose what you meant is that basically no one really own their house. Well if it's the case, why use the word anyway?
Words have meaning. You can't just decide to apply a word to a situation where it doesn't apply and call it a day.
Taxes too are orthogonal to ownership; where I live people treat the local government tax as another utility bill, like water or electricity (so when renting sometimes the landlord pays or sometimes the tenant does). If I owned a car I'd pay tax on it - but if I leased a car I'd also pay tax on it in the same way.
Words have meanings but are necessarily simplifications (just as a map cannot capture every detail of the territory). In legalese I lease my flat - but in English I own it, because how I use it and what I can and can't do with it has much more in common with something that I own than with something that I rent or lease.
On the plus side, single family homes tend to have far less restrictive HOAs than condos.
HOAs are a plague on humanity, but they're very hard to avoid in many circumstances.
One of my co-workers bought a condo recently and remodelled the interior. Got a great gas grill island - with it, he needed an exhaust fan above.
During the reno he got handshake approval from the board president, and ended up having a really inconspicuous grate installed above one of his windows. Long-story-short, a board member complained, they voted, and he ended up paying $5K to have it removed, and now has an exhaust fan inside that isn't hooked up to anything.
If you're going to buy, make sure you check out all this kind of stuff before-hand (especially with condos).
No thank you.
Ultimately we found a place without one. But all newer construction (1990 or later) we looked at had an HOA.
Disclaimer: own a house in a place people rent, so I got out of that steaming pile of poo unscathed.
At least that's what contractor told me when I tried getting an estimate.