When does renting make sense

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VictoriaF
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Re: When does renting make sense

Post by VictoriaF »

IMO wrote: Thu Aug 17, 2017 2:15 am
VictoriaF wrote: Thu Aug 17, 2017 12:20 am
IMO wrote: Wed Aug 16, 2017 6:58 pm Honestly, if you were trying to compare apples to apples with renting on the above, you'd need about $5+K/month to pay for the rent on the home. And, you'd still be on the hook to take care of the yard/pool, etc as a renter typically is required in these areas. In no way, shape or form would they have been better to have rented a similar home all these years and been able to stay in that home that they have no desire to leave.
This is false logic.

In reality:
1. People buy expensive homes because of their resale value. People don't care about the resale value of their apartments.
2. A $5,0000 per month rent is a lifestyle decision, not a financial decision.

Victoria
Just about everything about where you live, if/what you rent/buy is a "lifestyle" decision. Otherwise you'd simply live in the lowest priced apartment which is probably the least desirable part of a town/city.
Right. And that's why renting vs. buying should be viewed as a lifestyle decision, not a financial decision.
IMO wrote: Thu Aug 17, 2017 2:15 amThey never bought their home because some future resale value, they bought it to live in a desirable neighborhood (vs. the lousy apartment they lived in before the house) to raise a family - crazy thought.
They did. They just did not think about it explicitly. And people they bought their house from, and the original builders, had considered the sale and resale values.
IMO wrote: Thu Aug 17, 2017 2:15 amI'm not arguing it always makes more sense to buy vs. rent. Far from it. The post I responded to said that people who buy are brainwashed into thinking owning a home can never amount to an "investment, and the example was one that apparently there was a time in history when owning a home could turn out to be an investment, even if that wasn't the original reason.
A home is a lifestyle choice. If the owner is lucky the value of the home appreciates beyond one's costs and expenses, if he is unlucky he ends up losing money, and on average across the country home prices rise with inflation.

Victoria
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eye.surgeon
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Re: When does renting make sense

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According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
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meowcat
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Re: When does renting make sense

Post by meowcat »

We paid a mortgage for 31 years in two different cities. All it ever did was drain our bank account and make us poor. Renting has made us whole again.
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gasdoc
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Re: When does renting make sense

Post by gasdoc »

eye.surgeon wrote: Fri Aug 18, 2017 12:49 am According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
Renting has whatever return the money that would have gone to the down payment, etc., returns.

gasdoc
Xpe
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Re: When does renting make sense

Post by Xpe »

Lots of people saying buying does not make sense financially, or that you spend more on housing if you buy vs rent.

I think this varies. I'll say that in the Denver suburbs I was able to buy a 5br home in a nice neighborhood for less than it would have cost us to rent a 2-3br apt in the same area, including tax + maintenance (and if you subtract out the amount of my payment going to principal, then its even more dramatic).

The other thing I never see people mention is that for the life of my mortage, my monthly payment will be the same. But rent prices are constantly increasing. If I stay in this house for 30y, my last payment will be the same as my first. But if I rent, every time we move that rent is going to jump for sure, and probably the rent will increase every couple years even if we don't move. On average rent increases 3% per year. That'll make a huge difference over the next 10-20-30 years.
JGoneRiding
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Re: When does renting make sense

Post by JGoneRiding »

gasdoc wrote: Fri Aug 18, 2017 11:17 am
eye.surgeon wrote: Fri Aug 18, 2017 12:49 am According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
Renting has whatever return the money that would have gone to the down payment, etc., returns.

gasdoc
would that be an argument for using the lowest downpayment you can..... 8-) Makes me feel justified I didn't waste another 10% of "opportunity cost" and just paid PMI for 18 mos total cost of PMI was 2457 vs coming up with 42,500 and waiting would have cost an additional 60k plus
Xpe
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Re: When does renting make sense

Post by Xpe »

gasdoc wrote: Fri Aug 18, 2017 11:17 am
eye.surgeon wrote: Fri Aug 18, 2017 12:49 am According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
Renting has whatever return the money that would have gone to the down payment, etc., returns.

gasdoc
This is some incredibly faulty logic to arrive at a 1% ROI estimate. If he's including interest, taxes, utilities, repairs, HOA in the costs of his investment, he should also be including the monthly value of having that roof over his head, 17*12*<rent of similar condo if he hadnt owned one> is a lot of cash.
avalpert
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Re: When does renting make sense

Post by avalpert »

Xpe wrote: Fri Aug 18, 2017 11:45 am
gasdoc wrote: Fri Aug 18, 2017 11:17 am
eye.surgeon wrote: Fri Aug 18, 2017 12:49 am According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
Renting has whatever return the money that would have gone to the down payment, etc., returns.

gasdoc
This is some incredibly faulty logic to arrive at a 1% ROI estimate. If he's including interest, taxes, utilities, repairs, HOA in the costs of his investment, he should also be including the monthly value of having that roof over his head, 17*12*<rent of similar condo if he hadnt owned one> is a lot of cash.
He should, but that is offset by the opportunity cost of not renting out the property he owns and instead providing it to himself for free...
avalpert
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Re: When does renting make sense

Post by avalpert »

JGoneRiding wrote: Fri Aug 18, 2017 11:37 am
gasdoc wrote: Fri Aug 18, 2017 11:17 am
eye.surgeon wrote: Fri Aug 18, 2017 12:49 am According to Ken Rockwell:
After selling my condo of 17 years, sure, I sold it at the top of California's recent real estate bubble for four times what I paid. But wait: unlike a financial investment, I had to pay mortgage interest, taxes, utilities, repairs, homeowner associations and loads of other expenses. I added it all up, and I made an average of only 1% a year!

What would the return have been on 17 years of paying rent? Makes that 1% return per year look pretty attractive.
Renting has whatever return the money that would have gone to the down payment, etc., returns.

gasdoc
would that be an argument for using the lowest downpayment you can..... 8-) Makes me feel justified I didn't waste another 10% of "opportunity cost" and just paid PMI for 18 mos total cost of PMI was 2457 vs coming up with 42,500 and waiting would have cost an additional 60k plus
It is if the cost of borrowing that money is less than the opportunity cost.

That is why many people are in no hurry to pay off low-cost mortgage debt.
avalpert
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Re: When does renting make sense

Post by avalpert »

Xpe wrote: Fri Aug 18, 2017 11:26 am Lots of people saying buying does not make sense financially, or that you spend more on housing if you buy vs rent.

I think this varies. I'll say that in the Denver suburbs I was able to buy a 5br home in a nice neighborhood for less than it would have cost us to rent a 2-3br apt in the same area, including tax + maintenance (and if you subtract out the amount of my payment going to principal, then its even more dramatic).
I don't see lots of people saying that at all - I see people saying it depends and you need to do the math.
The other thing I never see people mention is that for the life of my mortage, my monthly payment will be the same.
Really, you never see that? I see it brought up constantly including in this thread. Of course it is based on the faulty premise that you should be comparing mortgage payments to rent as opposed to a total cost analysis and the recognition that many aspects of your total cost of owning are subject to the same inflation as rent.
Xpe
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Re: When does renting make sense

Post by Xpe »

avalpert wrote: Fri Aug 18, 2017 1:37 pm He should, but that is offset by the opportunity cost of not renting out the property he owns and instead providing it to himself for free...
Those aren't offsetting factors. Whether he rented out the property, or lived in the property himself (thus avoiding having to pay rent on other lodging), that's still a very significant financial benefit that he ignored in the calculation of his ROI for the condo.
avalpert wrote: Fri Aug 18, 2017 1:41 pm Really, you never see that? I see it brought up constantly including in this thread. Of course it is based on the faulty premise that you should be comparing mortgage payments to rent as opposed to a total cost analysis and the recognition that many aspects of your total cost of owning are subject to the same inflation as rent.
That's not the premise my comment was based on. The premise is that you should compare the financials of buying a home with the financials of renting a home, and mortgage payment is a huge portion of the financials of buying a home... and while many aspects of the total cost of home ownership are subject to the same inflation as rent, those aspects account for a fairly small percentage of the total cost. If 100% of the cost of renting is subject to inflation + market forces, and 25% of the cost of home ownership is subject to inflation, then yeah that's a pretty big difference.

Edit: But you're right, it was brought up in this thread, I missed it first time through. Still, it's something I basically never see in the rent vs buy discussion, and I've done a lot of reading on it in the last year. /shrug.
avalpert
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Re: When does renting make sense

Post by avalpert »

Xpe wrote: Fri Aug 18, 2017 2:32 pm
avalpert wrote: Fri Aug 18, 2017 1:37 pm He should, but that is offset by the opportunity cost of not renting out the property he owns and instead providing it to himself for free...
Those aren't offsetting factors. Whether he rented out the property, or lived in the property himself (thus avoiding having to pay rent on other lodging), that's still a very significant financial benefit that he ignored in the calculation of his ROI for the condo.
If you are comparing the cost of owning vs. the cots of renting then they most certainly are offsetting factors - otherwise you are counting the cost of renting twice. If you are just looking at the 'ROI' of owning in some sort of isolation you can not offset it - but that is just another way of saying you are comparing the costs.
avalpert wrote: Fri Aug 18, 2017 1:41 pm Really, you never see that? I see it brought up constantly including in this thread. Of course it is based on the faulty premise that you should be comparing mortgage payments to rent as opposed to a total cost analysis and the recognition that many aspects of your total cost of owning are subject to the same inflation as rent.
That's not the premise my comment was based on. The premise is that you should compare the financials of buying a home with the financials of renting a home, and mortgage payment is a huge portion of the financials of buying a home... and while many aspects of the total cost of home ownership are subject to the same inflation as rent, those aspects account for a fairly small percentage of the total cost.
The mortgage payment is not a cost of buying the home - mortgage interest is, and if it is significantly larger than the other costs you are overbuying. The cost of purchase, including what you borrowed and what you provided, is a big upfront cost that can overwhelm other costs over short/medium holding periods - but you do account for the cost of inflation on that when you compare it to the opportunity cost of deploying capital to the home rather than alternative investments.

In any case, it is still completely wrong to compare the mortgage payment to the rent payment. It is a common mistake (or intentional error) made in lots of articles/blogs.
Edit: But you're right, it was brought up in this thread, I missed it first time through. Still, it's something I basically never see in the rent vs buy discussion, and I've done a lot of reading on it in the last year. /shrug.
You may want to do more rereading then - it really comes up in every thread on it and in most articles.
Xpe
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Re: When does renting make sense

Post by Xpe »

avalpert wrote: Fri Aug 18, 2017 4:03 pm If you are comparing the cost of owning vs. the cots of renting then they most certainly are offsetting factors - otherwise you are counting the cost of renting twice. If you are just looking at the 'ROI' of owning in some sort of isolation you can not offset it - but that is just another way of saying you are comparing the costs.
He should have counted EITHER the benefit he received by living there OR the benefit he would have got by renting it out. But he counted neither, which is my whole point. Living there for 17 years was a huge financial gain from owning the condo which he didn't count in his calculations of ROI.
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