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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.
The problem with that assumption is that most people do not keep their mortgages for 30 years. I haven't checked in a while, but I believe it is somewhere around seven years. Anecdotally, I've owned seven homes since 1985 and I've never even kept the same home for 10 years, much less kept a mortgage that long. And on four of those property sales, I've made 100% or more. (Two of the other three were small gains and one was about a 12% loss.)
There's one other thing that you haven't factored in: capital gains taxes (or the lack thereof). If you've lived in high cost-of-living areas as I have, you can get up to $500k tax free when you sell your home, and you can do it multiple times over the course of your life. With stocks and other investments, the Feds are going to take 15% or 20% or more of your investment gains starting from dollar one. And then, depending upon where you live, your state and local government may want a piece of that as well. So you need to factor that in as well when comparing renting and investing the difference vs. buying a home.
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".
Except that mortgage payments are not more expensive than rent
And there's one huge difference - mortgage payments are locked while rents continue to get more and more expensive
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.
Homes are great for raising families, etc
You're kidding right?
I have a 3000 square foot house and my mortgage payment is 2K
Good luck renting a house that big right now for less than 3,000... and guess what the rent on it will be 10 years from now? Prolly 4500 and my mortgage will still be 2000 a month. The savings on that long term is immense
My long term goal is to pay this off and buy my next house in cash. As a renter, you're stuck in this loop of having an increasing payment forever
If you have the discipline to invest marginal dollars in stocks rather than consumption, then renting can result in more gains long-term. Assumes of course you are prudent with the unit you choose to rent.
Most people don't, so the forced savings of a mortgage is to their benefit.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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It is fine to be a renter for life, you might have better things to do with your capital, or you may prefer to flight around to different jobs, countries, experiences. There are many BETTER places to place your capital (from an investment perspective).
But...
1) Leveraged equity CAN work to your benefit (or not)
2) Tough to beat 'build -and-flip-a-primary-residence' $500k tax free gains every 24 months (MFJ) $250k for single filers.
Design, build, sell... rinse and repeat as desired every 2 yrs.
A co-worker did it (9x) on adjacent properties. He only had to move ONCE, to his final home. He kept an apartment in a shop on the 'aggregate' property and declared his primary residence at the mailbox where he was building the new home.
Get ready to sell, split off the lot with the new home, and do it all over again.
Property taxes go up. Insurance goes up. Repairs go up.
Rent vs. own depends on the area and many factors. Not a one size fits all answer.
My property taxes and insurance went up - from 2000 to 2100 in 4 years
The rent on my house in the same time went up from 2000 to 3000+... and the 2000 was a horrible deal to begin with. Would you lease a car that would be same payment as owning? You only lease when it's 30-40% cheaper...which never happens in real estate
If you have the discipline to invest marginal dollars in stocks rather than consumption, then renting can result in more gains long-term. Assumes of course you are prudent with the unit you choose to rent.
Most people don't, so the forced savings of a mortgage is to their benefit.
What scenario is renting a house cheaper than owning? It doesn't exist anymore
Not to mention a house is cost controlled for 30 years. It may go up for tax and insurance but its minimal. In that same time, your rent will have doubled
The only examples people can use is renting a 1 bedroom apartment vs owning a 4000 square foot house, which is an asinine comparison
I have a 3000 square foot house and my mortgage payment is 2K
Good luck renting a house that big right now for less than 3,000... and guess what the rent on it will be 10 years from now? Prolly 4500 and my mortgage will still be 2000 a month. The savings on that long term is immense
My long term goal is to pay this off and buy my next house in cash. As a renter, you're stuck in this loop of having an increasing payment forever
No I'm not "kidding"
I've lived in a rent stabilized apartment since 1994 and because of renting I've been able to invest in the stock market and experience spectacular returns on my money as opposed to having it tied up in a house where it would require constant upkeep and tax payments.
I have no desire or need for a "3000 square foot house"
you sound like the quintessential internet blowhard
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