Not Buying a Home Could Cost You $65,000 A Year
bloomberg.com
bloomberg.com
But those aren't the only costs. When you rent you are generally shielded from paying for various things, like fixing damage to the apartment or other serious maintenance. Also, renting saves you from the risk of the house losing value because of some local event like a neighborhood becoming less attractive due to a new source of noise or crime. Finally, these estimates assume home prices will rise according to "historical norms", which is a gamble.
Renting also lets you move around to pursue another job in another city, without needing to worry yourself with renting out your current location. The worry might deter you from moving and getting a higher salary, or it might make you spend the time, effort and risk to rent out the place you own, which brings its own costs.
It's hard to quantify those things. Some are unlikely events, some affect the variance instead of the mean, and some depend on the individual (how likely you are to find a job in another city - probably fairly high for people reading HN compared to other industries). But I never see them taken into account in articles like this.
Especially as "historical norms" have been running on a massive Ponzi scheme for decades.
I don't want to say it is always a bad investment. My point is it is a lot more complex investment and needs research, and not buying can also be a good option for some people.
Tenancy Fee £360 Admin Fee £90 Referencing Fee £60 Checkin Fee £90 Guaentor Fee £90 Deed of Guarantee £120 Sat Checkin £72
We badly need a change in the way land wealth is taxed and in the way we issue money. Without this land prices will always rise to soak up all productivity gains.
Today is the anniversary of the peasants' revolt in the UK, by the way.
If everyone else takes a step forward, it's as if you took a step back.
As an extreme example, there's a UBS ETN with the ticker MORL that tracks a global mortgage REIT index. It offers 2x leverage. It currently has a 20%+ yield and distributions are paid monthly. Is there risk? Sure. But unlike a house, you can exit your position with a few keystrokes.
The great thing about investing in real estate through securities like this is that when the market slows or changes trend, you can sit on the sidelines or go short.
The great thing about a self-directed solo 401(k) is that you can purchase physical real estate in the retirement (speak to qualified counsel about the rules). Also, if you want to buy a home, you can borrow up to half of your 401(k) balance (to use as a down payment) and, if your plan allows, the repayment term for a loan used to purchase a primary residence can typically be extended beyond five years (the typical term).
Again, if your interest is in profit, real estate-related investments are hard to beat for the average person, especially if you hold them in tax advantaged retirement accounts. Also, consider that with a leveraged product like MORL, which has total annual fees of .80%, you're leveraging at an effective cost of capital you could never get as an individual.
As an example, for a programmer in a ~37% tax bracket owning a million dollar home in the Silicon Valley, you could be talking about a tax-deduction on the order of $12k annually.
With that said, MORL looks like a very interesting product -- and probably a better investment than a house for most people.
- They don't make any more land.
- Real estate only goes up.
- Stop paying the mortgage of your landlord, pay your own!
- Buy now, or be priced out forever!
- (Seattle-only) Californians are moving in and buying up all the real estate.
The real news here is that the stars are aligning to start priming the pump for a new real estate bubble. This time it will be different!
That would work as a scare tactic anywhere in the West. Sometimes it seems like Denver is populated mostly by Californians.
An unbiased source for this article I'm sure.
So lets say you buy a $200K house on a 30-year, 20% down. If you take the monthly payments, plus property tax and insurance, you could pay down a 90 - 100K condo within 5 years. Then sell it and use that as a down payment on a $160k house (so again borrowing only 60K) and pay that off in anther 5 years. By years 11-15 you could live in a $200 house and have it payed off in 5 years, instead of starting off with that house and having only half the mortgage payed down by then.
The best part of this, is you are protected from the market going up or down. So say the market tanks, and your initial house loses value after 5 years. The worst thing is that you are living in a paid off house. The best part -- the next house you wanted to move up to is probably cheaper as well, so it balances out. And if the market goes up, well that means that you can sell your initial house for much more, increasing the down payment on the next bigger house.
Also boo market timing.
And there truly is a XKCD for everything.
Rent = Mortgage payment + HOA + Property Tax + Maintenance + Land lord's profit
Of course, I'm in Kentucky where property is dirt cheap.
On a per-month basis, renting should be more expensive than owning, especially when taking into account tax deductions that favor owning. The upside of renting is that you didn't have to unload a down payment and can in turn invest that money in something that gives higher rate of returns than property.
Generally, renters pay more per month before opportunity costs are taken into account and less so (possibly even strictly less) when opportunity costs are taken into account.
I have coworkers in their early 30's who are already on their second house in the last 5 years. I haven't asked if they timed the market well and came out ahead, or if they regret the first house.
Edit: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...
* taking data for the past year (or for a few recent years) and extrapolating it to 30 years, instead of actually getting the data for the last 30 years
* hindsight bias: 30 years ago you didn't know whether it would be better to buy a house in San Francisco or Detroit.
* comparing returns on a risky, leveraged investment (buying a house) with returns on a low risk investment ("interest earned on any money renters saved").
I have a 3% interest rate and got a great deal because of the recession. I also own pets and don't have to stress about what some landlord thinks about that. My rent isn't going to go up. People in SF are signing 2 year leases just to get into an apartment. Do they really have more freedom to move?
I'm free to do things like build raised bed gardens and rainwater irrigation systems. We just made our house way more energy efficient because we are environmentalists. If a landlord would even allow me to do those things, it would still be pointless because I'd just be making his house nicer, not mine.
Do you have to pay property taxes?
I'm sure not all states have them, but here in Ontario, we do. If you own a home, you must pay tax on that home every year. This is a form of rent and goes up with changing regimes and adjustments in the value of your home.
Basic premise of owning vs renting is enough alone really. Unless you plan to move around often it should be blindingly obvious that buying is cheaper. Someone else owns a home and is renting it to you with a profit margin.
Not necessarily. Landlords can only charge what the market will bear. If you happen to live in a not in-demand rental market, the landlord will be renting it for whatever they can get.
On the other hand there is an upper limit on rent as wages only go so high, and landlords often enjoy the high income and don't see a need to sell. People who have plenty of money and really want a nice place are willing to pay extra, so for high quality real estate buying can be more expensive than renting.
Most importantly though there are ways to buy real estate cheap, and if you "buy retail" or believe the numbers you read in listings you may be the sucker in the biggest deal of your life. Chances are everyone you're dealing with in a real estate deal is super professional and extremely experienced. Price is "var", not "CONST".
This makes buying worth while only if you're planning to hang around for at least a decade or more.
We bought a 900sq ft 1br condo 7 years ago. Between mortgage, taxes, parking, condo fees, etc., our out of pocket was ~$2600. Seven years later, renting a 2br 1200 sq ft. condo in a more desirable neighborhood with garaged parking is ~$350 less per month.
The article is so overly simplistic it's ridiculous. Buying is not by default cheaper, even over the long term. Over 25 years it can be forced savings, but even that privilege is paid for with interest. At the same time I could be investing our savings and it will compound in to a nice chunk of change, that I bet might be around the profit margins of buyers, minus all the expense.