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how about a renter who instead of tying up all that money in a house has it invested in other things with greater returns ?
that is flawed logic .
I don't think the renter would *have* all that money because it has been going to rent all those years, not building equity. The only way the renter has an advantage is if the cost of renting is cheaper than the cost of owning a house. (which I'm not convinced it is).
You’re of course right. Real-estate is not liquid, and does not appreciate monotically. There is a price of entry, and if a person can’t afford that price, then a vibrantly ascendant market is no boon; on the contrary, it just stymies one.
Your friend, though only starting out in life, managed to corral his expenses and to sustain the vicissitudes of daily life, waiting long enough to realize a substantial gain. And he did this without a trust-fund or winning the lottery. My guess is that what separates you and him, is a mere handful of small but enormously significant differences in luck and/or impulse decisions. It’s not that he was morally upstanding, while you were dissolute; or clever and enterprising, while you were dull and obdurate. You’d likely have done just as well, if that handful of turning-points turned in your favor. And a large part of this is the locale where one happens to reside.
I’d rephrase that, to say the logic isn’t so much flawed, as situational. Money that’s tied up, that is nevertheless earning a decent return, is no cause for regret. It can even be a comfort, as it’s shielded from wild gyrations. It’s the long-term tying-up at zero or negative returns, that’s so grating and unfortunate – especially while the other fellow’s money, though equally tied up, is growing handsomely.
Exactly. People trying to break into the Nashville market today have a much higher barrier to entry to clear than he did. It's even worse in places like Seattle that have seen steeper increases. For the older generation, who were just so fortunate to have lived in a Seattle, San Francisco, etc., then cashed out, that's great. For others who lived in less prosperous areas, they couldn't have reasonably assumed real estate values would have marginally increased, at best, by their retirements.
It would have been difficult to impossible to predict that these areas would see anywhere near the gains they have. It would also have been difficult to forecast that many previously fairly decent small to medium sized metros and rural areas would be seeing a generation of decline to stagnation, if generous.
Most of his gains came from the fact that he happened to move to a major city right after graduation. That set him on a path to far greater potential real estate capital gains than those of us in small towns. While there was no guarantee of any massive boom, the likelihood of it happening was higher. His neighborhood is an exaggerated example, but the trend is seen across the metro. His timing was also great.
His income is probably close to what twice mine is, but the real estate decision was as much good luck as anything else.
I don't think the renter would *have* all that money because it has been going to rent all those years, not building equity. The only way the renter has an advantage is if the cost of renting is cheaper than the cost of owning a house. (which I'm not convinced it is).
Cost of renting vs owning varies by time and place. For the past several years, owning is cheaper than renting in like 48 of the 50 largest markets, but at most times and in most markets, renting and owning are financially more equal.
However, in times and places where renting is cheaper than owning, renters typically enjoy only an ephemeral advantage, because fixed-rate mortgage P&I payments remain fixed, while rents tend to just go up and up.
So renters who pay less today to rent than to own often find themselves five years down the road paying more to rent than they would be paying if they had bought.
"The only way the renter has an advantage is if the cost of renting is cheaper than the cost of owning a house. (which I'm not convinced it is)."
That still doesn't give you an advantage, because you're not building equity in the future; you're just spending less at the moment.
"You're just spending less at the moment" is precisely how so many poor personal finance decisions are made, e.g. people who choose the "lower monthly payment" over lower interest rates and lower total costs.
I don't think the renter would *have* all that money because it has been going to rent all those years, not building equity. The only way the renter has an advantage is if the cost of renting is cheaper than the cost of owning a house. (which I'm not convinced it is).
Well HE actually DOES "have" all that money because he made a boatload during his working years, plus he enjoys "stabilized" rent in NYC, a luxury most American renters can only dream of.
Cost of renting vs owning varies by time and place. For the past several years, owning is cheaper than renting in like 48 of the 50 largest markets, but at most times and in most markets, renting and owning are financially more equal.
However, in times and places where renting is cheaper than owning, renters typically enjoy only an ephemeral advantage, because fixed-rate mortgage P&I payments remain fixed, while rents tend to just go up and up.
So renters who pay less today to rent than to own often find themselves five years down the road paying more to rent than they would be paying if they had bought.
For every one of those, I can match it with the sap who bought Florida, Phoenix, or Vegas property in 2006 and was wiped out.
Bought with money the buyer didn't actually have, that is.
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