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You're assuming the buyer didn't lose his job or have some other emergency and took out a second mortgage - or lost the home altogether.
I lost a home way back in the 1980's. Stuff happened out of my control and I had to let it go back to the bank. And there are those who lose their homes because they can't pay their property taxes in retirement. Maybe they lost their entire portfolio during the early 2000's, and now can't afford the upkeep, etc.
Or, the neighborhood changes, or their new neighbors make their lives miserable, and now they hate their neighborhood, or can't sell for a profit.
There is no magic formula that will guarantee tragedy won't hit you, etc. Buying a home is not a guaranteed easy street when you get old.
I enjoyed the challenge of homeownership when I was young. I enjoyed fixing up places. Now I much prefer renting and the freedom and time it gives me.
There are downsides to renting, for sure. One, I wholeheartedly agree with the video on - is not being able to plug things in outside like vacuum cleaner or use a hose to wash and clean my truck. I also hate not having a washer & dryer in my home.
Well any of those big road bumps could sink a renter into homelessness, public housing, or other issues so I'd say that's a wash. Nothing in life is certain.
The people I know who own in retirement are paying $4,000 or a bit more in taxes a year (this is a high tax state) but they have no mortgage or rent. The renters are paying on average 1100-1200 a month. That's $13,200-$14,400 a year, so 9-10,000 or so more than the owner is paying just to stay in a home and off the street. Even if the mortgage wasn't paid off, a person who bought 20-30 years ago would have a low payment relatively speaking due to inflation. I know my retired uncle's mortgage payment was around $250 a month so hardly expensive, when rents had soared to an average of $1,000 a month with nothing included but water by the time he was nearly paid off and getting ready to retire. And that rent is not for an entire house but an apartment with all the neighbor issues that brings.
But the renter has nothing to show for that money at the end. It wasn't invested, it was just given to another person, and not a cent can be regained like the owner can by selling. The owner has something, be it less of a loss or a profit, while the renter has nothing.
FALSE.
From day 1, the renter has all of the money that they didn't put down to buy a house. Instead of buying the house, they buy a stock portfolio.
If the renter's monthly outlay is less than the owner's (let's say $1500 vs. $1700), the excess cash flow can be invested. So the owner is putting in $1700 to the house, the renter puts $1500 into housing and has $200 left over, which also goes straight to the investments.
As to whether the renter will have excess cash flow to begin with or not, depends on location and other factors.
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Originally Posted by arctichomesteader
And inflation will kill the renter when retirement comes and they're on a largely fixed income. Rent increases have simply impoverished several retirees I know who thought they had planned well. But they planned to rent. Those who owned and paid off their house only have the taxes and upkeep which are quite manageable. The renters are spending over half their incomes on rent in some instances which has skyrocketed here.
Again, this is highly location-dependent. In some places the renter's savings will be throwing off so much money that they can easily cover their rent by the time they get to retirement.
In other places, this simply won't work, as you point out.
One must assume something and run the numbers, not rely on knee-jerk claims like the renter "has nothing".
Cliches are never, ever a substitute for cold hard math.
Most folks buy way more home then they would rent. In our area homes are 800k and up. We would never rent a home.
But we do rent a nice 2 bedroom 2 bath apartment with pool and tennis courts for a fraction of what buying a home here costs. All that dough is invested elsewhere
From day 1, the renter has all of the money that they didn't put down to buy a house. Instead of buying the house, they buy a stock portfolio.
If the renter's monthly outlay is less than the owner's (let's say $1500 vs. $1700), the excess cash flow can be invested. So the owner is putting in $1700 to the house, the renter puts $1500 into housing and has $200 left over, which also goes straight to the investments.
As to whether the renter will have excess cash flow to begin with or not, depends on location and other factors.
Again, this is highly location-dependent. In some places the renter's savings will be throwing off so much money that they can easily cover their rent by the time they get to retirement.
In other places, this simply won't work, as you point out.
One must assume something and run the numbers, not rely on knee-jerk claims like the renter "has nothing".
Cliches are never, ever a substitute for cold hard math.
Landlords are in business to make money. Rent will never be less than their expenses. They need to charge expenses plus profit. The landlord that does charge less than their expenses won't be in business long.
Even if your scenario of savings by renting is true, it's a bit of a mirage. The owner can more often than not get their investment back after say 20-30 years, while the renter only has whatever they made from that $200 example for as long as renting was cheaper, which could change over time. So using your example, that $1500 monthly for 30 years (probably a lot more 30 years from now) is lost. Its not recoverable at all after 20-30 years for the renter. It is for the owner to at least some degree.
It does vary by location but here where I am rent is significantly more expensive than owning. There won't be any money saved by the renter to invest. Rent will also continue to climb with inflation while a fixed rate mortgage will not. Increasing the savings for the owner in the long term.
Landlords are in business to make money. Rent will never be less than their expenses. They need to charge expenses plus profit. The landlord that does charge less than their expenses won't be in business long.
Not true. The landlord can only charge what the market will bear. When it comes to single family houses, many landlords are "accidental" landlords who were originally owner-occupants and intended to sell but couldn't find a buyer and ended up putting their house up for rent. They will take even a below-expenses rent if the alternative is $0.
Quote:
Originally Posted by arctichomesteader
Even if your scenario of savings by renting is true, it's a bit of a mirage. The owner can more often than not get their investment back after say 20-30 years, while the renter only has whatever they made from that $200 example for as long as renting was cheaper, which could change over time.
I take it you forgot the renter started off with all the money not used for a down payment.
Quote:
Originally Posted by arctichomesteader
So using your example, that $1500 monthly for 30 years (probably a lot more 30 years from now) is lost. Its not recoverable at all after 20-30 years for the renter. It is for the owner to at least some degree.
But in order to know whether the owner's equity exceeds the renter's portfolio value, you have to do the math.
Quote:
Originally Posted by arctichomesteader
It does vary by location but here where I am rent is significantly more expensive than owning. There won't be any money saved by the renter to invest. Rent will also continue to climb with inflation while a fixed rate mortgage will not. Increasing the savings for the owner in the long term.
The same is true in my hometown, and in the area where I went to college. On the contrary, where I live now, housing is insanely pricey to buy. Yet at the same time, the rent is not so sky-high. The end result is that renting and investing aggressively can win out.
Not true. The landlord can only charge what the market will bear. When it comes to single family houses, many landlords are "accidental" landlords who were originally owner-occupants and intended to sell but couldn't find a buyer and ended up putting their house up for rent. They will take even a below-expenses rent if the alternative is $0.
I take it you forgot the renter started off with all the money not used for a down payment.
But in order to know whether the owner's equity exceeds the renter's portfolio value, you have to do the math.
The same is true in my hometown, and in the area where I went to college. On the contrary, where I live now, housing is insanely pricey to buy. Yet at the same time, the rent is not so sky-high. The end result is that renting and investing aggressively can win out.
That's the exception not the rule. Probably as many or more let the banks take back the house as rented them out. You also can't expect that temporary situation to last for long. If the market won't bear even a break even rent landlords will get out of the area and you won't have rentals. You'll have abandoned bank or government owned buildings. Like Detroit's slums.
Around me the standard is a security deposit first and last month rent. Many a house is bought here with a down payment comparable to what it takes to get into an apartment.
Sure do the math but I'm willing to wager 9 out of 10 times or more the renter loses.
Renting in bad places sucks. Renting in nice places is the bomb. No emergency repairs, no spending the weekend on maintenance, and a relatively fixed cost. Owning one year might cost $25K then the next year it costs $100K... on a rental, you know what the cost is up front because it's in your lease.
I've owned long enough that the monthly cost of rent is about $1K more than the mortgage for a similar house, but that $1K disappears real quick and then some with repairs.
That's the exception not the rule. Probably as many or more let the banks take back the house as rented them out. You also can't expect that temporary situation to last for long. If the market won't bear even a break even rent landlords will get out of the area and you won't have rentals. You'll have abandoned bank or government owned buildings. Like Detroit's slums.
Let's flip the argument, shall we?
You also can't expect free money to be available to landlords for long, because otherwise investors will eagerly come in, and in doing so will bid up the property prices until it no longer is profitable.
This argument is simply too easily subject to this "parody" to be convincing...
Quote:
Originally Posted by arctichomesteader
Around me the standard is a security deposit first and last month rent. Many a house is bought here with a down payment comparable to what it takes to get into an apartment.
So this means a higher mortgage payment and an additional PMI payment on top of it. Even if owners who put down 20% were coming out ahead, those who put down 0% might be paying so much extra on mortgage and PMI that their monthly outlay exceeds rent in the same area.
Quote:
Originally Posted by arctichomesteader
Sure do the math but I'm willing to wager 9 out of 10 times or more the renter loses.
Doesn't matter. If you are buying a house, the only thing that matters is if you will come out ahead, not what happens in all the other places. Even if it is 9/10, if you happen to be in the other 1/10 this is no reason whatsoever to buy. You still have to run the numbers!
I have no idea how you came up with 9/10 except as a wild guess with nothing to back it up.
Landlords are in business to make money. Rent will never be less than their expenses. They need to charge expenses plus profit. The landlord that does charge less than their expenses won't be in business long.
Never less than expenses? That is incorrect. Numerous landlords lose money each month on their rentals. They can only rent out at the market rate, and the market rate does not care what monthly expenses a landlord has. Entire areas like Miami had people losing money each month on rent when the market fell out, only now has it recovered.
Quote:
Originally Posted by arctichomesteader
Even if your scenario of savings by renting is true, it's a bit of a mirage. The owner can more often than not get their investment back after say 20-30 years, while the renter only has whatever they made from that $200 example for as long as renting was cheaper, which could change over time. So using your example, that $1500 monthly for 30 years (probably a lot more 30 years from now) is lost. Its not recoverable at all after 20-30 years for the renter. It is for the owner to at least some degree.
Most people rent in a place they would never be able to afford to buy, well maybe could afford but would not qualify for a loan either because of credit or because the amount needed is too much for their income. A person can rent a much nicer place than they can buy due to loan requirements.
So the money by owning saved only comes into play if they are renting in the same place they would be able to buy. If they purposely rent a place better, well, that is their business and they would never be able to buy it anyway.
Quote:
Originally Posted by arctichomesteader
It does vary by location but here where I am rent is significantly more expensive than owning. There won't be any money saved by the renter to invest. Rent will also continue to climb with inflation while a fixed rate mortgage will not. Increasing the savings for the owner in the long term.
Renting being more than owning not only has location as a factor, but the specific location of the place. A person can live in a nice condo here in Miami with a roommate, as the person cannot afford to buy it ever on their own and some roommate sure is not going to cosign. Up in the DC area, Arlington for example, is full of people with roommates, living in a place they otherwise would never be able to afford to buy.
I am both a renter and an owner. I rent out a place up in Florida, but I rent my ocean view condo here in Miami. I rent below what my landlord pays in condo fees and mortgage, the place still has not recovered in value from the market crisis, and the insurance rates kept jumping for a while. Oh yes, this condo has had a few special assessments of a few thousand dollars. Glad I am renting this place instead of owning.
So the money by owning saved only comes into play if they are renting in the same place they would be able to buy. If they purposely rent a place better, well, that is their business and they would never be able to buy it anyway.
I have to disagree with you on this one point. If you are renting a better place than you would own because you "can afford" it, then you are essentially "renting and spending the difference". This is, in fact, the one way you really do end up with nothing after 20 or 30 years, regardless of what happens to the market. If you spend all of the money you make while renting, you WILL end up with nothing.
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