https://www.businessinsider.com/personal-finance/why-think-many-people-better-off-renting-2021-11
I only cook at home, and I still think most people would be better off only eating at restaurants for a few reasons:
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I know how to cook so it's the right choice for me, but it's not the best choice
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I ran the numbers, and I could be eating dozens of new ingredients by only eating in restaurants
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The trick for restaurant patrons is: You have to invest the money you'd otherwise spend on a stove and pans.
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Am I reading this wrong, or do they actually not include rent in their calculations? Turns out renting is a lot better when you just ignore that you have to pay rent.
Rent is included, his argument is that if rent and mortgage costs were the same then renters don't have the added expense of property upkeep so they could invest that "savings" in the market. He did not do a very good job explaining this.
The obvious alternative for the scenario he gives is buying a less expensive home (likely similar to the one you would be renting because we all know how that works) and investing those savings. With his example being a $400k home you would be shopping in the $325k range. At the end of 30 years you'd have a home and idk, a million dollars in the market. He's not specific enough to give hard numbers.
But renting costs more than buying for the quality of home, and often landlords crank up rent on long term residents because of the stability. Moving all the time because of rent prices suck. Home stability is worth a lot.
The article writer Aldi doesn't note the best way to save is become homeless and just invest in the market.
Yes. that's why it's a terrible argument. Living below your means and investing early and often is a much better argument, you have to find the balance that works for you.
But rent is not subtracted from the total profit at the end while the mortgage is.
If we assume they rent a 400k house, let's be generous and assume they get it at 3k per month, and that rent doubles over the thirty years. The total rent would be 1.5·3000·30·12 = 1.62 million dollars. This eats quite a bit into the 1.8 million dollar profit.
Monthly rent and mortgage have to be similar for the argument to work. You would obviously not be renting a $400k house in this scenario, you would be renting a $1562 per month house.
I don't understand, rent is something that people give me, why would it be factored as an expense?
Just want to chime in with my anecdote. I bought a 219k house 4 years ago, and sold it for 290k just this month. The profit from this house is approximately equal to all the mortgage payments i made, essentially meaning i lived here for free for 4 years. there is no way your rent difference is gonna match that in pretty much any investment.
Renting is never better than buying, financially speaking
I don't agree. You also struck gold in a real estate boom in 2020-21, it's very rare historically for a home to appreciate 7.2% annualized over four years. Normal home appreciation is closer to like, 3 or 4 percent annualized and if you hit a 2008-2010 situation you're boned.
You also have to deduct the closing costs of both buying and selling (tens of thousands, probably), the fact that (unless your paid cash) you only built a fraction of the total equity in the home, and the costs of maintenance which probably were multiple thousands per year. In a normal market home ownership is a much worse investment than it happened to be the last few years.
You paid 219k for the house and sold it for 290k, a gain of 71k. But unless you were making giant extra mortgage payments you had at most 30% equity in the house after 4 years. So your 71k profit is really 21k. You also paid closing costs on both the purchase and sale of the home, those closing costs likely totaled at least 18k and probably more. I don't want to make too many assumptions, but if your home purchase was conventional your investment probably barely broke even and could easily have been a net loss.
More than happy to expand on that. This break even is before you take into account the homeowner’s housing payments. Compare your 20k on rent to the homeowners 20k on principal, interest, maintenance, insurance, and taxes. You’re running even with them.
In more detail,
Homeowner gets 21k profit on appreciation, 21k loss on closing costs, 20k per year loss on housing expenses (mortgage, interest, taxes, insurance, maintenance).
Renter gets 20k per year loss on rent.
Tie game!
When was the last time you rented something?
Your fullthroated cries that homeownership is actually worse than renting fail to account for the fact that my rent frequently jumps up by 10-15% per year while a mortgage is locked at a fixed rate.
Yeah sorry, I oversimplified a lot. I put 20% down, currently have around 60k equity. And you're right about closing costs and all; Maintenance cost was really low though, I only replaced a stove appliance. Everything else was just minor upkeep. So, its not quite 'rent free', but it was still a really big step up on being a renter. Not to mention the fact a landlord isn't in control of everything I do here, and I get way more sq ft.
But unless you were making giant extra mortgage payments you had at most 30% equity in the house after 4 years. So your 71k profit is really 21k.
Is that how mortgages work for you guys, you get $150K mortage on a $200K home and now the bank has a 75% share in the house? Over here it's just a giant loan, if my house goes up $50K in value, no part of that $50K gets added to the mortgage debt.
Our mortgages work the same way.
Let's say you put 50k down on a 200k house. You have 25% equity in the home, the bank has 75%. Makes sense, you paid for 25% of the house. As you make payments, you build more equity in the house. After 5 years you've built another 10%, now you have 35% stake in the house. The payment is fixed the whole life of the mortgage (unless you purchase an ARM instead).
Your mortgage debt doesn't go up based on home appreciation, but you don't have 100% stake in a home you only paid 35% of.
Okay, but I think you're now double dipping. Let's take the earlier example, $150K mortgage on a $200K home. Let's assume the mortgage is interest-only to keep things simple, and forget about sale-related costs for the same reason. The value of the house goes up to $250K and I sell it. I get $100K, the bank $150K. There is no 'equity' involved here, it's just a loan.
Oh, yeah, you're right there. I misspoke.
Thank you for the correction, comrade.
Just so we're clear, 4% is totally not an average for hot property markets. For instance, in Sydney for a few years straight homes were appreciating at more than 100%. Totally facetious argument.
If this were true wouldn't it just mean landlords are getting ripped off and would be better off selling their properties and investing in the market?
Which if it were true would obviously just be happening rather than y'know what's actually happening.
The serious answer is no, because real estate is a great investment if you already have landlord money because you avoid mortgage interest.
Real estate is a terrible investment if you don't have the money to pay cash for it and have to take out a mortgage instead. This article is correct no matter what the debate bros and J.P. Morgan Chase Bank shills in the comments are telling you.
Tax breaks are diffeeent for landlords. This is true. You can’t write off when the HvAC breaks, hire a shoddy contractor to repair and then pocket the tax break
For me it's the fact that hopefully one day I pay off the mortgage so that when I am eventually forced to stop working due to my body breaking down I have somewhere to stay and all I have to worry about is home insurance, occasional maintenance and property taxes instead of paying all that plus forever rent to a landlord. The landlord can also up the rent at lease renewal time, or just decide not to renew the lease.
Even if somehow I find a place that has rent the same price as a mortgage (lol) and shove the remainder into the market there is no way the market somehow doesn't crash right as I can't work and I'm screwed anyways. The main thing about owning a house is stability, and it's not as risky as the market.
owning is better than renting if you live there and will live there for a few years, unless you are a fool and wildly overpay for a moneypit (which some people do), accept as the buyer to roll all closing costs and agent fees into the loan (which some people do), put as little as possible down (which many people do), and make absurdly high-tier cosmetic renovations (which some people do).
you can save a lot by avoiding real estate agents (buy from owner directly), though it requires knowing the steps of the process and boilerplate contract language. if you're not willing to learn this rigamarole... I don't know what to tell you, except you're wasting a shitload of money by being lazy about an important decision.
another crucial thing is to make sure your credit is pristine and to have as close to 20% of the home's value as a downpayment. this will get you the best possible terms. a lot of money is made by banks on people who can't do this but still really want to own a home.
where I live, rents are 30% higher than a 30-year fixed mortgage payment.
even if that weren't the case, I would still want to own my residence, because I can make quality of life improvements/changes. and my mortgage payment is not going to change anywhere near as much as my rent could have.
to be clear, I hate the notion of using ones home as an investment vehicle. the only reason I did this was because I got real tired of supporting landlords with a phat monthly check who never fix shit anyway. now if I don't fix some broken shit, the money stays in my pocket.
any homeowner who tells you it's better to rent is either lying or basically telling you they fucked themselves into a shit deal so hard that it has disoriented their fiscal sensibilities.
Any homeowner who is telling you it's better to rent is taking about renting out their home to you for the price of their mortgage, maintenance, and a little profit treat on the side for them.
Kinda confused by this thread. If you buy a house, you can sell and recoup a bunch of your costs (even if you haven't full paid off the mortgage!). If you rent, all that money is down the drain, if you move, you get exactly $0 back. What am I missing?
Certain cities are so expensive to buy in that you can actually make more money if you just invest the money equivalent to a mortgage in something with a high rate of return. Usually things like index funds. This requires the line to go up, but it's pretty clear at this point that the line is completely detached from reality and everyone in both parties (in the US) will do everything in their power to make it continue to go up. I got something insane like a 12% return last year while a million people died and millions more became unemployed.
That said, the two people I know who had enough money to try this (both in tech) got so pissed off at a series of bad landlords that they ended up just buying anyway. EDIT: Note, this is for apartments only.
:this:
If you hate your landlord, then go buy if you can. But don't pretend you're doing it because it's a good investment. It isn't.
I promise you 90% of the people in this thread have absolutely no fucking idea what they're talking about and are dispensing terrible financial advice along with bank industry propaganda.
Let's say you have enough money to pay a down payment and closing costs on a home. You have two choices: 1) Purchase a home with a mortgage or 2) Rent from a landlord, and invest the money you otherwise would have put down in stocks. This article is - correctly - claiming that 2 is the better financial decision.
The reason is this. Consider the costs of home ownership. First, you have to drop ten thousand dollars or so on closing costs. So that's $10,000 right down the drain, a good chunk of a year's rent completely flushed away that you would not pay had you rented. You also have to drop, say, $50k on a down payment (which you can recoup - more on that later) that you could otherwise invest.
Now, consider costs associated with owning a home. Mortgage principal, mortgage interest, property taxes, homeowners' insurance, and home maintenance. All of these expenses other than mortgage principal are absolutely no different than paying rent. It's just money flushed down the shitter, too. So 80% of your housing expenses, right there, are down the shitter just like renting.
Now, let's say you do buy the home, it appreciates in value, and you want to sell it. Great, well time to spend another $20,000 on closing costs again - right down the shitter.
Let's say the real estate market appreciates 4% annually and the home was purchased for $250k with 20% down and a 3.6% interest rate. The homeowner wants to sell after 5 years, when the home is worth $305,000 and the homeowner has 28% equity in the home (approx. $85k).
So, you paid $30k in closing costs in order to make 28% of 55k in home appreciation, or $15k. Your decision to purchase a home cost you $15k ON TOP OF YOUR HOUSING COSTS. Let's say rent is $150 more a month than the cost of a mortgage, interest, taxes, insurance, and maintenance put together (an EXTREMELY generous assumption).
You spent $15k on closing costs to save - again, generously - $9k on housing costs. Purchasing that home was a terrible decision. If you invested the $60k you spent on a down payment and closing costs instead, you would probably be up well over $10k over where you are now.
I promise you, this is a solved question. Do not listen to the godawful advice in this thread.
I guess it would become more economical the more people there are paying into the mortgage, the same as with an apartment building.
This take is correct. Home ownership is generally a dogshit investment. It always has been, and it always will be. https://mattbruenig.com/2021/08/05/home-ownership-is-still-mostly-renting/
Consider how a homeowner pays for housing versus how a renter pays for housing.
A renter pays rent and maybe renter's insurance, the latter of which is a basically negligible amount.
A homeowner pays a mortgage premium, mortgage interest, home maintenance or condo fees, property taxes, and homeowner's insurance.
I want you to understand that for the homeowner, the mortgage interest, home maintenance/condo fees, property taxes, and homeowner's insurance are absolutely no different than paying rent. They're all money flushed right down the shitter, it's just that the money goes to banks, contractors, Uncle Sam, and insurance companies rather than a landleech. But for your bottom line it doesn't make a difference. The only investment the homeowner has is the mortgage premium. That's where 100% of your home appreciation comes from, and it's at most 20-30% of your housing payment.
Being a homeowner also means you pay closing costs on both buying and selling. That can easily exceed a year's rent on both ends, and it's also money flushed right down the drain. So you're already setting yourself back two years of rent (and it's really more than two years) just to get your name on the deed.
Secondly, home appreciation only matters if you sell the home. Housing is the least liquid asset in the world. Let's say you bought a home, struck gold, and now it's worth more. How does this benefit you? You can't realize the money unless you sell the house, and then you have to pay more closing costs and fucking move, probably to another house that's also appreciated in value canceling out your gain.
Furthermore, your home is only appreciating because of housing shortages. Like - home appreciation is direct profit off of homelessness/high rents/etc. Again, that doesn't make you a bad person for owning a home but you should at least understand how the sausage is made here. Homeowners absolutely have reactionary class interests. A lot of the housing crisis is not because of institutional investors or developers or whatever, it's because homeowners have the exact same class interests as landlords. They restrict both net housing supply and afforable housing measures so their homes get more expensive.
The only reasons why home ownership isn't the single worst investment in the world (and honestly it still might be) is because you get some pretty sick tax breaks for it like the mortgage interest deduction and SALT deductions.
But bottom line, renting isn't as bad as people make it out to be. If two people had a decent nest egg and Person A bought a home while Person B rented and stuck the rest of their money in the stock market, Person B would emerge much wealthier. I guarantee it. Home ownership is a dogshit investment, renting low-key slaps in comparison.
EDIT: Please do not go to hexbear for financial advice. The upvoted comments here, I promise you, have no fucking clue what they're talking about. I promise you these teenagers have not done an investigation and do not have the right to speak :mao-shining:
It also ignores the fact that when you own one property, (an unethical person) could use it as the collateral for future investments. It also ignores the fact that you can pass a home onto your children. Also, if you own a house you can have animals and guests as much as you want. Also, the money isn't flushed away in a mortgage situation; each month you are gaining (a small amount, admittedly) of equity.
If Person A bought a house in Echo Park in 2006, or in Westwood in 2000, they'd see like a 5-10x return on their investment. I guess Person B could have randomly purchased amazon or apple stocks but with gentrification going on, real estate seems to have a good return
Let’s say you bought a home, struck gold, and now it’s worth more. How does this benefit you?
You house appreciated from 200,000 to 400,000. Rents in the area have gone up from $400/month to $800 month. Since you purhcased at $200,000, you can charge a tenant $800 and that's some nice profit. Also when you own a home, a landlord can't fucking kick you out.
It depends on the area I guess, but I don't agree with some of what you just said. Renting isn't terrible, but owning is ideal. There is a reason people are increasingly being shut out of being homeowners. Housing is a need and people with capital stand to make a lot of money if they can succeed at stopping you from buying a home.
Real estate moguls and landlords are the people that stand to make crazy money from the housing market. Buying an individual house as a financial investment itself isn't really any way to build any kind of wealth unless you were able to buy in an area that is expected to greatly appreciate and flip it.
Buying a house/townhome/condo gets you out from underneath a landlord and ensures that outside of taxes, your monthly payment on your house NEVER increases assuming you have a fixed mortgage. Your landlord decides what you will pay either according to market prices or how much they know they can price gouge you because housing is a need. This is why landlords are evil because they leverage capital to exploit the housing needs of people.
All the things you listed as "home-owners have to pay for" are things that YOU ARE PAYING FOR WHEN YOU RENT. In fact, you are expected to maintain the interior of your dwelling while not owning any of it. You claim that a mortgage is no different than paying rent, except for the fact that your landlord owns, and determines what you will pay.
The upfront costs function as a way to filter out poor people from ever owning. Sure, it is still "renting" if you want to consider that it is rent from the bank, but there is no middleman landlord.
Home ownership isn't about trying to save vast sums of money. A lot of your post is ignoring the autonomy a homeowner enjoys over a renter. (Can you even repaint your apartment you are in?) It doesn't account for differences in square footage, or how existing infrastructure of the US caters to houses/townhomes.
Also the homeowner can also "invest in stonks" just as easily.
I think you're on the money, I just had one point to add. When you say:
Buying an individual house as a financial investment itself isn’t really any way to build any kind of wealth unless you were able to buy in an area that is expected to greatly appreciate and flip it.
But I'm telling you, that if a person owns one house, they can use that to get another house. And another. I've seen it happen -- and I think it's the story behind these 'mom and pop' landlords that own like 20 properties. So while an individual house isn't the best financial investment (although honestly, I disagree with this even), it can be a fundamental step to becoming a kulak which is the American dream.
I agree that buying a home gets you out from underneath a landlord, but remember that it also puts you underneath a bank. You can just as easily be condemned to homelessness by a capitalist as a homeowner for non-payment. And you're still being exploited, just by mortgage interest payments rather than rent. Landlords are parasites, but banks are too.
You're correct that home ownership guarantees that you won't be subject to rent increases, but in the overwhelming majority of cases renting is still better for your bottom line because rent increases are not going to come close to the enormous closing costs of buying and selling real estate. I agree with you that protection from payment increases is a benefit of home ownership.
I also agree that you are more autonomous as a homeowner, although not by as much as you might think. In many nicer areas HOAs dictate a lot of what you can do with your home, and although even the most restrained homeowner is more autonomous than the most liberated renter it might not be by as much as you think. You say a renter cannot paint their house without landlord approval, but all too often a homeowner can't either without HOA approval. Furthermore, this has nothing to do with my post above. I am simply arguing that renting + investing is better for your bottom line than home ownership. I'm ignoring the autonomy associated with home ownership because that's literally not what this thread is about.
You're wrong, however, when you say a homeowner can "invest in stonks" just as easily. If we're doing an apples to apples comparison, where a person has X money and has to choose between homeownership and renting + investing in stonks, the renter will have a greater ability to invest because they are not paying closing costs. I am saying that if a person has, say, X thousand dollars and they can choose between purchasing a home or renting a home and investing the money they'd otherwise spend on closing costs the renter would come out ahead. That is all I'm claiming. Nothing else.
This really reads like something someone who hasn't had to rent in a city in the past 20 years has written. My rent on the outskirts of a city of 100,000 with a minimum wage of $7.25 is $2,000/month (plus yard maintenance). The mortgage on the house were renting is $1,300/month and taxes bring it to around $1,600/month max.
Renting is entirely a scam that forces the renter to pay for all the homeowner's expenses plus a profit for the landlord. My grandmother gets a $5k/month pension from her union contract and is constantly complaining about how expensive her mortgage is. All in? She pays $1,300/month.
Meanwhile I work 45 hours a week and my girlfriend works 50-60 hours a week to pay our rent and have nothing left at the end of the month.
What universe are you only paying $300 a month in property tax on a $1300 mortgage???
If you don’t think I’ve had to rent in a city in the last 20 years, I promise you I wish that were the case…
Also, you realize that homeownership is also a scam that forces you to pay the same expenses plus profits for a bank, right?
$2000/year in property tax
And renting is a scam that makes you pay the homeowner's profits, the banks profits, and your boss's profits.
$2000 is insanely low in property tax on a mortgage that costs $1300. Like, even in small towns you should expect property taxes of twice that, in a small city you should expect three times that. And add home maintenance too.
That second sentence is just a word salad. Most landlords don’t have mortgages so there’s no bank’s profits, and your boss has nothing to do with whether you own a home or rent. Are you under the impression that once you buy a home you can write a letter to your boss and they have to start giving you the surplus value of your labor?
No I'm just pointing out that you are now paying a landlord's profit on top of the bank profits and the boss profits.
And lots of the landlords out here are in fact on mortgages which is why rents are so high
Assuming you have a basket of money and are simply undecided, renting is effectively a short on the housing market in your area between when you move in and when you move out. You're theoretically just saying that the expected proceeds from selling your house, plus net savings on rent vs cost of buying, minus a time premium, will be lower when you sell than when you buy If you plan to move in a year, transaction costs will likely eat your gains no matter what. If you plan to stay long enough, the time premium depends on how much you valuable the stability of living in one place with fixed/decreasing monthly costs vs what you expect to make in the market. Eventually, unless you have a huge pile of cash, you get old enough where that stability (so you don't have to keep grinding every month) is more important than chasing gains.
The only reasons why home ownership isn’t the single worst investment in the world (and honestly it still might be) is because you get some pretty sick tax breaks for it like the mortgage interest deduction and SALT deductions.
That and leverage (which is subsidized via cheap government mortgages). Real estate will always under-perform investing in the market because real estate is a lower risk asset. You sacrifice some gains in exchange for "not camping in the street" and also "not subject to some asshole called a 'lord' and paying him tribute". In practice, the whole point of "landlords" for the Capitalist class is to drive up the price of housing to force you to have to provide more labor - you have to provide V more dollars of labor a month than you would otherwise to pay for the landlord's profit, while you're boss makes V*(rate of exploitation) extra profits from you working that much more. It also drives up the value of land which theoretically allows them to take out more loans to invest more money based on the "value" of any property a company may own.
Assuming you have a basket of money and are simply undecided, renting is effectively a short on the housing market in your area between when you move in and when you move out. You’re theoretically just saying that the expected proceeds from selling your house, plus net savings on rent vs cost of buying, minus a time premium, will be lower when you sell than when you buy If you plan to move in a year, transaction costs will likely eat your gains no matter what.
:jesse-wtf:
You see, it’s not good enough to give your money to one capitalist. You must also give your money to a bunch of other capitalists