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Its not oversold. Perhaps the tax break is oversold, but what is undersold is the hedge against inflation. This very thread is proof that not everybody is getting a grasp on the whole inflation thing.
You also hedge against inflation by investing in the stock market. This is not unique to housing at all.
Quote:
Originally Posted by Ziggy100
Also apparent is not everybody is understanding that you aren't saving any cost above what the owner is paying. Unless you live in a declining market where homeowners all ended up upside down on their house and are renting it for a loss (which these days is the exceptions rather than the norm), rent will be higher than a mortgage.
First of all, this is not even true since it varies a lot by location and other factors. Go to Google and type in “ negative cash flow rental property” and see that there is no shortage of real life examples of this. But second, you also have to account for the added costs of ownership beyond the mortgage, for example, replacing HVAC, roof, etc.
Quote:
Originally Posted by Ziggy100
I've lived both scenarios. I'm living in a high cost of living area with rapidly rising home values, and tight inventory and renters are getting hosed.
I used to own a low income apartment building in a low cost of living area with stagnated home values, and the low rent I was charging was far more than my mortgage because I got the apartment for pretty much nothing.
The only time I can think of that it was better to rent vs buy was just before the housing meltdown and we now know even that was short lived.
I can give you an example. A few years ago in the Seattle area, some houses worth up to $400k were going for rent for just $1400/month. The market sets the going rate, not the landlord’s expenses.
We've pretty much beaten the tax vs inflation thing to death.
Owners cost does affect the rental market. If I'm paying $1000 a month for a property, I'm not renting it for $1000 or less unless I'm in trouble as there is no incentive to rent it. However if I paid off my house 30 years ago my mortgage is $0 and I will rent it for market rent which is in todays dollars and collect the entire rent as profit. I'm not passing that savings onto the renter.
Your personal cost to carry is irrelevant to the current rental market. If it cost you 5k a month to carry or zero the rental market in your area will price as is. The market doesn’t care what your personal cost is. If your cost is 1k and you won’t rent less than that that’s fine but the rental market could be 750 so you either rent @ 750 or don’t but your cost doesn’t set the market. The incentive is some cash flow over none. We can end it here as your stance clearly isn’t one based on reality
The last time I financed a car purchase our interest rate was 1.7%. At that rate, I didn't mind making payments on it, the total interest charges over 3 years only came out to around $1k.
The last car I bought on loan I got a 1.8%. But that was back in 2004 where the average was 7-8%. So that was a great rate. Still have the car. 15,000 more miles and it’s gonna get sold. It’s been paid off for 11 years. Probably get 5/6k out of it. Still looks new.
Service trucks I leased and negotiated 40,000 miles a year. Those were deductible and I also charged trip fees which were routed to the vehicle purchase/maintenance account.
In such loan % case yes I have no issue doing a loan. I’ll just put enough down to get a payment I want and just round up every month. I always find it funny when people bring up how to buy on 0% loans. Most people dont get 0% loans.
I looked at leasing and for my wife it would work. She drives very little now. For me I would be screaming while writing that overage charge for miles.
You also hedge against inflation by investing in the stock market. This is not unique to housing at all.
First of all, this is not even true since it varies a lot by location and other factors. Go to Google and type in “ negative cash flow rental property” and see that there is no shortage of real life examples of this. But second, you also have to account for the added costs of ownership beyond the mortgage, for example, replacing HVAC, roof, etc.
I can give you an example. A few years ago in the Seattle area, some houses worth up to $400k were going for rent for just $1400/month. The market sets the going rate, not the landlord’s expenses.
You mean like this? https://www.seattletimes.com/busines...attle-rentals/
Stock market crashes you still have a roof over your head. The landlord decides he wants to jack up the rent to catch up to some gentrification, you’re looking for a new home.
In a free market economy, if a house was really worth a lot more than a renter could afford, then the owner wouldn’t have any incentive to rent it. They would just sell it outright.
Your personal cost to carry is irrelevant to the current rental market. If it cost you 5k a month to carry or zero the rental market in your area will price as is. The market doesn’t care what your personal cost is. If your cost is 1k and you won’t rent less than that that’s fine but the rental market could be 750 so you either rent @ 750 or don’t but your cost doesn’t set the market. The incentive is some cash flow over none. We can end it here as your stance clearly isn’t one based on reality
The only way an owner is going to put up with taking a loss on rent, is if the housing market is collapsing.
We can end it here because you’re grasping at straws.
People always complain about the cost of items; specifically for interest payments (houses, college loans, and autos). If you don't like them then save up enough money to pay for a vehicle outright.
IMO the crazy part at least is the depreciation people are willing to eat on a vehicle. People are buying a $60k Audi with a 4 cylinder brand new. In 3 year that vehicle is worth $35k. So maybe they pay $7k in interest over that period of time but incur $25k of depreciation on top of that. All the while they will eat the loss and then buy a new car to start the whole depreciation cycle again. Next time they will buy something bigger/better/more expensive and make it even worse.
One way to handle this is to include the depreciate rate along with the interest rate when you enter the interest rate in the loan calculator. So if the interest rate is, say, 5% per year and the depreciation rate 8%, you would 13% as the total rate. If you take the difference between the two calculations (one with just the interest rate and the other with the interest rate+depreciation rate), the absolute difference will tell you how much more money you are paying per month for depreciation.
Using a spread sheet and my own knowledge of finance formulas, I made a simple spreadsheet example where the loan value = $25,000; the annual interest rate was 5%; the annual depreciation rate was 8%; the term of the loan was 5 years. Of course, I had to calculate the monthly interest and depreciation rates and the monthly term of the loan, to do this. Presumably, on line loan calculators do this for you.
The results were:
Monthly payment using just the interest rate = $417.78
Monthly payment using the interest and deprciation rates = $568.83
So, every month, you are paying $151.05 for depreciation, alone.
Keep in mind: the present value of the loan does not change.
Also, I made this example using a closed form expression for the monthly payment over the entire term of the loan, which forced me to assume a linear depreciation rate (which is generally not the case).
You mean like this? https://www.seattletimes.com/busines...attle-rentals/
Stock market crashes you still have a roof over your head. The landlord decides he wants to jack up the rent to catch up to some gentrification, you’re looking for a new home.
In a free market economy, if a house was really worth a lot more than a renter could afford, then the owner wouldn’t have any incentive to rent it. They would just sell it outright.
A renter can downsize or move if the rent gets jacked up. An owner has much more difficulty if their rent, I mean property taxes, goes up, or the roof needs replacement, or the plumbing springs a leak and floods the basement, or mold takes over, or...
Owning does not magically insulate you from being hit by unexpectedly high housing-related bills. This is the flaw with your argument, you are falsely assuming ( implicitly) that an owner’s cost is predictable while a renter’s is not. This is false.
As to an owner’s ability to sell, your argument boils down to the claim that an owner wouldn’t choose to continue to own if the market leads to a negative cash flow. But this is not true, as many landlords hold on for reasons of price speculation, hoping the property will appreciate. But we have no reason to think that RE speculators have a better ability to predict the future than stock market speculators.
Also, most Americans are very bad at math, landlords included, so they will hold on to a negative cash flow rental house in order to eventually have it paid off in retirement. However they do not properly calculate the volatility-adjusted opportunity cost of doing so. Most landlords have probably never even heard of the Black-Scholes equation, so why should we assume they are rational in valuing their options regarding the possible sale of a property with unknown future value, which would allow them to invest proceeds and monthly cash flow into the stock market?
Finally, even if landlords were rational and had the math background to properly value a financial asset based on future probabilistic cash flows, why should we assume that lenders aren’t also rational? In particular, if housing had an objectively better risk/return profile than a mix of stocks and MBS bonds, then it would be irrational for any financial institution to simultaneously hold stocks and also make mortgage loans, since they would do better by buying rental houses instead. You are essentially arguing that institutional investors may be irrational but landlords are always rational. I challenge you to justify that assumption ( or propose a reason for it to be unnecessary based on a viable alternative asset pricing equation, preferably one which accounts for tail risk).
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