What got into people's heads to make them think that rent is "throwing money away"? (appraised, percentage)
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He introduced the "emotion" comment if you were following.
Sorry for being snarky, but what about "paying someone else's mortgage" do you not understand? If I own a place, and I have a mortgage, and I rent it out to you for the same amount of my mortgage, you are in essence paying me and then I am paying the mortgage, thus paying my mortgage. I get the equity, and you get a place to live.
Just pointing out "emotion" is a buyers thing, not a renter's.
So we're specifically talking SFH, not multi family where you would have more professional property managers / landlords. Not all SFH in the US have a mortgage and the ones that do are not going to make very good income properties. Especially when you likely overpaid, possibly stuck underwater so you can't refinance into a lower rate, and bought without considering that it would become a rental property.
Equity is a funny one! If you are forced to become a landlord to pay your mortgage - good luck with that... It's not as easy as it sounds. Renters destroy SFHs - they don't properly maintain them and if enough of the homes in a neighborhood become rentals it will hurt values for all. You don't get the same tax breaks with an "investment" property, etc, etc... It's not a winning formula at all to try and find someone to pay your mortgage. More often then not people fall woefully short that way.
Now if you tell me that you're going around paying cash for distressed properties, fixing them up, and renting them out - that's a winning strategy... "Paying someone else's mortgage" isn't a factor.
You're obviously not accounting for the lost opportunity cost of that down payment sitting idle for the 25-30 years it takes to break even if rents are the same as a mortgage.
Seriously, take a look at the link I posted previously. The math simply does not work as you think it does.
You know, while I agree on the opportunity cost factor, I would love to see stats on how many renters actually put down payment equivalent money to work, rather than pee it away on tschotkes and other disposables.
If 50% of renters are renting with the philosophy that they will be better off working their capital, and prospering, I would be surprised.
Again, I agree with the academic materiality of opportunity costs. I just wonder how many apply it.
You know, while I agree on the opportunity cost factor, I would love to see stats on how many renters actually put down payment equivalent money to work...
most people recognize this. the (now at post 140+) thread however...
want's to limit the intellectual exercise to those with legitimate choice in the matter.
and even within that... to sort of pretend that the common sense and rule of thumb maxim's from 20-60 (or even 10) years ago really count anymore. Or at least to the nearly universal degree they once did.
You know, while I agree on the opportunity cost factor, I would love to see stats on how many renters actually put down payment equivalent money to work, rather than pee it away on tschotkes and other disposables.
If 50% of renters are renting with the philosophy that they will be better off working their capital, and prospering, I would be surprised.
Again, I agree with the academic materiality of opportunity costs. I just wonder how many apply it.
You can edit it... the default appears to be 4%
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- Other
- Rate of Return on Investments
Whether they're going into negative buying iPads is a discussion point, but it's possible to at least make an adjustment to 0 in the calculator.
In some way your line of thinking seems to insinuate that the converse (downpayment on a mortgage) is a "forced savings" that you can't pee away... That may be true for some, but opportunity costs don't need to be as complex as "putting the money to work". A simple savings account will have some return.
You know, while I agree on the opportunity cost factor, I would love to see stats on how many renters actually put down payment equivalent money to work, rather than pee it away on tschotkes and other disposables.
If 50% of renters are renting with the philosophy that they will be better off working their capital, and prospering, I would be surprised.
Again, I agree with the academic materiality of opportunity costs. I just wonder how many apply it.
well me for one....to add to your "50% renters" statistics.
actually...i'm not doing much with the money....it's just sitting in my savings/CD earning 1.25%pa. could've invested it elsewhere for perhaps better return (albeit higher risks) but i'm still wishing for some liquidity in hope to find a worthwhile property investment (if i can find one that is!).
right now...i think even 1.25%pa g'teed return/backing still seems to beat a 0%/negative return property market that bears much risks. and my costs of renting vs owning (not inclusive of mortgage) kinda equals.
so my nett is +1.25%pa, full liquidity, worry free living (hurricane season is coming!), full mobility and a to-die-for sea view.
You can edit it... the default appears to be 4%
- Advanced Settings
- Other
- Rate of Return on Investments
Whether they're going into negative buying iPads is a discussion point, but it's possible to at least make an adjustment to 0 in the calculator.
In some way your line of thinking seems to insinuate that the converse (downpayment on a mortgage) is a "forced savings" that you can't pee away... That may be true for some, but opportunity costs don't need to be as complex as "putting the money to work". A simple savings account will have some return.
I really meant to insinuate nothing at all. It was meant as an objective point of discussion.
To buy a property, IMO, one should have operating/rainy day money, retirement money, and down payment money.
Down payment money should not come from the first two accounts, IMO, but is "extra." To claim to be benefiting from savings vs. opportunity costs, a renter also should have that "extra," or should at minimum be building the first two accounts to sustainable levels and then creating the "extra."
We do not save as a society or as a nation.
However, I suppose one could infer insinuations at that stipulation.
One thing to keep in mind here on the rent vs buy........
I get the argument to buy from areas where home prices are well within the 2.5-3.5 x median income. if you are going to stay a while, and prices don't fluctuate too much up or down, or the market has functionally bottomed....obv buy. Its cheaper than renting.
One place I would advocate a buy is for instance a retiree moving to Las Vegas. While I believe home prices could drop substantially still, at the lower end of that market, the dollar amount of the drop is not likely to eclipse what one would pay in rent during that time. So if someone is going to be in that area a long time, has a secure income, etc, it makes sense to buy.
But OTOH, in most major coastal cities, it does not make sense to buy. For instance, I pay rent in a major city downtown where an equivalent purchase would require a monthly cash outlay 75% higher than my rent. SFR purchases in most of the desireable areas of this metro would require an even larger ration. Obv under these conditions it's borderline lunacy to purchase.
What kills me is how people will justify their purchase under these circumstances....one of those justifications being "at least I'm not paying someone else's mortgage".
I really meant to insinuate nothing at all. It was meant as an objective point of discussion.
To buy a property, IMO, one should have operating/rainy day money, retirement money, and down payment money.
Down payment money should not come from the first two accounts, IMO, but is "extra." To claim to be benefiting from savings vs. opportunity costs, a renter also should have that "extra," or should at minimum be building the first two accounts to sustainable levels and then creating the "extra."
We do not save as a society or as a nation.
However, I suppose one could infer insinuations at that stipulation.
I agree, definitely a good point for discussion - I thought that's what we were doing!
There's much data to back-up that statement about not saving so I think you're quite safe there. As I mentioned, one could argue that the downpayment is a long term forced savings in a society that otherwise doesn't save given the opportunity to spend it.
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