Cheaper to rent than buy a house?

[Dis]

I would rent (house) if it was significantly cheaper. but it is not.

[Kidlicious]

Originally posted by chegitz guevara
Even if housing prices fall, you're still better off in the long run buying than renting. Suppose you only get ten cents on the dollar back from your house? That's still more than you'd get renting?

The Economist is assuming that you can save money from renting and invest it in something else.

[rah]

While that is probably true (if the savings are there), most people are not disciplined enough to bank/invest the savings.

[Flubber]

Originally posted by Ming
Hey Flubber... I just had a "senior moment"... instead of hitting the quote button to respond to your post, I hit the edit button... and pretty much destroyed your post.

So I just deleted what was left of it.

Sorry about that...

In compensation for destroying my reasoned musings I would like the right to mod powers so I can randomly destroy a post of yours

[Flubber]

Originally posted by Kidicious


The Economist is assuming that you can save money from renting and invest it in something else.

Even if there are savings, you need to do a comparison of the value of this revenue stream against the equity that you will assume you will have in your home as you pay down the mortagage.


Obviously if housing prices fall dramatically, you were better off renting since you will be in negative equity. But if housing appreciates or remains stable, you are left with the mathematics. You will come up with very different results depending on

the difference in rent versus ownership costs
your assumed rate of return on any difference
your assumed appreciation or depreciation in the value of your home

[Japher]

can you depreciate your personal property?

[chequita guevara]

Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

[chequita guevara]

Originally posted by Japher
can you depreciate your personal property?

Only if you purchased it for business purposes.

[Flubber]

Originally posted by chegitz guevara
Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

So I buy a house at 300K and its now worth 30K and I'm still better off having made that purchase?? NO way. You would have been better off renting until the property was 30K and THEN buy it.

I agree that if the costs of renting and owning are EXACTLY equal, its hard to imagine renting ever being better on the theory that rent is totally consumption while ownership does gain you something . . . But the costs are rarely equal when you factor in things like property tax and even when you apportion out the major maintenence items

So again you are left with a comparison of the rental "savings" with the home equity.

Oh and I doubt "most people" lose money given the historical trend of the stock market to go up in value. What you say is probably true of the speculators or day trader types ( and may even be true of many people oevr the last couple of years) but in the long run I seriously doubt that MOST people lose money investing

[Dauphin]

Originally posted by chegitz guevara
Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

1) I buy a house for $100,000 with a $100,000 mortgage. I make repayments of $10,000 in the year, of which $5,000 is interest.

OR

2) I rent a house for $20,000 a year.


The market crashes to 10% of original prices:

1) I have a $95,000 debt, a $10,000 asset, so a net position I owe $85,000 and I spent $10,000 in the year.

OR

2) I have no debts and no assets, and I spent $20,000 in the year.


Option 2 looks a whole lot better, don't it? In terms of net gains and losses.

The numbers are silly, but explains why I don't agree with your point.

[chequita guevara]

Well, most people have their money invested for them (in various retirement accounts). They aren't the ones I'm talking about. We're assuming that you have your money in your account and you're clicking on eTrade or some such place. These are the people who end up losing money, by and large.

As for a 300K house, I'm assuming it's 300K after 30 years, whereas the rent you paid for similar accomadations over the same period would probably be more. After all, if you rent the house instead of buying it, you're not only paying the owner's mortgage and taxes and insurance, but also giving him a little bit of profit on top. Obviously, you're going to have the same expenses as an owner: taxes, insurance, etc., but you could keep the profit for yourself. In addition, if you add $50 a month to your mortgage payment, you would significantly lower the cost of your mortgage in the long run (assuming you didn't foolishly sign an early-payment penalty clause).

[chequita guevara]

Originally posted by Dauphin
Option 2 looks a whole lot better, don't it? In terms of net gains and losses.

Yes, but next year your going to have to spend that money again, and so on. In ten years, with option 1, you've spent $100,000 and have a $10,000 asset. With option 2 you spend $200,000 over ten years and have no assets.

Of course, that assumes rent prices don't fall, which they would, but not as much, since rental owners would still be holding mortgages that needed to be paid. If rent prices fall by more than one half (and remain steady over the decade), then it's preferable to rent in your option 2 scenario.

The assumption also assumes the crash happens at the begining of the mortgage, in which case the homeowner could declare bankruptcy, lose the house and the debt, and still be better off than the person in option 2. If the crash happens more than five years out, the owner is better off.

[Flubber]

Che

Don't get me wrong. .. I believe in home ownership and thats why I own one. I also believe in any case where rent is MORE expensive than ownership costs, then the choice is clear and ownership wins. I just don't know for sure that you can rent out properties for more than your ownership costs all the time

I just know friends you are renting properties out here and what they tell me is that they can get enough monthly that if they attribute it to the interest and property taxes, they just have a little bit or none of the rental money to go toward the equity portion of the mortgage payment. This is anecdotal so proves nothing but I would like to know the source of your ideas that rent exceeds ownership cost .. . The original post seemed premised on the opposite idea that renters would have excess money to invest. I think either can be correct depending on the city and circumstances

[Flubber]

Originally posted by chegitz guevara


Yes, but next year your going to have to spend that money again, and so on. In ten years, with option 1, you've spent $100,000 and have a $10,000 asset. With option 2 you spend $200,000 over ten years and have no assets.

Nope-- you go with option 3 and buy that house for 10K in year two. So you "wasted" 20 K on rent and spent 10 K for a 10 K asset for a total of 30 K spent and a 10 K asset.

[chequita guevara]

I tend to live in areas with limited room for expansion. There's a big blue wobbly thing to the East of me, and big wet lawn to the West. Neither are terribly good for building on.