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I bought my first house in 1992 for about $105,000. I no longer live in that home, but Redfin says it's current value is about 5.5x that amount. Sound pretty good? Well, maybe.
If instead I'd put that money into the S&P 500, today I'd have an asset worth about 9.5x what I'd invested. And this assumes I did not reinvest the dividends, but instead used them to help pay my rent. Today those dividends would average $1400/mo.
So as an investor/renter today I'd have an asset worth about $400,000 more than the homeowner. The dividends did not cover all of the rent, but when you factor in the expenses that renters do not pay directly (property taxes, maintenance, etc) the out of pocket annual cost for shelter is not terribly different, and certainly not enough to make up the difference in asset value.
Of course this assumes buying the home in cash. Factoring in the use of loans gets more complicated, and I'll leave that to some other enterprising soul out there. In short, however, the situation for the renter/investor is hardly "disastrous".
Paying cash is the key in your example. I don't think that anyone disputes that the S&P500 will outperform housing in the long term. The key benefit of housing is being able to control a large asset with only putting down a relatively small deposit of 10%-20%.
Rather than attempting to show the benefit of renting vs. owning, I think your example is better suited for a discussion of paying cash for a house vs. getting a mortgage.
I've seen a few threads on different forums with people trying to claim that renting is better financially long term than owning
Are those same people finally ready to admit that they made a disastrous choice? If you have not yet purchased a home, you're either going to continue to pay ridiculously high + climbing rent or you will be forced to overpay on a house by 150K and get a 6% interest rate instead of a 3% interest rate you could have gotten if you pulled the trigger 3 years ago
I seriously feel bad for lifelong renters. Most of them are now in a situation where it's borderline impossible to ever become financially independent (assuming they don't make a huge income)
Feel bad for lifelong renters? Ha. I feel much worse for people that buy homes, pour money into it every year because houses are a perpetual money suck, Pay taxes every year, but take comfort in "but I own my home". George Carlin had a great bit on this years ago.
Renting has allowed me to put the money I would have used for a home and invest in the stock market ( historically a much better investment) and watch that grow and allow me to be financially independent.
When I graduated from college in the late 1970s, interest rates were sky high and down payment requirements were prohibitive....so I guess it was in that environment that I made my "choice to be a life-long renter" (as you put it).
Never really any regrets...over the years the lifestyle allowed me to appropriate a larger share of my income to the "disposable" category, so I was able to have fun while others were paying in to the long term commitments they made when they decided to become homeowners.
And, my career moved me around the country several times, so my being a renter definitely simplified that aspect.
Your post seems like someone looking for an opportunity to gloat. And I just don't see it that way. There were a lot of goodtimes I would have had to forfeit in order to be a homeowner. YMMV
That was my impression too. I can't see any other purpose on OP's part.
Feel bad for lifelong renters? Ha. I feel much worse for people that buy homes, poor money into it every year because houses are a perpetual money suck, Pay taxes every year, but take comfort in "but I own my home". George Carlin had a great bit on this years ago.
Renting has allowed me to put the money I would have used for a home and invest in the stock market ( historically a much better investment) and watch that grow and allow me to be financially independent.
My parents were renters. My first wife's parents always told her buy, do not rent so we bought new in Marlboro MA for $16K. I lost the house as part of a divorce but I was young and recovered. My 2nd wife believed in ownership so we started.
Our first house in Columbus OH in 1972 for $29K. Sold for $38K in 1980 and bought new home for $50K in Naperville IL. Sold for $62K in 1986 and bought one for $95K in Andover MA. Sold it in 1994 for $160K and bought a home in North Reading for $195K. Sold it in 2000 for $475K. Retired (age 62), relocated to Charleston SC and bought down, new construction for $207K. Became mortgage free and banked some. In 2010 sold it for $280K. Relocated to Lexington SC and bought down and banked some. Bought new construction home for $135K. Home now worth $165K.
Paying cash is the key in your example. I don't think that anyone disputes that the S&P500 will outperform housing in the long term. The key benefit of housing is being able to control a large asset with only putting down a relatively small deposit of 10%-20%.
True, but of course that leverage comes at a cost. As I type these words, the 30-year mortgage sits at a little over 5% for a conforming loan. The rate of home appreciation over the next 30 years is anyone's guess, but 5% is pretty close to the long-run historical rate of home price appreciation. If the loan rate is the same as the home price increase, the leverage isn't of any numerical benefit.
Doing a proper analysis of rent v. own requires a large number of assumptions about the future. I've seen some calculators online in the past. It's pretty interesting to experiment with the numbers and see that small changes in the assumptions can flip the decision from one choice to the other (rent or own).
I've owned a home continuously since 1992, but my life has been pretty nomadic. Transaction costs in real estate are very high, and once these are factored into the equation home ownership does not look so great. On the other hand, if one's job and family have them tied to the same physical location forever, and they can get a loan at an interest rate that's less than the rate of home appreciation, their house will be a good investment in a financial sense.
Renting provides a degree of location flexibility that is very valuable to many people who aren't ready to commit to living in one place long-term. It also saves the personal labor hours of maintaining a house. Thus, it isn't necessarily a waste, depending on life phase and preferences.
The first job that I ever had, I worked for 28 years with that organization, so my original reasoning became moot. But being in a long term commitment such as a huge mortgage looked too much like indentured servitude to me as well. Wondering "what if" I get 8-10 years into it, and either get fired, or fed up and quit, and having to liquidate fast to avoid catastrophic loss...things like that. I think the prevailing mindset that drove me was "Oh yeah, once I get on the hook, thereafter I can never quit" And I just didn't want to feel that way.
In a way, I feel like the housing and mortgage industries are like a massive covert plot designed to be a soft "iron curtain" of sorts, to keep our noses to the grindstone... I realize that example is a little overly dramatic....but the general theme seems relevant.
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