"The Wealthy Renter" by Alex Avery.

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X528
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"The Wealthy Renter" by Alex Avery.

Post by X528 » Tue Dec 03, 2019 11:50 am

Has anyone read the book: "The Wealthy Renter" by Alex Avery?

https://www.hoyes.com/blog/can-you-rent ... e-wealthy/

https://www.amazon.com/Wealthy-Renter-C ... 145973646X

Is it financially better to rent or buy a home? Is renting actually better for building wealth?

Are there any BH's who can buy a home, but are life-long renters? Why?

atdharris
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Re: "The Wealthy Renter" by Alex Avery.

Post by atdharris » Tue Dec 03, 2019 12:03 pm

I am currently debating this myself. I have enough money for a downpayment on a home, but I live in an area with expensive real estate and cannot justify paying $400k for a 2-3 bedroom 1200 sq ft house. Rents are currently high here as well, but at least it does not come with the added maintenance and insurance a home would cost me.

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Re: "The Wealthy Renter" by Alex Avery.

Post by corysold » Tue Dec 03, 2019 12:13 pm

atdharris wrote:
Tue Dec 03, 2019 12:03 pm
I am currently debating this myself. I have enough money for a downpayment on a home, but I live in an area with expensive real estate and cannot justify paying $400k for a 2-3 bedroom 1200 sq ft house. Rents are currently high here as well, but at least it does not come with the added maintenance and insurance a home would cost me.
I doubt the landlord is paying for those items for free. Certainly in some areas rent might be below what you could otherwise buy the same house for, but it is all area dependent.

The landlord has to pay for maintenance, insurance, etc. They likely aren't just eating that cost and are trying to pass it along to the renter if possible.

That has nothing to do with whether renting or buying is better, every situation is different, just that those costs aren't non-existent to the renter.

rhoms33
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Re: "The Wealthy Renter" by Alex Avery.

Post by rhoms33 » Tue Dec 03, 2019 12:20 pm

Here is a decent calculator:
https://www.nytimes.com/interactive/201 ... lator.html

Lots of dependent variables and no one answer applies.

I know many BH are in favor of renting - I own my home and would not want to rent a home, sometimes it's a personal/lifestyle decision more than a financial decision. I live in a HCOL area, and my PITI is much less than what I could rent a comparable home for.

My net worth would likely be higher at the moment if I had rented for the last 8 years and invested my down $ - however my home equity has also grown six figures in that 8 years, but I have something tangible, and its MY HOME.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Admiral » Tue Dec 03, 2019 12:28 pm

It's based on the person and the real estate market and job security. Buying is forced savings. Thus, for Americans it accounts for the majority of their net worth. Whether you think that's good or bad, at least it IS savings. Renting is an expense, nothing more. Buying also makes one's (typically) largest expense predictable (more or less) year over year.

With interest rates as low as they have been for a decade, I see no good reason not to buy as long as the home is affordable based on income and savings. And that's without the mortgage interest deduction.

I'm sure you'll hear from renters who have "made a killing in the market by investing instead of buying" but the research generally shows that those who pay less rent than they would otherwise pay on a mortgage typically do not do better, financially, because they don't invest the difference. Or don't invest it well. They squander it.

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Re: "The Wealthy Renter" by Alex Avery.

Post by ohai » Tue Dec 03, 2019 12:28 pm

Weird. I think "my home" is a very much intangible benefit.

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Re: "The Wealthy Renter" by Alex Avery.

Post by TomatoTomahto » Tue Dec 03, 2019 12:33 pm

I advise my kids, when their human capital and the value of their geographical liquidity are high, to rent.

The cost to move to London or CA is moderate, mostly the cost of breaking a lease. Employers often will support relocation, but are much happier to reimburse $10-20k versus $100k+.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: "The Wealthy Renter" by Alex Avery.

Post by CoastalWinds » Tue Dec 03, 2019 12:35 pm

TomatoTomahto wrote:
Tue Dec 03, 2019 12:33 pm
I advise my kids, when their human capital and the value of their geographical liquidity are high, to rent.
+1

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Re: "The Wealthy Renter" by Alex Avery.

Post by mcraepat9 » Tue Dec 03, 2019 12:38 pm

The financial benefits of home ownership are more art than science IMHO. Lifestyle/permanence is hard to put a price on. So is liquidity, both financial and the ability to leave town for another job quickly, cheaply and painlessly. Owning also involves leverage (assuming a mortgage) and (some) tax advantages. It also involves a lot of your net worth tied up in a single, non-diversified box that is actually rotting, though the land underneath it may appreciate.

For what it's worth, I think Bogleheads are uniquely suited to make renting work for them. An important element of buying vs. renting for the average joe is "forced savings", but Bogleheads are actually already good savers and generally investing the delta between owning and renting. As such, they are best suited behaviorally to make renting as optimal as it can be.

I currently rent but could easily buy in my VHCOL city.
Amateur investors are not cool-headed logicians.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Seasonal » Tue Dec 03, 2019 12:52 pm

Houses have tended to appreciate in value at about the inflation rate. Investment portfolios have tended to appreciate at well above the inflation rate. Obviously, both have had long periods of better or worse performance.

There are tax issues, behavioral issues, regional disparities, etc.

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Re: "The Wealthy Renter" by Alex Avery.

Post by dboeger1 » Tue Dec 03, 2019 12:59 pm

TomatoTomahto wrote:
Tue Dec 03, 2019 12:33 pm
I advise my kids, when their human capital and the value of their geographical liquidity are high, to rent.

The cost to move to London or CA is moderate, mostly the cost of breaking a lease. Employers often will support relocation, but are much happier to reimburse $10-20k versus $100k+.
To add to that, I think rent vs. buy is rarely an apples-to-apples comparison in terms of the "amount" of home. My wife and I rent in the SF Bay Area, and I've run all kinds of calculations simply to find what everybody else knows is obvious, which is that there's virtually no way that buying comes out ahead at current prices. Just the ongoing mortgage and maintenance costs overshadow our current rent payments. That being said, my wife does like to bring up a good point that we have always rented cheaper, older apartments in less desirable locations, but the homes we'd be interested in buying would likely be significantly newer, nicer, and in better areas. So I think it's kind of like what you said, where it's not so much a matter of exact dollar amounts as it is trying to put a value on things according to your situation. When your human capital and geographical liquidity are valuable, it's also likely that the places you're willing to live in for the sake of your employment are more affordable than the places you'd be willing to put roots down.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Watty » Tue Dec 03, 2019 1:00 pm

X528 wrote:
Tue Dec 03, 2019 11:50 am
Is it financially better to rent or buy a home? Is renting actually better for building wealth?
Which is financially best depends on what your local housing and rental markets are like. Here is a calculator that will help you figure out what is best in your area.

https://www.nytimes.com/interactive/201 ... lator.html

I am retired and at least for me having a paid off house makes my numbers work a lot better since even allowing for maintenance my housing costs are pretty predictable. I also look at my home equity as being available for long term care if that is ever needed.

If I was renting and I had to have additional money invested to pay for future rent then future rent increases would be unpredictable and I would have more sequence of returns risk since I could run into problems if my portfolio had a few bad years early in retirement.

In my situation I also will get a huge tax advantage because I will not pay the same taxes that a renter would on the money that they need to pay for rent. The value of living mortage and rent free is called "imputed rent" which you can Google.

I live in a medium to low cost of living area so along with a paid off house $60K a year is plenty for an above average middle class but not fancy retirement lifestyle.

These numbers are a bit contrived but close to what I expect to pay once I start Social Security. According to this calculator an over 65 with $38K in Social Security and $22K in taxable income would pay $0 in federal income tax.

https://www.olt.com/main/home/taxestimator.asp

My house would rent for around $1,800 a month ($21,600 a year) but a renter would not have to pay property tax or maintenance so effectively they might need an additional $18K a year to pay rent. With $38K in Social Security and $40K in taxable income their federal taxes would be $3,480. Which would mean that they would actually need about $45K in taxable income to be able to pay the rent and $4,590 in federal taxes. That is an additional $23K a year.

The high tax rate is due to way that Social Security is taxed.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

To start out withdrawing $23K a year with a 4% safe withdrawal rate would require a $575K portfolio. In contract my house might sell around $300K.

I'm not saying that the numbers will always be this clear but in my case owning is clearly a good choice financially.

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Re: "The Wealthy Renter" by Alex Avery.

Post by junior » Tue Dec 03, 2019 1:02 pm

Seasonal wrote:
Tue Dec 03, 2019 12:52 pm
Houses have tended to appreciate in value at about the inflation rate.
An owner occupied home does not have to appreciate beyond inflation to outperform the stock market in return to an investor. A return on investment can come from imputed rent, not housing appreciation. Of course it all depends on the details, I like this calculator:

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

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Re: "The Wealthy Renter" by Alex Avery.

Post by 260chrisb » Tue Dec 03, 2019 1:06 pm

I've not read the book but rented until I was 53 and for me renting was a great way to build wealth and I could certainly have bought years sooner. I'm four years into a 15 year mortgage in a home that was a tremendous upgrade for me that I love, one that has seen very nice appreciation over the past 2-3 years, has been a form of forced saving, and has diversified my holdings. Having said that; to each his own. I extreme saved for retirement as I rented cheaply and am convinced I would not have been able to do so if I had a mortgage all those years. I now have saved plenty for retirement and owe a third of what my home is worth. I never thought I would rent as long as I did and my monthly expenses are about three times what they were (mortgage, taxes, utilities, and insurance together) but I'm good with how it's worked out and good with where the money is going.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Wiggums » Tue Dec 03, 2019 1:14 pm

There are many good reasons to rent. Especially if you move often or like to switch jobs without limiting yourself to the local area. Renters should have insurance too. I’m not sure if everyone does.

Having a job with a pension in an area like Washington DC, may convince you to commit to the local area during your working years. I had many job offers, but nothing that compensated me for my pension. So I dropped anchor and purchased our homes that all appreciated well. I’m also the guy that pays off the mortgage quickly, so take my answer lightly. I do think that your home can be a valuable insurance later in life. I also like that I don’t have to live in the house as is. I can make improvements to the home. That might be a part of my personality.

I think the key is desire for liquidity and personal commitment to investing available money.
Last edited by Wiggums on Tue Dec 03, 2019 1:25 pm, edited 1 time in total.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Seasonal » Tue Dec 03, 2019 1:17 pm

junior wrote:
Tue Dec 03, 2019 1:02 pm
Seasonal wrote:
Tue Dec 03, 2019 12:52 pm
Houses have tended to appreciate in value at about the inflation rate.
An owner occupied home does not have to appreciate beyond inflation to outperform the stock market in return to an investor. A return on investment can come from imputed rent, not housing appreciation. Of course it all depends on the details, I like this calculator:

https://michaelbluejay.com/house/rentvsbuy.html
Depends on how rent performs relative to inflation (and housing and investment portfolios). I haven't seen evidence that it tends to increase much more than housing costs, with the inevitable variations.

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Re: "The Wealthy Renter" by Alex Avery.

Post by retired@50 » Tue Dec 03, 2019 1:30 pm

X528 wrote:
Tue Dec 03, 2019 11:50 am
Has anyone read the book: "The Wealthy Renter" by Alex Avery?

https://www.hoyes.com/blog/can-you-rent ... e-wealthy/

https://www.amazon.com/Wealthy-Renter-C ... 145973646X

Is it financially better to rent or buy a home? Is renting actually better for building wealth?

Are there any BH's who can buy a home, but are life-long renters? Why?
I haven't read the book.
I rent, and am happy doing so. Since stock market returns are usually better than real estate returns, at least over the long term, it can work out nicely. In my case, renting allowed me to add more to my portfolio over the years.

I suppose the one exception to this is if you happen to get into a hot real estate market and experience out-sized returns due to a spike in prices. Of course, this spike can reverse over time.

To me, buying a house is agreeing to more than a mortgage payment, it's agreeing to all sorts of maintenance that you may or may not want to do. I think the reason(s) to buy a house shouldn't be for financial gain.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

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Re: "The Wealthy Renter" by Alex Avery.

Post by BogleMelon » Tue Dec 03, 2019 1:41 pm

If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: "The Wealthy Renter" by Alex Avery.

Post by Admiral » Tue Dec 03, 2019 1:47 pm

BogleMelon wrote:
Tue Dec 03, 2019 1:41 pm
If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
I won't address these specifics (which seem unlikely) but the question is not "which is cheaper" it's "which is the better method to build wealth." Renting is ONLY better in terms of wealth creation if the money that's saved versus buying is then used for a productive, wealth-generating purpose. I could rent for $1,000/mo instead of buying at $2,000/mo but if I spend the $1k at the track, I'm not wealthier.

Also some costs (like taxes) cannot easily be controlled.

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Re: "The Wealthy Renter" by Alex Avery.

Post by BogleMelon » Tue Dec 03, 2019 1:56 pm

Admiral wrote:
Tue Dec 03, 2019 1:47 pm
BogleMelon wrote:
Tue Dec 03, 2019 1:41 pm
If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
I won't address these specifics (which seem unlikely) but the question is not "which is cheaper" it's "which is the better method to build wealth." Renting is ONLY better in terms of wealth creation if the money that's saved versus buying is then used for a productive, wealth-generating purpose. I could rent for $1,000/mo instead of buying at $2,000/mo but if I spend the $1k at the track, I'm not wealthier.

Also some costs (like taxes) cannot easily be controlled.
If someone would spend $1K at the track, he would spend it anyways whether buying or renting. This is a variable that IMO shouldn't be included in the argument of (rent vs buy) effect on wealth. It is like you are saying: "Term-life insurance is only better if you didn't spend the difference in premium between Term-life and Whole-life"!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: "The Wealthy Renter" by Alex Avery.

Post by Schlabba » Tue Dec 03, 2019 2:10 pm

BogleMelon wrote:
Tue Dec 03, 2019 1:41 pm
If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
Also don't forget the cost of moving when you bought a house. You might pay taxes, real estate agent, closing fees and so on. So if you add all those costs only after a few years living in the same location you "break even" compared to renting. I am sure we all know people who move every few years.
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Re: "The Wealthy Renter" by Alex Avery.

Post by goodenyou » Tue Dec 03, 2019 2:12 pm

Living below your means builds wealth. Renting or buying.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

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Re: "The Wealthy Renter" by Alex Avery.

Post by carmonkie » Tue Dec 03, 2019 2:16 pm

We rent and I have not read the books and I have also owned a home.

By renting, we have been able to max out 401(k), HSA, Roth, save significant post tax, take vacations. I think I will need a newer car in 3 years so saving for it.

When I compare what my monthly expenses were when I owned a house of similar size it was an eye opener. 1300 sq feet.
Rent / House
Water 35 100-150 (more in summer)
Ins. 20 200
Housing 1300 1500
Taxes 0 5000 (I know I pay taxes in rent, just not that dreaded yearly bill)
Maint 0 Varies depending what broke
Electric 110 avg 200+

Do I wish I would have a home, sometimes, but do not dwell on it and besides we are on a killer location, out of the gate we have a 10 mile loop lake for cycling and walking so putting all things in perspective including lifestyle, renting makes sense for us right now..

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Re: "The Wealthy Renter" by Alex Avery.

Post by corysold » Tue Dec 03, 2019 2:22 pm

carmonkie wrote:
Tue Dec 03, 2019 2:16 pm
We rent and I have not read the books and I have also owned a home.

By renting, we have been able to max out 401(k), HSA, Roth, save significant post tax, take vacations. I think I will need a newer car in 3 years so saving for it.

When I compare what my monthly expenses were when I owned a house of similar size it was an eye opener. 1300 sq feet.
Rent / House
Water 35 100-150 (more in summer)
Ins. 20 200
Housing 1300 1500
Taxes 0 5000 (I know I pay taxes in rent, just not that dreaded yearly bill)
Maint 0 Varies depending what broke
Electric 110 avg 200+

Do I wish I would have a home, sometimes, but do not dwell on it and besides we are on a killer location, out of the gate we have a 10 mile loop lake for cycling and walking so putting all things in perspective including lifestyle, renting makes sense for us right now..
Why would your utility bills be lower by renting, if the house is comparable?

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Re: "The Wealthy Renter" by Alex Avery.

Post by ClevrChico » Tue Dec 03, 2019 2:30 pm

I've always believed it to be more of a lifestyle choice vs. a financial one.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Broken Man 1999 » Tue Dec 03, 2019 2:53 pm

ClevrChico wrote:
Tue Dec 03, 2019 2:30 pm
I've always believed it to be more of a lifestyle choice vs. a financial one.
I agree!

If I were single, and able-bodied today, I could be happy in a studio apartment with a Murphy bed. Or, perhaps in a tiny house staged near to a forest with lots of hiking trails. Not practical when you have a house full of kids.

Our goal for housing was to find a nice, safe home for the children to grow up in, and for them to not be reluctant to invite their friends over. Of course the cost of the home by itself doesn't mean you can't have an inviting home. But, sometimes a declining neighborhood can pretty much negate whatever efforts you might make to keep your home a safe, inviting place to live. You have to be in a neighborhood filled with homeowners who keep their homes in good repair for the decision of buying to pan out. A few bad ones can hurt property values.

So, unlike renting, a house doesn't offer the option of portability without significant transactional costs, selling/rebuying. Very easy to move from one rental unit to another, though you would need to wait out your lease or have to pay to break it.

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Re: "The Wealthy Renter" by Alex Avery.

Post by GlacierRunner » Tue Dec 03, 2019 3:27 pm

I haven't read the book.

I was a 12 year renter. We lived in a 400 square foot apartment with below market rent and heat/hot water included (near hiking trails and on the bus line). We committed to stay in the apartment until we needed something else. That day came after we hit $1 million in retirement accounts and had additional cash/investments named "house". And the decision to move was entirely lifestyle related.

I definitely believe that we were better able to amass wealth by renting, but we were very intentional about saving and investing (some might say extreme: single car, no internet).

During the years we rented we were able to be more active: hiking, walking, running, skiing. Some of that is age. Some of that is that we love having a home to just hang out in (without listening to neighbors). Some of it is just that we have more projects to do now that we have a 3bd/2bath/yard.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Admiral » Tue Dec 03, 2019 3:36 pm

BogleMelon wrote:
Tue Dec 03, 2019 1:56 pm
Admiral wrote:
Tue Dec 03, 2019 1:47 pm
BogleMelon wrote:
Tue Dec 03, 2019 1:41 pm
If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
I won't address these specifics (which seem unlikely) but the question is not "which is cheaper" it's "which is the better method to build wealth." Renting is ONLY better in terms of wealth creation if the money that's saved versus buying is then used for a productive, wealth-generating purpose. I could rent for $1,000/mo instead of buying at $2,000/mo but if I spend the $1k at the track, I'm not wealthier.

Also some costs (like taxes) cannot easily be controlled.
If someone would spend $1K at the track, he would spend it anyways whether buying or renting. This is a variable that IMO shouldn't be included in the argument of (rent vs buy) effect on wealth. It is like you are saying: "Term-life insurance is only better if you didn't spend the difference in premium between Term-life and Whole-life"!
If both are equally affordable, it's a wash. The point is twofold: some owners buy more than they can afford, and some renters claim they are paying less than they otherwise would if they bought. If you're saving money by renting, then the point of what you do with the money is absolutely relevant to whether it's a good financial decision...in the same way that one who buys too much house and cannot afford to save anything is relevant to that particular decision.

Again, buying is forced savings. Renting is not. That's not really a point of contention, is it? One builds equity in something that can be sold (or borrowed against) and one does not. If the renter can meet his or her financial goals, then that's great. What I've said is that research has shown that most renters end up worse off financially because they have less saved. Don't take my word for it:

https://www.jchs.harvard.edu/sites/defa ... btl-06.pdf
But this forced savings aspect is arguably an important way that
owning leads to wealth creation over the long run since it is at work in all market conditions. While
studies simulating the financial returns to owning and renting find that renting is often more likely to be
beneficial, in practice renters rarely accumulate any wealth. In no small part this seems traceable to the
difficulties households face in trying to save absent either a clear goal or an automatic savings
mechanism.
Again, we're not speaking of Bhs, we're talking about the average person.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Caduceus » Tue Dec 03, 2019 3:50 pm

The average person will come out ahead buying, but the average Boglehead will come out ahead renting. This is becayse the average person will spend the housing savings, whereas the Bogleheads will save it.

When people buy houses, they tend to buy something they can envision loving a for a long time. So all kinds of costs, decorations, upkeep, etc. go into them. And then there are the transactional costs to buying, selling them. And then maintaining them. I would not have bought any of the places that I rented, but I was perfectly happy living there as a renter.

I think the trick to early financial independence is to keep housing costs as low as possible, whether this means renting a small place, or buying a small house/apartment. Most people spend too much on something they don't even use much. If you are a working professional, most of the time you spend at home is spent sleeping. I mean, you wake up in the morning, rush off for work, get back in the evening, and then it's a few hours before you sleep. During the weekends, you are out having fun, running errands, etc. I mean ... how much time does the average working person actually spend inside their house?

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Re: "The Wealthy Renter" by Alex Avery.

Post by Sam1 » Tue Dec 03, 2019 6:21 pm

Admiral wrote:
Tue Dec 03, 2019 3:36 pm
BogleMelon wrote:
Tue Dec 03, 2019 1:56 pm
Admiral wrote:
Tue Dec 03, 2019 1:47 pm
BogleMelon wrote:
Tue Dec 03, 2019 1:41 pm
If you would buy the same exact apartment/house you would be renting and treat it like a rented home (i.e: not upgrading the kitchen or building that shiny cool fence..etc), then buying is cheaper over the long term. Else, renting is cheaper.
I won't address these specifics (which seem unlikely) but the question is not "which is cheaper" it's "which is the better method to build wealth." Renting is ONLY better in terms of wealth creation if the money that's saved versus buying is then used for a productive, wealth-generating purpose. I could rent for $1,000/mo instead of buying at $2,000/mo but if I spend the $1k at the track, I'm not wealthier.

Also some costs (like taxes) cannot easily be controlled.
If someone would spend $1K at the track, he would spend it anyways whether buying or renting. This is a variable that IMO shouldn't be included in the argument of (rent vs buy) effect on wealth. It is like you are saying: "Term-life insurance is only better if you didn't spend the difference in premium between Term-life and Whole-life"!
If both are equally affordable, it's a wash. The point is twofold: some owners buy more than they can afford, and some renters claim they are paying less than they otherwise would if they bought. If you're saving money by renting, then the point of what you do with the money is absolutely relevant to whether it's a good financial decision...in the same way that one who buys too much house and cannot afford to save anything is relevant to that particular decision.

Again, buying is forced savings. Renting is not. That's not really a point of contention, is it? One builds equity in something that can be sold (or borrowed against) and one does not. If the renter can meet his or her financial goals, then that's great. What I've said is that research has shown that most renters end up worse off financially because they have less saved. Don't take my word for it:

https://www.jchs.harvard.edu/sites/defa ... btl-06.pdf
But this forced savings aspect is arguably an important way that
owning leads to wealth creation over the long run since it is at work in all market conditions. While
studies simulating the financial returns to owning and renting find that renting is often more likely to be
beneficial, in practice renters rarely accumulate any wealth. In no small part this seems traceable to the
difficulties households face in trying to save absent either a clear goal or an automatic savings
mechanism.
Again, we're not speaking of Bhs, we're talking about the average person.
I know a good number of high earners still renting in SF and NY. I doubt seriously any of them are investing the difference between rent and what a mortgage on a similar property would be. Of course I don’t know this for certain, but i think it’s safe to assume given we earn similar salaries and their rent is similar or a little less than my mortgage. Many still spend a significant amount on travel and entertainment. I would be willing to bet that most haven’t bought simply because they don’t have the downpayment saved. In NY, many coops require 50% down. It’s hard to save that much when you’re paying $8k a month in rent like one couple I know.

Most renters rent because they can’t afford to buy. A small portion of renters invest heavily in index funds / other investments.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Jags4186 » Tue Dec 03, 2019 6:30 pm

corysold wrote:
Tue Dec 03, 2019 12:13 pm
atdharris wrote:
Tue Dec 03, 2019 12:03 pm
I am currently debating this myself. I have enough money for a downpayment on a home, but I live in an area with expensive real estate and cannot justify paying $400k for a 2-3 bedroom 1200 sq ft house. Rents are currently high here as well, but at least it does not come with the added maintenance and insurance a home would cost me.
I doubt the landlord is paying for those items for free. Certainly in some areas rent might be below what you could otherwise buy the same house for, but it is all area dependent.

The landlord has to pay for maintenance, insurance, etc. They likely aren't just eating that cost and are trying to pass it along to the renter if possible.

That has nothing to do with whether renting or buying is better, every situation is different, just that those costs aren't non-existent to the renter.
I used to think this as well but as a relatively new home owner I no longer believe this to be the case. There is an astronomical amount of broken stuff, shoddy repairs, and/or subpar workmanship I was willing to tolerate when I was renting that is not acceptable to me as a home owner.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Hector » Tue Dec 03, 2019 6:42 pm

I rent because I can not afford to buy what I want.
I rent 2 bedroom townhome (little over 1000 square feet with two car garage) in decent neighborhood. I can afford to buy that. But I don't get excited about it.
I would like to buy 3-4 bedroom house (little over 1500 square feet) in nice neighborhood, but that will double my housing expenses . I can not afford that and that is why I am renting.
Last edited by Hector on Tue Dec 03, 2019 7:07 pm, edited 1 time in total.

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Re: "The Wealthy Renter" by Alex Avery.

Post by willthrill81 » Tue Dec 03, 2019 6:57 pm

For us, renting a home similar to the one we own would almost certainly be sub-optimal. After accounting for maintenance, insurance, and property taxes, we're getting about a 3% real return on our home equity vs. renting an identical home in this area. The almost 40% property appreciation we've experienced over the last five years is a nice bonus but separate.

My advice to everyone considering the issue is to crunch the numbers in their specific area. In many HCOL areas, renting is clearly superior. From what I've seen, owning is usually superior in MCOL and LCOL areas if you'll stay there long enough to recover the associated transaction and closing costs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "The Wealthy Renter" by Alex Avery.

Post by gch » Tue Dec 03, 2019 7:34 pm

I’m constantly amazed at the number of people on here who find nice enough landlords to take losses on their homes and rent them for less than mortgage+insurance+taxes.

Sure maybe in a few select areas with high expected appreciation, but then those people foregoing owning are also giving up that appreciation.

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Re: "The Wealthy Renter" by Alex Avery.

Post by mcraepat9 » Tue Dec 03, 2019 8:03 pm

gch wrote:
Tue Dec 03, 2019 7:34 pm
I’m constantly amazed at the number of people on here who find nice enough landlords to take losses on their homes and rent them for less than mortgage+insurance+taxes.

Sure maybe in a few select areas with high expected appreciation, but then those people foregoing owning are also giving up that appreciation.
Disclosure: I was a landlord for a slew of properties years back. Gave it up due to time constraints and relatively poor returns.

Many landlords I have run into and know are renting out part of their property (so there isn't a mortgage/insurance/tax expressly allocated to it, it was essentially excess space) or are mortgage free (so just need to cover their insurance and taxes). If you look at most of the "deals" that were available in the bottom of the GFC, you'll find there were an unbelievable amount of desperate landlords looking to cover whatever portion of their fixed costs they could because they couldn't sell (or couldn't stomach the loss they would take by selling).

If landlord cannot cover their mortgage+insurance+taxes, they should sell or repurpose the property. But at the end of the day, you can only rent a property at the market rate regardless of the landlord's actual costs.
Amateur investors are not cool-headed logicians.

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Re: "The Wealthy Renter" by Alex Avery.

Post by spae » Tue Dec 03, 2019 8:42 pm

I've done the math and buying in my neighborhood doesn't come close to making sense even if I assume pretty hefty appreciation on a house.

I'll considering buying when I retire to insure against rent prices increasing or if I move somewhere cheaper and a house would be a trivial fraction of my assets.
Sam1 wrote:
Tue Dec 03, 2019 6:21 pm
I know a good number of high earners still renting in SF and NY. I doubt seriously any of them are investing the difference between rent and what a mortgage on a similar property would be. Of course I don’t know this for certain, but i think it’s safe to assume given we earn similar salaries and their rent is similar or a little less than my mortgage. Many still spend a significant amount on travel and entertainment. I would be willing to bet that most haven’t bought simply because they don’t have the downpayment saved. In NY, many coops require 50% down. It’s hard to save that much when you’re paying $8k a month in rent like one couple I know.

Most renters rent because they can’t afford to buy. A small portion of renters invest heavily in index funds / other investments.
We know very different people. I could afford to buy a house without a mortgage with my assets alone, but we choose to rent because I'd rather have that money in the market and the rent/buy price ratio for a comparable unit makes taking a mortgage out an unreasonable way to get leverage even if I wanted that much leverage, which I don't.

The only friends I have who are willing to drop $8k or more on rent have compensation that's well into the 7-figure range and are not avoiding buying because they can't afford a down payment. $8k a month gets you a 2k sq. ft or nearly 2k sq. ft penthouse unit a the top of a skyscraper in downtown Brooklyn or a 50th floor unit that's "only" 1500 sq ft. in a skyscraper in Midtown. If you don't feel the need to be 500 feet off the ground, two different sets of friends rent 4 bedroom house in Brooklyn for around $8k total and split it 4 ways.

I can believe that you know people who are different from my friends. There are plenty of people who spend a lot of money. But I don't see how this is relevant unless you believe that, at the margin, a boglehead making the rent/buy decision will become more profligate because they rent if they decide to rent. Do you think that someone who's renting a nice 1 bedroom is going to upgrade to a 2k sq ft. skyscraper penthouse unit because they didn't buy?

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Re: "The Wealthy Renter" by Alex Avery.

Post by willthrill81 » Tue Dec 03, 2019 8:58 pm

mcraepat9 wrote:
Tue Dec 03, 2019 8:03 pm
gch wrote:
Tue Dec 03, 2019 7:34 pm
I’m constantly amazed at the number of people on here who find nice enough landlords to take losses on their homes and rent them for less than mortgage+insurance+taxes.

Sure maybe in a few select areas with high expected appreciation, but then those people foregoing owning are also giving up that appreciation.
Disclosure: I was a landlord for a slew of properties years back. Gave it up due to time constraints and relatively poor returns.

Many landlords I have run into and know are renting out part of their property (so there isn't a mortgage/insurance/tax expressly allocated to it, it was essentially excess space) or are mortgage free (so just need to cover their insurance and taxes). If you look at most of the "deals" that were available in the bottom of the GFC, you'll find there were an unbelievable amount of desperate landlords looking to cover whatever portion of their fixed costs they could because they couldn't sell (or couldn't stomach the loss they would take by selling).

If landlord cannot cover their mortgage+insurance+taxes, they should sell or repurpose the property. But at the end of the day, you can only rent a property at the market rate regardless of the landlord's actual costs.
I suspect that many landlords choose to rent rather than sell their properties due to (1) a belief in future property appreciation, (2) lack of awareness of what their returns are, and (3) sentiment (i.e. I don't want to sell this property).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "The Wealthy Renter" by Alex Avery.

Post by Cycle » Tue Dec 03, 2019 9:09 pm

Housing is an expense, whether purchased or rented. U can get a good deal either way in many, but not all markets. Here in the Midwest there are deals to be found on either side.

People do tend to buy more than they would rent around here, making their expense higher. I think this is bc people think buying is an investment. The returns on real estate on average match inflation. Ymmv.
Never look back unless you are planning to go that way

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Re: "The Wealthy Renter" by Alex Avery.

Post by carmonkie » Tue Dec 03, 2019 9:13 pm

corysold wrote:
Tue Dec 03, 2019 2:22 pm
carmonkie wrote:
Tue Dec 03, 2019 2:16 pm
We rent and I have not read the books and I have also owned a home.

By renting, we have been able to max out 401(k), HSA, Roth, save significant post tax, take vacations. I think I will need a newer car in 3 years so saving for it.

When I compare what my monthly expenses were when I owned a house of similar size it was an eye opener. 1300 sq feet.
Rent / House
Water 35 100-150 (more in summer)
Ins. 20 200
Housing 1300 1500
Taxes 0 5000 (I know I pay taxes in rent, just not that dreaded yearly bill)
Maint 0 Varies depending what broke
Electric 110 avg 200+

Do I wish I would have a home, sometimes, but do not dwell on it and besides we are on a killer location, out of the gate we have a 10 mile loop lake for cycling and walking so putting all things in perspective including lifestyle, renting makes sense for us right now..
Why would your utility bills be lower by renting, if the house is comparable?
I do not have a lawn to care for. Watering here in Texas in the summmer is money down the drain literally and as such sewage bill goes proportionally goes up. Where we rent, water includes sewage and trash. The old house I had was very inefficient, single glass windows, but the upgrade cost would have been very expensive...

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Re: "The Wealthy Renter" by Alex Avery.

Post by randomguy » Tue Dec 03, 2019 9:59 pm

dboeger1 wrote:
Tue Dec 03, 2019 12:59 pm


To add to that, I think rent vs. buy is rarely an apples-to-apples comparison in terms of the "amount" of home. My wife and I rent in the SF Bay Area, and I've run all kinds of calculations simply to find what everybody else knows is obvious, which is that there's virtually no way that buying comes out ahead at current prices.
People said the same thing 5 years ago. Looking back, they were wrong. Buying clearly beat renting and it wasn't even close. Maybe this time will be different. Or maybe it will be more of the same.

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Re: "The Wealthy Renter" by Alex Avery.

Post by junior » Tue Dec 03, 2019 10:27 pm

gch wrote:
Tue Dec 03, 2019 7:34 pm
I’m constantly amazed at the number of people on here who find nice enough landlords to take losses on their homes and rent them for less than mortgage+insurance+taxes.
My landlord is a corporation that constructed the community I rent in over 30 years ago. I don't know if there is a mortgage at this point, but I doubt it. The math for them wouldn't be anything like what you are proposing.

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Re: "The Wealthy Renter" by Alex Avery.

Post by rich126 » Tue Dec 03, 2019 10:29 pm

Seasonal wrote:
Tue Dec 03, 2019 12:52 pm
Houses have tended to appreciate in value at about the inflation rate. Investment portfolios have tended to appreciate at well above the inflation rate. Obviously, both have had long periods of better or worse performance.

There are tax issues, behavioral issues, regional disparities, etc.
Even if they only appreciate at the inflation rate you are still likely coming out ahead unless you paid cash for it. A $400,000 house with $80,000 down that increases 3% per year means $12,000 or 15% return on your initial investment. Of course you have taxes and in the past the tax deduction was a plus. Also depends how long you stay there, whether you have to pay the real estate commissions, and how your neighborhood does in value.

I’ve done well with my homes but others have been less fortunate.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Sam1 » Tue Dec 03, 2019 10:32 pm

spae wrote:
Tue Dec 03, 2019 8:42 pm
I've done the math and buying in my neighborhood doesn't come close to making sense even if I assume pretty hefty appreciation on a house.

I'll considering buying when I retire to insure against rent prices increasing or if I move somewhere cheaper and a house would be a trivial fraction of my assets.
Sam1 wrote:
Tue Dec 03, 2019 6:21 pm
I know a good number of high earners still renting in SF and NY. I doubt seriously any of them are investing the difference between rent and what a mortgage on a similar property would be. Of course I don’t know this for certain, but i think it’s safe to assume given we earn similar salaries and their rent is similar or a little less than my mortgage. Many still spend a significant amount on travel and entertainment. I would be willing to bet that most haven’t bought simply because they don’t have the downpayment saved. In NY, many coops require 50% down. It’s hard to save that much when you’re paying $8k a month in rent like one couple I know.

Most renters rent because they can’t afford to buy. A small portion of renters invest heavily in index funds / other investments.
We know very different people. I could afford to buy a house without a mortgage with my assets alone, but we choose to rent because I'd rather have that money in the market and the rent/buy price ratio for a comparable unit makes taking a mortgage out an unreasonable way to get leverage even if I wanted that much leverage, which I don't.

The only friends I have who are willing to drop $8k or more on rent have compensation that's well into the 7-figure range and are not avoiding buying because they can't afford a down payment. $8k a month gets you a 2k sq. ft or nearly 2k sq. ft penthouse unit a the top of a skyscraper in downtown Brooklyn or a 50th floor unit that's "only" 1500 sq ft. in a skyscraper in Midtown. If you don't feel the need to be 500 feet off the ground, two different sets of friends rent 4 bedroom house in Brooklyn for around $8k total and split it 4 ways.

I can believe that you know people who are different from my friends. There are plenty of people who spend a lot of money. But I don't see how this is relevant unless you believe that, at the margin, a boglehead making the rent/buy decision will become more profligate because they rent if they decide to rent. Do you think that someone who's renting a nice 1 bedroom is going to upgrade to a 2k sq ft. skyscraper penthouse unit because they didn't buy?
Okay. The point is that most people who rent are NOT saving and investing a lot. It’s great you are and your friends are as well. It was pointed out above that we are talking about the average person.

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Re: "The Wealthy Renter" by Alex Avery.

Post by dboeger1 » Tue Dec 03, 2019 10:37 pm

randomguy wrote:
Tue Dec 03, 2019 9:59 pm
dboeger1 wrote:
Tue Dec 03, 2019 12:59 pm


To add to that, I think rent vs. buy is rarely an apples-to-apples comparison in terms of the "amount" of home. My wife and I rent in the SF Bay Area, and I've run all kinds of calculations simply to find what everybody else knows is obvious, which is that there's virtually no way that buying comes out ahead at current prices.
People said the same thing 5 years ago. Looking back, they were wrong. Buying clearly beat renting and it wasn't even close. Maybe this time will be different. Or maybe it will be more of the same.
I'm not disagreeing with you, but I think you missed the point of what I was trying to say. Buying vs. renting the exact same home is one thing, but the home you rent vs. the one you buy is rarely the same, because the reasons people rent vs. buy also tend to be different. And for what it's worth, I think your choice to defend buying with a 5-year-window is a bit odd, considering Bay Area home prices have shot through the roof far more than is historically typical for here or any area in recent times. Also, certain cities have rent control, so that's another huge variable. And the equation depends on when you buy; you don't get to claim the gains from before you bought, hence why I specified at current prices. So if you're saying that someone who has been in a rent-controlled apartment in San Francisco or San Jose for many years and has a well-below-market monthly rent is at least as likely to come out ahead as moving out of that apartment and buying a house at current prices based on the last 5 years, well, I think that's a bit like being overly optimistic about the S&P500 over the next 20 years because of the recent bull market. I'm not saying it can't happen, just that your choice of a short and unusual time window is fairly arbitrary compared to reasonable estimates based on current figures.

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Re: "The Wealthy Renter" by Alex Avery.

Post by Sam1 » Tue Dec 03, 2019 10:38 pm

willthrill81 wrote:
Tue Dec 03, 2019 6:57 pm
For us, renting a home similar to the one we own would almost certainly be sub-optimal. After accounting for maintenance, insurance, and property taxes, we're getting about a 3% real return on our home equity vs. renting an identical home in this area. The almost 40% property appreciation we've experienced over the last five years is a nice bonus but separate.

My advice to everyone considering the issue is to crunch the numbers in their specific area. In many HCOL areas, renting is clearly superior. From what I've seen, owning is usually superior in MCOL and LCOL areas if you'll stay there long enough to recover the associated transaction and closing costs.
Problem with HCOL is that rent can be so expensive on a monthly basis. Sure, the mortgage on a property might be $7k and the rent is $5k. The problem is that $5k is still a lot. Also rent typically goes up and even a small percentage increase can equal a decent amount.

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Re: "The Wealthy Renter" by Alex Avery.

Post by CurlyDave » Tue Dec 03, 2019 10:52 pm

Seasonal wrote:
Tue Dec 03, 2019 12:52 pm
Houses have tended to appreciate in value at about the inflation rate. Investment portfolios have tended to appreciate at well above the inflation rate. Obviously, both have had long periods of better or worse performance...
As true as this might be, if I buy a house with 20% down, both my 20% and the bank's 80% appreciate at the rate of inflation. So, my share of the house appreciates at 5x the inflation rate.

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Re: "The Wealthy Renter" by Alex Avery.

Post by longinvest » Tue Dec 03, 2019 10:56 pm

X528 wrote:
Tue Dec 03, 2019 11:50 am
Is it financially better to rent or buy a home? Is renting actually better for building wealth?
I've leaned through experience that this is the wrong question to ask. In a few words, renting and buying are different lifestyles; they entail different tradeoffs.

Why is it the wrong question? Because "financial optimization" can lead to suboptimal choices. It's quite possible, for example, that it would be financially better to live homeless under a bridge. Most people wouldn't accept to live like that just to save money!
X528 wrote:
Tue Dec 03, 2019 11:50 am
Are there any BH's who can buy a home, but are life-long renters? Why?
My wife and I were renters for years which allowed us to accumulate a sizeable down payment. After buying a nice home, we quickly killed the mortgage in a few years. But, we also learned quite quickly that we disliked the responsibilities and hassles of ownership. It took us more time, though, to realize that we weren't forced to endure this. :oops: So, we eventually woke up to the idea that renting didn't have to be the financial disaster that everyone around us had told us about, we sold the home, and now rent a nice home. 8-)

Our portfolio is bigger (sale proceeds), but our rent is higher than our previous housing expenses (the mortgage was paid off).

We live below our means. We save and invest the difference. We'll have enough to retire with dignity.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Re: "The Wealthy Renter" by Alex Avery.

Post by CFM300 » Tue Dec 03, 2019 11:24 pm

CurlyDave wrote:
Tue Dec 03, 2019 10:52 pm
if I buy a house with 20% down, both my 20% and the bank's 80% appreciate at the rate of inflation. So, my share of the house appreciates at 5x the inflation rate.
Can you explain that, please?

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Re: "The Wealthy Renter" by Alex Avery.

Post by Pu239 » Tue Dec 03, 2019 11:26 pm

The book was written for Canadians and the Canadian housing market. I'd be interested in US applicability from someone who's read the book.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot

CurlyDave
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Re: "The Wealthy Renter" by Alex Avery.

Post by CurlyDave » Tue Dec 03, 2019 11:54 pm

CFM300 wrote:
Tue Dec 03, 2019 11:24 pm
CurlyDave wrote:
Tue Dec 03, 2019 10:52 pm
if I buy a house with 20% down, both my 20% and the bank's 80% appreciate at the rate of inflation. So, my share of the house appreciates at 5x the inflation rate.
Can you explain that, please?
How about a simple example. I buy a $100k house with 20% down. So I only put $20k of my own money into it, I borrow the other $80k.

Say inflation is 3%, so next year the house is worth $103k, a gain of $3k. So my equity is now $23K, and I still owe $80k on the house.

I have made a gain of 3/20 = 15% on my money.

This is the principle of leverage.

Of course, there are second order effects, such as the principal reduction on the loan, but for a simplistic example these are usually ignored.

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