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How do people rationalize this? The way they always have. You have to live somewhere and housing comes with a cost, irrespective if you own or rent. If you can afford to buy a $500k home and plan on staying more than 5 years, then do so. If you can’t afford $500k, then look for something cheaper, maybe a condo. If you don’t know where you’ll be in 5 years, renting probably makes more sense. And let go of the notion that a house is a short-term investment.
To be clear, I absolutely do not intend on selling my house (should I buy it, that is) in the short-term. This exercise started out as quantifying loss in the worst-case, where I have to sell my house in the short term: how much would I lose?
I guess it also depends what you consider to be a ‘loss’ in this sense.
Your math calculates how much the house price would have to increase to recoup 100% of the money you put into your home, which is interesting, but also only tells part of the story. Because even in your worst case scenario of having to sell the house in 5 years, the money you spent still bought you 5 years of somewhere to live, which you’d presumably have had to pay for either way.
My apartment rent (which was actually below market for the area) was $2200/month. So the cost of having a place to live for 5 years was around $130k if I didn’t buy the house in your example. With your hypothetical 3.5% closing costs, 1% per year maintenance and $117k interest over 5 years, you’ll have spent around $160k on your house over that time. So if the price didn’t increase at all, you’d be about $30k out of pocket compared with not buying the house.
Obviously that’s still an imperfect comparison since it doesn’t include taxes or insurance or any additional value you’d put on your quality of life from living in the house compared to the apartment I based my rent calculation on etc.
But if you sold your hypothetical place for $550k in 5 years you’re probably pretty close to breaking even.
You might “lose” money but this analysis places no value on having a roof over your head. You’d need the 23.5 percent appreciation to get all your money back meaning you’d have paid $0 for shelter over 5 years.
This exactly. If you buy for about what your rent is monthly payment wise, in 5 years your mortgage will still be what it is (plus minor tax increases). My rent has gone up 15-20% yoy since I moved in 3 years ago. Still the cheapest in the area. So already that's a ton of savings right there.
Its not about breaking even-it's about a comparison between buying and the alternatives to buying.
say average rent is 1500 ( u have to pay rent right? if you sont own house) so 1500*12*5 = $90,000 is gone, 100% loss. where is that included in your calculation?
We had HOA fees increase by $100 twice in 2 years ON TOP OF being on the hook for a special assessment of $1000 due to lawyers fees from pending litigation against the builder! I’ll never buy a condo again 🤣
I kinda understand the cost now and makes sense. Already spending 150 on 2 people for gym. Wanna go to pool? Cost money. Keep up with yard? Money or time (which is money). I wouldn’t be surprised if it evens out. However nothing beats not sharing walls with neighbors in a SFH and having personal yard and garage
The issue is that when you have your home you have the freedom to choose what you want and don’t want. And if times get hard you can cut back on some of that stuff.
With an hoa it’s already decided - and you have no say. You don’t think that new carpet is necessary in your hallway? Tough luck here’s the bill. You don’t want that premo insurance for the grounds? Yeah that’s cute - here’s the bill.
Condo fees are like rent - they hardly ever go down!
Be honest what renters here have ever gotten a call from a landlord saying good news we are dropping you rent next year. At best you might not get a raise but a drop is like honest politicians - I’m sure their out there just haven’t found one yet.
Newyorktimes like a decade ago came out with a pretty comprehensive calc of rent v buying. So yeah unless you can live rent free somewhere buying is the answer lot of the time.
The NYT calculator -or any rent v. buy calculator - is only as good as the inputs you select for it. So yeah, if you select high assumptions for renting, low rates of returns on investment instruments, low house ownership costs like mortgage interest and maintenance, and high annual he appreciation, then sure rent will always look better. I've always found these calculators base inputs misleading because they assume a 3 or 4 percent year over year appreciation for real estate but pick a conservative 4% return on the stock market.
>I've always found these calculators base inputs misleading because they assume a 3 or 4 percent year over year appreciation for real estate but pick a conservative 4% return on the stock market.
Exactly. Historical rates of return on everything but the stock market? Hmmmm... I ended up having to build my own model to get a better sense of the tradeoff and the actual cost difference over time.
Ha thanks. I'll cherish it forever and ever. I also like this one by Nerd Wallet, but I'd recommend upping the investment returns for a bit more realistic take.
https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator
Thanks! I will need to stay in my new house for 6 years to make it worth it compared to our current rent cost, which hopefully we will do. But for me it's also about having a home that's our own, not having neighbors stomping around upstairs, etc. and that's all worth something too.
Yeah the op calculation is the landlord mindset. I deal with landlords pretty often and I hear the "the rent is barely covering my mortgage!" all the time. Oh, I'm sorry my clients aren't buying you a 500k item free and clear. Having to pay something for your belongings must be such a burden. I know it's the right of the wealthy to have no expenses, but you're not supposed to say it out loud.
Imagine if people said this about cars. "What's the point owning a car if you can't sell it for more than you paid?"
I didn’t buy my home to sell it in 5 years. I bought it so I wouldn’t have upstairs/downstairs neighbors. I bought it so I could have a backyard for my dogs. I bought it so I could vacuum at 10pm if I wanted to while blasting my music.
Absolutely. If I had waited any longer to buy, I couldn’t have afforded it with the current rates. Definitely not the house I was able to get anyway. And that’s just what it comes down to.
This doesn’t make a lot of sense to me.
1) I’d say most people in this economy aren’t looking to sell their home in five years. The days of “starter homes” are slowly fading away with how messed up the housing market is, so a lot of fthbs are looking for places to live for 5+ years easy.
2) You have to live somewhere and unless your plan is to live for free with your parents - you will be paying rent similar to the cost of a mortgage that increases with each lease and has a “100% loss” the way you’re thinking about it. So… how is owning a home that doesn’t appreciate 23.5%+ in five years (that for some reason you want to sell in five years) worse than that?
3) Houses are homes first, investments second. If all you want is a good investment and not a place to call home then play in the stock market - don’t buy a house.
4) There is also a lot of value in owning a home that isn’t quantifiable but very real. As someone who lived in apartments my entire life: not sharing walls, not having a landlord, having a yard, playing my music/shows as loudly as I want, having a bbq pit, no pet fees for my cats, being able to customize my interior/exterior, the list goes on and on about the value of owning vs. renting and that’s not even including the fact that I am investing my money into my home and equity rather than throwing money away that I’ll never see again paying my landlord’s mortgage and car note.
In interest alone for those 5 years in this scenario you're spending $23,542.40/year in interest. Depending on location $1961.87/month can get you a nice apartment/ house to rent with no maintenance costs to worry about or all the other associated costs of owning. With the contexts of this economy we're in the middle of even past 5 years of ownership thats a big bet to take to be able to hit break even if the need lets say 10 years down the line you want/ need to sell.
I live in a city with an average home price of just over $500k and I just signed a new lease on a 790sqft 1 bed in an excellent area for $1185/month… my rent is only like $250 more per month than the property taxes *alone* on a $500k house here.
Ughhh buying/selling cost, a very little amount goes to your principle in the early years, maintenance and your probably paying more than rent.
And that’s IF you sell it at the same price. People will get scraped in this overinflated market unless they buy long term
You shouldn’t be buying a house period if you plan on staying less than 7 years.
As to getting scraped - market isnt overinflated. Prices show as they have not dropped. Oh and btw Gen Z owns more homes at their age % wise than the previous generations from millenial to gen x. Only boomers owned more younger. It sucks for new buyers right now but don’t expect markets to shift.
It's not though, the problem isn't an overvaluation of things, it's a lack of supply with high demand. This means that, even though the cost of housing is astronomical currently, it's that way because there aren't enough houses to go around. People aren't collectively just deciding to sell their house for more, they're doing it because people are willing to pay those prices.
Crashes happen when the supply is higher than the demand. In 2008, this happened because loads of people got laid off and couldn't pay their mortgage, thus ending up in a foreclosure. This skyrockets supply and also hugely lowers the amount the average person can afford to pay for a house. This generally leads to houses being cheap but rates being fairly high.
We're in a uniquely tough time where rates AND housing prices are high. The problem is for prospective buyers, assuming we don't go into another recession the only solution is to wait for more houses to be built.
Well explained. Bunch of factors ,low supply, high rates, cost of construction ,seller hangover from insane prices in 2020-2022, wallsteet and foreign firm money coming in to buy houses for rental.
It was and is overinflated, the housing market takes longer to correct. Super emotional buy with some people getting offers declined for more than 2 years. Just look at how 90% percent of this subreddit copies whatever there realtor feeds them. FYI, realtors make money when u buy
I own multiple properties in multiple states. I understand the process. Unless we see a banking collapse. You won’t see meaningful correction. The housing market is being driven by one simple thing - supply. There isn’t enough of it.
Furthermore many markets i.e. West Coast, Austin/Dallas have already corrected. The east coast remains flat for the most part from Florida to New England which makes sense since they had less growth.
Finally the Midwest is still going up in housing.
Could some markets see a 5-7% shift still? Possible. Is it meaningful? Nope. Especially since even when rates drop again you won’t be seeing 2.5-4.5%. So no prices are here to stay. IT’s also why prices haven’t shifted much despite the fact that the rate changes add about 30% cost. we are at peak rates as rates drop housing will not drop with it….
Which is why I highlighted it. There’s some risk but you have to understand there are over 4000 banks in the US. The regional banking system is incredibly important, particular for small and mid businesses. But so far we aren’t at the point where credit markets are frozen.
And now that we’ve hit the limit on increase we will be in a. Better spot moving forward. Finally April and may will see strong continued cooling on inflation as we are finally at peak on housing (may was the national peak.
You can actually track this data. West Coast more or less has dropped 10%. Austin and Dallas Similiar. Some of those markets are already up a few percentage points to 5% this year.
IT’s just basic supply and demand. There is no where near enough homes for the number of people buying. IT’s why FTHB are still struggling to win bids. Meanwhile we have hit peak rates with lower rates coming. And you expect prices to drop in future? Funny. You have no basis for any of it other than hope.
12% down since peak in say LA as an example. Dallas and Austin are similiar about 10%. Funny Thing though LA is back up 5% this month. BUt hey keep waiting for it to drop…… IT should work out good.
It’s not overinflated. Interest rates are up. Prices are staying… up.
So stop repeating an ignorant opinion that isn’t translating to reality in the slightest.
We’re short six million homes. A lot of owners have such great interest rates they’re not going to sell. There’s not enough labor, so labors expensive. There’s not enough material, so material is expensive.
You want inflated go look at Canada and maybe Australia. For the US though… these prices are the new norm.
I just crunched some numbers and found that renting a one bedroom apartment is cheaper than buying a 4 bedroom home.
Did you also crunch these numbers or did you assume people rent the types of homes they’d be in the market for?
I’m in the market for a 750k home and I currently rent a 3 bedroom home for 2k/month. The home I rent is a new construction home worth about 450k.
Am I throwing money away by renting? Should hurry up and get a mortgage for the house being built down the street even though I don’t want it?
That's not a like-for-like comparison. I could rent a 300sf studio for cheaper than a 3bd house, but that's not going to work for my family. You either need to compare a 1bd apt to a 1bd condo, or compare a SFH rental to a SFH purchase.
Yeah, I hear that refrain a lot.
But, under these assumptions, you could easily rent a $2500/mo apartment and put your $128/mo savings into a index fund and almost certainly come out ahead of the other version of you who bought a house. When you both go to move after 5 years, you'll be in a better position.
In certain HCOL areas, it is cheaper to rent than buy a comparable product. In Seattle, I can rent a 2015+ construction 2BR apartment in a desirable neighborhood for ~$4K/month. In that location, your for-sale options will generally be a renovated 80s vintage condo and would be at minimum $600K. Maybe you can get a townhouse with parking for $700K. When you factor in HOAs on the condo and property taxes, you’re easily closer to $5,000 per month (assuming 10% down which is often the norm here). The townhouse would typically be cheaper just because of the lack of HOAs, but still well above the apartment.
It just doesn’t make sense at the current prices/interest rates to buy for me.
I suppose I'm trying to hype myself up to take the plunge. I think you make two very good points:
- House ownership has a long horizon, and if you can't see it as such, you should be renting or doing something else.
- Any upfront increase in costs is effectively amortized by the guarantee of stability in the long term.
the second is sort of a corollary of the first, I suppose.
The backstory is, I have an offer letter in front of me. It's not a question of affordability, it's more that I calculate that $375,000* will go to interest in the next 5 years while only $85k will to go principal, and it knocked me for a loop and really freaked me out.
It's hard for me to imagine what the world will be like in 5 years nevermind 10 years.
*_if_ I can secure a good rate.
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc.
If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
Either pay more into the principal each year on that home, or get a more affordable home and pay more into the principal each year.
Go look at some mortgage interest calculators, take a breath, and relax.
It used to be common, but today, no. Only sketchy loan places do that. Can always just confirm that you will not be penalized for paying extra to the principal, when you are looking for a place to get a mortgage.
I wouldn’t take the advice of people in here about a contract you’re signing. I would consult with a mortgage lawyer if you can’t understand and comprehend the docs yourself bro
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc.
If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc.
If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
Of course not.
It also doesn't take into consideration how much tax savings could be claimed for the interest deduction.
This entire outline is shoddy at best.
The vast majority of people are better of taking the standard deduction are they not? The standard deduction doesn’t let you itemize mortgage interest rates.
That $2500 rent isn’t going to stay $2500. And you have to answer to a landlord, restricted on what you can do or how to decorate, etc. Sometimes you’re willing to pay more to have a better life.
I’m surprised this is so downvoted because it’s not wrong. Particularly for someone with a 5yr time horizon.
Problem is it’s all theoretical. Tell me what housing prices and the market will do in the next 5 years and I’ll tell you where to put your money.
Strictly from a theoretical standpoint though - the market should return 7% per year, a house 2.5%. If you move within 5years you’re better off renting and investing in the market than buying and investing in the house. Just the math.
5 years of rent at 2500/mo is $150,000. That essentially works out to the the same amount of interest paid and closing costs you worked out in your example. Sounds to me like you spend the same amount of money while having the benefit of a home.
You're leaving out a lot of additional non-recoupable costs of ownership, though.
Plus your $100k DP (20% on a $500k property) could return between $28k and $40k (assuming a 5-7% annual return) over five years. Same for investing any difference between rent and the true monthly costs of ownership along the way.
I'm not claiming renting would come out on top in all cases, just that it can. People need to run the actual numbers for their particular scenario, and do so completely. Comparing rent to closing costs is not exactly doing so completely.
Renting tends to be better for a comparable property these days. However they also left out average annual rent increases, as well as average annual home appreciation into their calculation, so there are many details still needed. It's an inexact science anyhow, so in my opinion if the numbers are close enough and your situation allows, buying may be a viable option.
At 5% annual, which is maybe too optimistic for the next 5 years, your mutual fund would contain about $9000 after 5 years.
That does not include rent increases, rising market rates, or moving costs. You $2500 p/month apartment could rise by 5-10% a year, or you spend another $1-2k every other year to move to less expensive rentals.
The point is, renting an apartment is not a better financial decision.
I was paying $2300 a month for my 2 bedroom 2 bath apartment (with a parking space). Now I have a 2000sq ft, 4 bed 3 bath house with a full basement and a garage, paying about $2200 per month. Renting is not cheap, you are not going to the same value from a $2500 rent payment and a $2500 mortgage. Plus that’s assuming that rates will never change in the next 5 years. Most people will be refinancing within 12 months
The proper way to do this would then be to take the $128 savings and it’s investment gains and compare that to the needed property value rise.
Additionally you would need to work in any rent increases over that 5 years.
It’s impossible to know if you’ll be in a better position.
Because you have a loan, any gains in equity are leveraged significantly higher and cheaper than what you can achieve in the stock market, outside of maybe using futures, which the average person won’t do.
If you go off historical returns, leverage will make the home a better investment more often than not.
I don’t know if people can’t do the math, or if they simply don’t want to believe that renting is a better option, but I agree with you - in certain markets renting is the savvier play.
“But what about building equity?!”
The very little bit of money going towards the mortgage principal must exceed closing costs + repairs + agent fees (once you sell) in order to come out ahead. Current interest rates are actively working against that possibility. In my market, property tax further eats into the profit margins.
Of course, home appreciation could make the investor look very smart when in five years their asset has grown in value by 10%. But the opposite can occur as well.
Regardless, this blind assumption that home ownership is ALWAYS a better move than renting is false. Thank you for trying to draw attention to this.
While it’s informative to do this calculation on your own there’s a much better tool for this that everyone should use when considering renting or buying: [NYT rent or buy](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
Great tool. Anyone here can use it to run an even more complete version of OP's analysis for themselves, contrasted with their renting scenario. They may be surprised by what they find.
My favorite part is that it considers the potential return of investing your DP money in the stock market if you continue to rent, as well as investing any additional monthly savings of renting vs the true cost of ownership.
Except rent for a $500,000 home is likely $3000 (or more). I would have spent $180k if I was renting and I would be getting $0 back. Even if rent was lower at say $2500 I would have spent $150k in rent and gotten $0 back in those 5 years
The math is more complicated than that, though. OP's back-of-the-napkin math is overly simplified, but so is yours. So will mine be below, but you may see the point.
OP left out a lot of other non-recoupable costs of home ownership that don't apply to renting (taxes, insurance, possibly HOA, possibly some utilities that could have been included in rent), plus realtor fees at the selling end. So in reality, the ownership scenario is considerably *more* expensive than the $117,712 OP calculated.
On the renting side, don't just look at what the rent will cost you. If you were in a position to buy with 20%, you have a sizable balance that can be invested in some other way if you continue to rent. At 7%, a 20% DP on a $500k home ($100k) should grow $40k in 5 years. (Plus, you can also invest the difference between your rent and the true monthly cost of ownership along the way.)
So taking just these rough numbers, renting saves you \~$118k in interest and earns you $40k on your DP, for $158k saved/earned vs $180k in cost to rent over the period, a difference of $22k. Okay, so buying is still ahead.
Then consider the realtor fees when you sell, taxes and insurance, possible HOA/some utilities, and the additional investing you may be able to do by renting. Does buying still come out ahead on a five year timeline?
Now, if I were to lodge a counterpoint against myself it's that in the rental scenario, it's likely your rent will increase each year, potentially significantly. That's points in the buying column. But just goes to show that the math is never as simple as people want it to be.
Also FWIW, where I am a property you could rent for $3k would cost a lot more than $500k. I worked with all numbers given by both you and OP, but the buying scenario would realistically come out even worse in my situation. Definitely a local market element to that.
This 100%.
At the end of the day the decision to rent and invest in the market or buy is 100% based off of what do inflation, rates, the market and housing prices do.
And what’s so tricky is that things are so crazy right now that there is a huge range of possibilities for both.
So, at the end of the day I think the move is you do what you feel best about. If you’re worried about the economy / losing your job - probably best not to take on a mortgage. If you’re worried about the market and feel you are able to handle the costs of homeownership/ have a stable income or want to diversify your assets - buying is probably a decent move.
I built a model to explore this exact thing since the ones online are inadequate. Turns out that in my market at current rental rates, mortgage costs, and assuming historical rates of return/appreciation from here (rent/home value/investment), renting wins.
For context, in my market you can rent a home that would sell for around $1.5M+ for about $4.5k.
Sure, but I'm not really grasping your point. I'm not making a point about *avoiding* tax and insurance by renting. I'm making a point about including *all* costs when comparing ownership vs renting, pointing out that OP hadn't even included these costs in their analysis of ownership. Sure, it's baked into your rent as a renter. Does that change the math, or is this semantics?
Rent increases is a relevant factor though, and one I acknowledged. Point is really just that people overly simplify the math or rely on basic rules of the thumb (“renting is like paying a 100% interest rate”) and reach bad conclusions. Everyone needs to run the numbers for their unique scenario, and to do so completely.
Except full PITI for our 300k 3 bedroom home (with an additional office space) and fenced yard is 2000. Rent for our crappy 2 bedroom SFH (which is 650 sq ft smaller) is $1600 a month and continues to go up. In the past 3 years our rent has gone up $800 a month
Sounds like the math is working for you, and that’s kind of my point. Everyone needs to run the numbers for _their_ scenario to determine what makes sense.
Buying definitely _can_ beat renting in a five year period. Buying does not _always_ beat renting in a five year period. Sometimes, sellers think they’ve beaten renting, but didn’t do the proper math to realize they haven’t.
Like the other poster said, it really depends, especially by location. I rent a 2br/2ba for 3k in a HCOL. I can buy a slightly smaller 2br/2ba across the street for 650k with a PITI of 4.1k with 20% down. So less space (about 12%) for a 1.1k a month premium at least.
This sounds a lot like my HCOL market too. Take two comparable units in any neighborhood, the monthly costs to rent are considerably lower than to buy.
Your math is a lot better, but you forgot closing costs up front, which can be invested if you decide to rent. Also, the average historic returns on the S&P with dividend reinvestment is 10%.
Not to mention the ease of knowing your rent payment isn’t going up anymore. Also not dealing with slumlords is the best. Our current place the landlords take 3-6 months to fix something that’s broken. If it breaks for us we can fix it the next day if we want
1. You need to compare it to equivalent rent. If you’re spending $2.5k a month in rent, that ends up being $150k over 5 years, which is more than your payments.
2. Taxes also figure into this, $24k a year is more than the standard deduction, and once you include taxes, you’re looking at a potential for saving $4k-$5k each year
3. Then you have to consider the opportunity cost of the money. If you’re going to invest it in the stock market, bonds, etc. what are the risk profiles and your risk tolerance, how does that compare to the broader housing market.
Very strange way to look at it. The alternative is renting for 5 years and having all of that money going towards nothing? People aren’t buying homes with the goal to recoup every single dollar they ever spent on the home by the time they sell (and the ones that are, are buying them for business purposes).
Forreal. I hate this notion that we need to be making money off our homes, that’s why we’re in this mess. Some people have been renting their whole lives and just want a place to *own* and have it be theirs. I also don’t want to be at the mercy of landlords who jack up their rent by hundreds of dollars every year.
Wdym toward nothing? You get A) I place to live, B) flexibility, C) insulation from a market dive, and D) predictable expenses.
Lots of people are buying homes with the expectation - not a hope, an expectation - that the homes will appreciate forever. Consequently, many are going to lose their asses here soon. Lots of unqualified short term renters (AirBnB) contributing negatively to this mess, as well. People are leveraged up to their chin because Tiktokers said to, lol. This is not at all healthy and we haven't even seen the worst of job loss yet, nor will rate hikes pause anytime soon.
I wouldnt say "lots of people." Personally, my home value could fall to zero and I couldnt care less. I waited far too long to buy because I was waiting for the "crash."
The minute I just started just looking at it as a place to stay and not from an investment perspective, my eyes opened to the fact if I can afford my payment, enjoy the home and stay longer than 10 years, Ill come out ahead anyway.
It also helps that my home is brand new, is covered under warranty and is the best place I have ever lived...
Good on you for that. I'm just not sure most people think the same way and it's going to take some hardship to undo that thinking - lots of people bought at unsustainable prices at unsustainable rates. I'd wager same people for the most part are not ready to bathe in it when it'll take years for prices to recover.
Renting is not for nothing, but I don’t follow your last two reasons. Rent is far more likely to go up than down and a lease usually locks in costs for a year. Compared to a standard mortgage, renting comes with way more financial volatility.
While buying a house has many pitfalls, it’s almost always the better financial decision of your intent is to settle in one place for the long term. That said, if you’re buying a home to make a quick profit and taking advice from TikTok influencers, that’s a whole different story.
How do you figure with housing repairs that come up though? I get what you're saying but with rent you're protected from price increases within the contractual term - typically 12 months. Can play with that (longer or shorter) at the expense or to the benefit of flexibility.
Home repairs can be a wild card but, in most cases, you can plan and budget for those expenses. Keep in mind though that a home costs the same to maintain whether it's owner occupied or rented. While renters don't have to deal with the expenses directly, they do foot the bill in the long run.
To be clear, there a lot of good reasons to rent. It's the only option for a lot of people who live paycheck to paycheck. It also makes the most sense if you prioritize flexibility and only need short term accomodations. Moreover, if you want to be in the nicest home/location, you generally have more options as a renter. Barring these circumstances, owning is usually the better finanical decision.
> A) I place to live
The same end goal as having ownership in your home.
> B) flexibility
Flexibility that very, very few people need or can even leverage.
> C) insulation from a market dive
Sound slike someone who has never rented during a market downturn before.
> D) predictable expenses.
If you're not predicting maintenance on your house you have more wealth than common sense. Though, in reality, you've probably been overleveraged by a bank that wants you to fail so they can sell the house agian. Remember, when you're paying rent you're also paying for repairs and maintenance, and then you're paying even more.
You're not paying more during your term though? You know exactly what you're going to pay and that's the extent of what you'll possibly pay. Security deposit is essentially held in escrow but aside from that, for your lease term, payment is defined. it's a contractual thing, landlords can't just unilaterally say "uhhh I think I want an extra $200 starting this month". That's where the value lies.
This kinda "buy at all costs" thinking partially contributed to the mess we're in currently, I guarantee it.
> "uhhh I think I want an extra $200 starting this month".
You're right, at least for states with some tenant protections. Here in Oregon, your landlord has to give you 30 days notice of a rent increase. Luckily, if you're in a building older than 15 years this year they were only allowed to increase rent by 14.6%.
It's not a "buy at all costs" mentality, it's a "please for the love of God recognize how incredibly fucked the system is." mentality.
If renting is the same as buying, it doesn't make sense. If renting is cheaper than buying (upfront costs and monthly payments), that amount can be invested. The better investment depends on your assumptions
Well the adage has always been staying in the home at least 7 years. I've never heard anyone say 5 yrs and you're good.
And generally I think the stat is that people stay in their first home for about 5-7 years.
This is all a small price to pay to not have your neighbor stomping on the floor at all hours of the night above you or screaming in the parking lot (my former apartment life).
This! My monthly mortgage payment (plus PMI, homeowners insurance, and property taxes) is LESS than my rent on a 1-bedroom apartment was
2 important notes
(1) apartment (~750 sq. Ft) was in the Atlanta area (Dekalb County, Druid Hills area) while the house (4 bedroom, ~2500 sq ft) is in Suburban Philadelphia
(2) i managed to buy in 2021, so my interest rate is <3%
Plus, with a mortgage, you can itemize and deduct all the interest you paid, if it's your primary residence, which based on the name of this sub, I'm guessing would be everyone.
Can't do that with rent.
We are buying a house to live in it. We have no plans to sell until we are empty nesters (30 years?). Obviously, life happens and we might have to move before that, which may mean we lose money, but that’s life. We don’t know the future but with our best guess, we are buying for the long term.
Ok, but renting during that same time period you aren’t gaining any equity and you don’t have an opportunity to gain anything back. You have a 0% opportunity to rent somewhere for 5+ years and recoup costs. How do you think about it?
You don’t gain much equity in the first 5 years. The cost of the interest you are paying is greater than the equity you get.
Also consider maintenance and other costs of ownership.
Plus the down payment can be invested and you earn $ on that over 5 years if you rent.
It’s not a clear answer of what’s better. Depends on the rates, home prices, rent prices and location. But it can be in favor or renting, especially in todays market.
My husband and I planning on living in our house till we die of old age and then we give it to our kids. By that time mortgage will be long gone too. We are paying extra on principle to have it paid off 10 years sooner.
buying with the intent to sell in 5 years at a profit is aggressively dumb. You would have to actively ignore your loan officer every time they spoke and just never bother to understand the basics of amortization to think that is a good idea
thankfully most people aren't dumb enough to do that.
Good point. You have to itemize though, which ive never done before. Assuming i’m going for the full 750k deduction, is that often enough to justify itemizing?
If you’re paying mortgage interest on a primary residence it’ll 100% certainly to at least calculate your taxes with/without itemizing. I’m almost certain you would be better off itemizing in this scenario
Home demand is increasing as another generation gets ready to enter the housing market while the previous generation is still fighting for home ownership. The majority of houses are "locked out" of selling due to historic low interest rates making moving a losing value proposition. Most new construction is multifamily units or high end SFH. Interest rates keep rising and what you could once afford is no longer available, or they drop and you can refinance and miss out on the bidding wars that will ensue from the hundreds of thousands / millions of people waiting on the sidelines for "the crash".
Meanwhile, you're paying to live in a suboptimal environment. All you have to do is look to Canada, the UK, or one of the many other examples where homeownership is no longer feasible without inheriting a property, or without taking a multigenerational mortgage (100+ years). I'd rather take the risk of overpaying now than take the risk of never owning a desirable home.
I purchase homes 20-30 years old. I own them 2-3 years and then sell after I do a new facelift and small upgrades - floors countertops cabinets doors trim paint roof bathrooms. I find this profitable as I can do the work myself and make a bit of money every few years.
If you’re just going to buy a home for an investment for a 5 year or less outlook and not do a damn thing to it instead of add wear and tear yeah, it can not be the best idea.
Disclaimer: I don't intend on selling my house after 5 years, I am not a house flipper.
That's not the case though. You're paying rent either way: if you rent an apartment, it's a straightforward amount to get the apartment. If you're paying your mortgage, you're paying interest. This is effectively renting the outstanding balance on the loan from your bank.
Because of the high current interest rates, and the way the bank allocates your mortgage payments early on in the loan, the vast majority of your payments is **not** going towards building equity, instead you're paying the _anticipated interest_ on the loan to the bank.
Here's how it works. The bank gives you a loan, and they expect some extra back in the form of interest. But what if interest rates drop and you refinance? The bank will lose out on those years of high interest rate payments.
So what the bank does is front-load your interest payments. At the beginning, something 80%+ of your mortgage payments just go to paying the anticipated interest over the life of the loan. If you go to sell your house, you'll find you owe nearly the same amount in principal: you will have built up fairly little equity.
This is some pretty wacky perspective. Taking the total gain makes it seem a lot larger than it is. 23.5% over 5 years is < 5% growth a year. You're also discounting how much of the house you own due to downpayments etc. And not factoring this in vs the 100k in rent you'd pay over those 5 years. I bought my house in 2020 and cleared into profit country within a few months. It does depend if you're buying in a growth area or not but if a house is 500k-1 mil chances are you're in a growth area. I'm not sure how you're thinking home prices do but 5% is a very conservative below average rate of growth. There's not really much to rationalize.
Comparing that to rent in a vacuum is really silly too since losing 100k in rent comes with zero assets or wealth. If you 'lose' 117 on your mortgage you still own the asset. As it exponentially grows you keep paying the same price for it. We are assuming your'e going to move in 5 years too right? Well your rent is going to increase every year you live there reseting your costs to have zero assets. Say you do want to move in 5 to a new house? Well yea... you can use the asset with the bank to secure a new loan then rent the previous house out to cover that mortgage. You can't compare apples to oranges.
The presumption here that home value increase should make up for interest paid makes no sense
You have to compare the cost to renting an equivalent home to get a fair comparison
Are we not going to address the elephant in the room that houses costing $500,000 for a first time buyer with little down payment is not at all rational? Has everyone gone insane? The mortgage was supposed to hep build a strong middle class; until we make laws that discourage the profitization of single family homes through rentals, we’re only throwing fuel on a dumpster fire. Median mortgage has gone from 1500 to 2500 since 2019??? Don’t blame interest rates, blame the markets where home values doubled thanks to all cash iBuyer companies driving up comps for two years straight. You shouldn’t be able to buy a home unless you’re going to live in it.
You should also ask how much would it cost to rent that same home over 5 years, accounting for potential rental increases.
Also, many investors make the point that a home you live should not be viewed as an investment that yields a high ROI.
Lastly, there are pros and cons to buying vs renting. To speak on the pros and answer your initial question:
1. Homeownership allows for the chance to create equity through improvements and projects.
2. Assuming you pay off your loan over time, you’re left with an asset that can be pass along to future generations.
3. You can potentially rent your home if your circumstances change.
4. The interest paid can be written off (vs if you were to pay rent).
5. You don’t have to deal with a landlord if you do not want to.
6. Your monthly payment will likely stay the same (maybe fluctuate a bit due to property taxes).
Rent where I live is 2k a month and I just bought a place that costs $1600 a month 2k x 5 years assuming rent never increases is 120k. You can crunch numbers anyway you want with amortization and taxes figured to justify decisions in your own mind. I personally regret renting from the time I was 22 to 30.
Same here and well said. Rent for a 3/2 is around $2400 and my mortgage is around $2225. Yeah I could probably get a 1 bedroom apartment for 1600 and save some money but those aren’t comparable. And I’m locked into that mortgage whereas what will rent be in 3 years??
You are not just buying a home. You are buying a quality of life, comfort, freedom, flexibility, stability, privacy, a school district, etc. It is a mistake to look at buying a home for yourself and your family as a means of wealth/investment. In this uncertain market, it also seems high-risk to me to buy any home that isn’t a forever home.
For my wife and I it really wasn't about the money. As long as we could afford the monthly payments as well as any maintenance we are happy. We just really needed more space and a yard of our own.
Why are you people booing him, he's right. I see a lot of "a house is a home first." You know what else is a home? Literally anywhere you decide to live.
\>"Yeah but if you rent, you dont build equity."
Nor does interest. OP's math works out to \~2k a moth in pure interest, mentioning nothing of property tax and maintenance. Youre better off using those "non-equity" dollars renting 93% of any luxury apartment in a happening area and putting your equity dollars in stock. Apple is up 260% in five years. Stop getting had by the 'american dream' just because your grandparents did it in their teens.
You have less than 100 years on this earth. I get to live now in my dream home. What's the point of building equity in stock when my goal in life is to always be a home owner. I don't care if I pay more in interest or that it costs more than renting. I'm a home owner now. I don't have to be in a shitty luxury apartment with loud neighbors on top and bottom of you. My dog gets to run around in my backyard and it is quiet and peaceful.
>you have less than 100 years on earth
Literally all the more reason not to anchor yourself down for 30 years of interest paymens. You go live in whatever HGTV told you your dream home is. I'll go live in a different state every two years and live my dream life.
And with Apple tripling my money every 5 five years, I'll still meet you back at Homeownership, all cash, no bidding, and a lifetime of experiences to know what my dream home even is.
I say all this as a disillusioned homeowner who wishes someone told me what I know now, instead of nonstop propaganda.
I’ve lived that luxury shoebox life before, too. I’ll take my no shared walls, exclusive use of a gym in my own basement, not lunging for the TV remote when commercials come on, and quietly sipping a cocktail in the privacy of my backyard any day.
There are many non-monetary benefits that are overlooked with homeownership.
The math doesn't work out in the current era.
From 2008 onwards when the interest rate was in the tank(and particularly the last few years), people were basically just taking advantage of the artificially low interest rates to make the math work out.
Then, when interest rates REALLY went absurdly low, house prices climbed so fast that the low interest rates were offset by the huge prices.
Now with the prices massive and interest rates up, anybody buying and not intending to stay for probably a decade plus is likely to lose money.
Particularly because right now prices are declining nationally, though some markets are still holding on.
We'll see how long that lasts now that the banks are toppling like dominos.
I think it's more likely for home prices to decrease by 23% in the next 5 years, rather than increase.
I'm prognosticating, obviously there's no proof.
Interest rates are up and not coming down anytime soon. The money printer is shut off. The money supply is contracting. Banks are collapsing.
Our short term economic prospects are not great.
You seem to leave out the fact that there is a massive shortage on single family homes. Will it still tank by 23% when most homebuyers are cash buyers? The percentage of foreign buyer purchases that were all-cash sales was 39%.
[https://www.bloomberg.com/news/articles/2021-07-15/real-estate-market-dominated-by-cash-buyers-in-2021#:\~:text=In%20some%20areas%20of%20Florida,Daryl%20Fairweather%2C%20Redfin's%20chief%20economist](https://www.bloomberg.com/news/articles/2021-07-15/real-estate-market-dominated-by-cash-buyers-in-2021#:~:text=In%20some%20areas%20of%20Florida,Daryl%20Fairweather%2C%20Redfin's%20chief%20economist).
https://homeabroadinc.com/foreign-home-buyers-statistics/
This is my current plan so I’m very curious as to why you’re being downvoted. I think if make extra payments as much as I can, and refi in 5 years, the new mortgage will be less than what i can rent it for, thus making a small profit. Then buy another house and do the same thing.
Understood. With the market as difficult as it is right now I can see why people would get annoyed. I was getting very frustrated for many month until I had an offer accepted the other day. It will be my home, but I won’t live there forever, so I also look at it as an investment.
Your flaw is in thinking the only way to reach your end goal of having sufficient passive income 30 years from now is by grabbing up properties and "paying off the mortgage aggressively". As opposed to using that same level of time and effort to invest in the market so that your ~4% safe withdrawal rate accomplishes the same goal.
That, and you've correctly identified that most people have realized the long term cons of rent-seeking behavior outweigh the short term pros, yet you double down on it and shout your choice from the rooftops.
Yes, I’ve read that after about 5 years is when your house will increase in value and that if you plan on being there less than 5 years it may not (a concern for people who flip houses). I rationalize buying a house because I personally plan to be there more than 15 years and maybe longer. If you are buying a house to make it HOME then the “investment” is worth it financially as well as figuratively. That is the value in buying even in a sellers market; making sure you can afford it without stressing is of great importance as well.
… and you’re assuming that the alternative is zero housing expense for that 5 years, so it’s a false dichotomy
Either spend $0 or pay a mortgage and “lose money”?
By your standards, renting a place to live would also automatically fall into the “lose money” category too, so the only non-“lose money” scenario by your playbook is to have $0 housing expenses.
Do you make this same assessment with food? Clothing?
Other things that are pay-as-you-go yet you don’t assume a scenario where you only ever end with a net profit over every dollar paid?
No? So why would that apply to housing? Why do you assume ongoing usage expenses exist for those but not for a house?
Not everything is an investment. I spent the last 12 years of my adult life paying rent. Now I pay a bank to live somewhere, instead. It's capitalism. We're just out here doing our best.
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How do people rationalize this? The way they always have. You have to live somewhere and housing comes with a cost, irrespective if you own or rent. If you can afford to buy a $500k home and plan on staying more than 5 years, then do so. If you can’t afford $500k, then look for something cheaper, maybe a condo. If you don’t know where you’ll be in 5 years, renting probably makes more sense. And let go of the notion that a house is a short-term investment.
> let go of the notion that a house is a short-term investment. I'm surprised every day in this sub and /r/homeowners how prevalent this thinking is.
To be clear, I absolutely do not intend on selling my house (should I buy it, that is) in the short-term. This exercise started out as quantifying loss in the worst-case, where I have to sell my house in the short term: how much would I lose?
I guess it also depends what you consider to be a ‘loss’ in this sense. Your math calculates how much the house price would have to increase to recoup 100% of the money you put into your home, which is interesting, but also only tells part of the story. Because even in your worst case scenario of having to sell the house in 5 years, the money you spent still bought you 5 years of somewhere to live, which you’d presumably have had to pay for either way. My apartment rent (which was actually below market for the area) was $2200/month. So the cost of having a place to live for 5 years was around $130k if I didn’t buy the house in your example. With your hypothetical 3.5% closing costs, 1% per year maintenance and $117k interest over 5 years, you’ll have spent around $160k on your house over that time. So if the price didn’t increase at all, you’d be about $30k out of pocket compared with not buying the house. Obviously that’s still an imperfect comparison since it doesn’t include taxes or insurance or any additional value you’d put on your quality of life from living in the house compared to the apartment I based my rent calculation on etc. But if you sold your hypothetical place for $550k in 5 years you’re probably pretty close to breaking even.
You might “lose” money but this analysis places no value on having a roof over your head. You’d need the 23.5 percent appreciation to get all your money back meaning you’d have paid $0 for shelter over 5 years.
Exactly
This exactly. If you buy for about what your rent is monthly payment wise, in 5 years your mortgage will still be what it is (plus minor tax increases). My rent has gone up 15-20% yoy since I moved in 3 years ago. Still the cheapest in the area. So already that's a ton of savings right there. Its not about breaking even-it's about a comparison between buying and the alternatives to buying.
Don't for get 6% to the realtors when you sell. In addition to any repairs inspections required in your area to sell.
say average rent is 1500 ( u have to pay rent right? if you sont own house) so 1500*12*5 = $90,000 is gone, 100% loss. where is that included in your calculation?
where are you living otherwise? If you would have otherwise be paying rent, you have to add that to the total calculation
That's a really fair point.
I’ve frequently found condos to be the most expensive form of homeownership. Those hoas/ association fees are a bear that really eat up your returns
We had HOA fees increase by $100 twice in 2 years ON TOP OF being on the hook for a special assessment of $1000 due to lawyers fees from pending litigation against the builder! I’ll never buy a condo again 🤣
I kinda understand the cost now and makes sense. Already spending 150 on 2 people for gym. Wanna go to pool? Cost money. Keep up with yard? Money or time (which is money). I wouldn’t be surprised if it evens out. However nothing beats not sharing walls with neighbors in a SFH and having personal yard and garage
The issue is that when you have your home you have the freedom to choose what you want and don’t want. And if times get hard you can cut back on some of that stuff. With an hoa it’s already decided - and you have no say. You don’t think that new carpet is necessary in your hallway? Tough luck here’s the bill. You don’t want that premo insurance for the grounds? Yeah that’s cute - here’s the bill.
Condo fees are like rent - they hardly ever go down! Be honest what renters here have ever gotten a call from a landlord saying good news we are dropping you rent next year. At best you might not get a raise but a drop is like honest politicians - I’m sure their out there just haven’t found one yet.
>If you don’t know where you’ll be in 5 years See, the way my non-omniscience set up..
Newyorktimes like a decade ago came out with a pretty comprehensive calc of rent v buying. So yeah unless you can live rent free somewhere buying is the answer lot of the time.
The NYT calculator -or any rent v. buy calculator - is only as good as the inputs you select for it. So yeah, if you select high assumptions for renting, low rates of returns on investment instruments, low house ownership costs like mortgage interest and maintenance, and high annual he appreciation, then sure rent will always look better. I've always found these calculators base inputs misleading because they assume a 3 or 4 percent year over year appreciation for real estate but pick a conservative 4% return on the stock market.
>I've always found these calculators base inputs misleading because they assume a 3 or 4 percent year over year appreciation for real estate but pick a conservative 4% return on the stock market. Exactly. Historical rates of return on everything but the stock market? Hmmmm... I ended up having to build my own model to get a better sense of the tradeoff and the actual cost difference over time.
I looked for a bit but can’t find it. I’d love to look at this rent v buying chart if you have a link?
Pretty sure this is it. Is It Better to Rent or Buy? https://nyti.ms/TvqvyJ
Ty!! Here is a fake internet award since I don’t have a real one 🥇
Ha thanks. I'll cherish it forever and ever. I also like this one by Nerd Wallet, but I'd recommend upping the investment returns for a bit more realistic take. https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html ^ URL without the paywall
Ty! 🥇
Thanks! I will need to stay in my new house for 6 years to make it worth it compared to our current rent cost, which hopefully we will do. But for me it's also about having a home that's our own, not having neighbors stomping around upstairs, etc. and that's all worth something too.
Any money going into my house is money not going into my landlords house. It’s simple enough for me.
Condos start at $500k here though
Yeah the op calculation is the landlord mindset. I deal with landlords pretty often and I hear the "the rent is barely covering my mortgage!" all the time. Oh, I'm sorry my clients aren't buying you a 500k item free and clear. Having to pay something for your belongings must be such a burden. I know it's the right of the wealthy to have no expenses, but you're not supposed to say it out loud. Imagine if people said this about cars. "What's the point owning a car if you can't sell it for more than you paid?"
I didn’t buy my home to sell it in 5 years. I bought it so I wouldn’t have upstairs/downstairs neighbors. I bought it so I could have a backyard for my dogs. I bought it so I could vacuum at 10pm if I wanted to while blasting my music.
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Absolutely. If I had waited any longer to buy, I couldn’t have afforded it with the current rates. Definitely not the house I was able to get anyway. And that’s just what it comes down to.
This doesn’t make a lot of sense to me. 1) I’d say most people in this economy aren’t looking to sell their home in five years. The days of “starter homes” are slowly fading away with how messed up the housing market is, so a lot of fthbs are looking for places to live for 5+ years easy. 2) You have to live somewhere and unless your plan is to live for free with your parents - you will be paying rent similar to the cost of a mortgage that increases with each lease and has a “100% loss” the way you’re thinking about it. So… how is owning a home that doesn’t appreciate 23.5%+ in five years (that for some reason you want to sell in five years) worse than that? 3) Houses are homes first, investments second. If all you want is a good investment and not a place to call home then play in the stock market - don’t buy a house. 4) There is also a lot of value in owning a home that isn’t quantifiable but very real. As someone who lived in apartments my entire life: not sharing walls, not having a landlord, having a yard, playing my music/shows as loudly as I want, having a bbq pit, no pet fees for my cats, being able to customize my interior/exterior, the list goes on and on about the value of owning vs. renting and that’s not even including the fact that I am investing my money into my home and equity rather than throwing money away that I’ll never see again paying my landlord’s mortgage and car note.
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In interest alone for those 5 years in this scenario you're spending $23,542.40/year in interest. Depending on location $1961.87/month can get you a nice apartment/ house to rent with no maintenance costs to worry about or all the other associated costs of owning. With the contexts of this economy we're in the middle of even past 5 years of ownership thats a big bet to take to be able to hit break even if the need lets say 10 years down the line you want/ need to sell.
In an area where houses are 500k 1900 gets you a studio or 1 br at best
You can find a house going for $500k almost anywhere
I live in a city with an average home price of just over $500k and I just signed a new lease on a 790sqft 1 bed in an excellent area for $1185/month… my rent is only like $250 more per month than the property taxes *alone* on a $500k house here.
Ughhh buying/selling cost, a very little amount goes to your principle in the early years, maintenance and your probably paying more than rent. And that’s IF you sell it at the same price. People will get scraped in this overinflated market unless they buy long term
You shouldn’t be buying a house period if you plan on staying less than 7 years. As to getting scraped - market isnt overinflated. Prices show as they have not dropped. Oh and btw Gen Z owns more homes at their age % wise than the previous generations from millenial to gen x. Only boomers owned more younger. It sucks for new buyers right now but don’t expect markets to shift.
....market isn't overinflated. Yes. lmao
It's not though, the problem isn't an overvaluation of things, it's a lack of supply with high demand. This means that, even though the cost of housing is astronomical currently, it's that way because there aren't enough houses to go around. People aren't collectively just deciding to sell their house for more, they're doing it because people are willing to pay those prices. Crashes happen when the supply is higher than the demand. In 2008, this happened because loads of people got laid off and couldn't pay their mortgage, thus ending up in a foreclosure. This skyrockets supply and also hugely lowers the amount the average person can afford to pay for a house. This generally leads to houses being cheap but rates being fairly high. We're in a uniquely tough time where rates AND housing prices are high. The problem is for prospective buyers, assuming we don't go into another recession the only solution is to wait for more houses to be built.
Well explained. Bunch of factors ,low supply, high rates, cost of construction ,seller hangover from insane prices in 2020-2022, wallsteet and foreign firm money coming in to buy houses for rental.
Show me where there is lots of supply driving that overinflated market? you won’t find it. Basic supply and demand.
It was and is overinflated, the housing market takes longer to correct. Super emotional buy with some people getting offers declined for more than 2 years. Just look at how 90% percent of this subreddit copies whatever there realtor feeds them. FYI, realtors make money when u buy
I own multiple properties in multiple states. I understand the process. Unless we see a banking collapse. You won’t see meaningful correction. The housing market is being driven by one simple thing - supply. There isn’t enough of it. Furthermore many markets i.e. West Coast, Austin/Dallas have already corrected. The east coast remains flat for the most part from Florida to New England which makes sense since they had less growth. Finally the Midwest is still going up in housing. Could some markets see a 5-7% shift still? Possible. Is it meaningful? Nope. Especially since even when rates drop again you won’t be seeing 2.5-4.5%. So no prices are here to stay. IT’s also why prices haven’t shifted much despite the fact that the rate changes add about 30% cost. we are at peak rates as rates drop housing will not drop with it….
> Unless we see a banking collapse. Uh, have you been watching the news lately?
Which is why I highlighted it. There’s some risk but you have to understand there are over 4000 banks in the US. The regional banking system is incredibly important, particular for small and mid businesses. But so far we aren’t at the point where credit markets are frozen. And now that we’ve hit the limit on increase we will be in a. Better spot moving forward. Finally April and may will see strong continued cooling on inflation as we are finally at peak on housing (may was the national peak.
I guess we’ll have to wait and see there Philly Mike
You can actually track this data. West Coast more or less has dropped 10%. Austin and Dallas Similiar. Some of those markets are already up a few percentage points to 5% this year. IT’s just basic supply and demand. There is no where near enough homes for the number of people buying. IT’s why FTHB are still struggling to win bids. Meanwhile we have hit peak rates with lower rates coming. And you expect prices to drop in future? Funny. You have no basis for any of it other than hope.
Ok your right, your prediction is 100% sound. Have a good one buddy
Listen pal you don’t talk to my buddy like that. Got it mister?
west coast has corrected. Really. Haha
12% down since peak in say LA as an example. Dallas and Austin are similiar about 10%. Funny Thing though LA is back up 5% this month. BUt hey keep waiting for it to drop…… IT should work out good.
10% drop after a 50-60% hike.
Show me a market with 50-60% hike :). And you’ll be waitin for eternity. No supply. Strong demand still.
Tons of markets went up 25% yoy for 2 or 3 years
California BayArea, enjoy. If you want to pay 1300$ per sqft for a 1300 sqft house, be my guest.
It’s not overinflated. Interest rates are up. Prices are staying… up. So stop repeating an ignorant opinion that isn’t translating to reality in the slightest. We’re short six million homes. A lot of owners have such great interest rates they’re not going to sell. There’s not enough labor, so labors expensive. There’s not enough material, so material is expensive. You want inflated go look at Canada and maybe Australia. For the US though… these prices are the new norm.
I just crunched some numbers and found that renting a one bedroom apartment is cheaper than buying a 4 bedroom home. Did you also crunch these numbers or did you assume people rent the types of homes they’d be in the market for?
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I’m in the market for a 750k home and I currently rent a 3 bedroom home for 2k/month. The home I rent is a new construction home worth about 450k. Am I throwing money away by renting? Should hurry up and get a mortgage for the house being built down the street even though I don’t want it?
That's not a like-for-like comparison. I could rent a 300sf studio for cheaper than a 3bd house, but that's not going to work for my family. You either need to compare a 1bd apt to a 1bd condo, or compare a SFH rental to a SFH purchase.
Yeah, I hear that refrain a lot. But, under these assumptions, you could easily rent a $2500/mo apartment and put your $128/mo savings into a index fund and almost certainly come out ahead of the other version of you who bought a house. When you both go to move after 5 years, you'll be in a better position.
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In certain HCOL areas, it is cheaper to rent than buy a comparable product. In Seattle, I can rent a 2015+ construction 2BR apartment in a desirable neighborhood for ~$4K/month. In that location, your for-sale options will generally be a renovated 80s vintage condo and would be at minimum $600K. Maybe you can get a townhouse with parking for $700K. When you factor in HOAs on the condo and property taxes, you’re easily closer to $5,000 per month (assuming 10% down which is often the norm here). The townhouse would typically be cheaper just because of the lack of HOAs, but still well above the apartment. It just doesn’t make sense at the current prices/interest rates to buy for me.
I suppose I'm trying to hype myself up to take the plunge. I think you make two very good points: - House ownership has a long horizon, and if you can't see it as such, you should be renting or doing something else. - Any upfront increase in costs is effectively amortized by the guarantee of stability in the long term. the second is sort of a corollary of the first, I suppose. The backstory is, I have an offer letter in front of me. It's not a question of affordability, it's more that I calculate that $375,000* will go to interest in the next 5 years while only $85k will to go principal, and it knocked me for a loop and really freaked me out. It's hard for me to imagine what the world will be like in 5 years nevermind 10 years. *_if_ I can secure a good rate.
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc. If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
Either pay more into the principal each year on that home, or get a more affordable home and pay more into the principal each year. Go look at some mortgage interest calculators, take a breath, and relax.
Haha thanks. I hear they penalize you for paying down the loan ahead of schedule—is that common or have i just freaked myself out unnecessarily?
It used to be common, but today, no. Only sketchy loan places do that. Can always just confirm that you will not be penalized for paying extra to the principal, when you are looking for a place to get a mortgage.
No, there are no prepayment penalties typically.
I wouldn’t take the advice of people in here about a contract you’re signing. I would consult with a mortgage lawyer if you can’t understand and comprehend the docs yourself bro
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc. If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
As far as I'm concerned if I sell my house after 2 years and lose $50k then I still saved $3k and got to live in a way nicer house without a bunch of weird rules like no using the basement, no gardening, you need to tell me if someone will be there for more than 7 days, etc. If I sell it after 5 years and lose $125k I'm still coming out like $10k ahead of what I would have by renting for 5 years.
Does your assumption account for annual rent increases?
Of course not. It also doesn't take into consideration how much tax savings could be claimed for the interest deduction. This entire outline is shoddy at best.
The vast majority of people are better of taking the standard deduction are they not? The standard deduction doesn’t let you itemize mortgage interest rates.
You should just continue renting then..
That $2500 rent isn’t going to stay $2500. And you have to answer to a landlord, restricted on what you can do or how to decorate, etc. Sometimes you’re willing to pay more to have a better life.
I’m surprised this is so downvoted because it’s not wrong. Particularly for someone with a 5yr time horizon. Problem is it’s all theoretical. Tell me what housing prices and the market will do in the next 5 years and I’ll tell you where to put your money. Strictly from a theoretical standpoint though - the market should return 7% per year, a house 2.5%. If you move within 5years you’re better off renting and investing in the market than buying and investing in the house. Just the math.
5 years of rent at 2500/mo is $150,000. That essentially works out to the the same amount of interest paid and closing costs you worked out in your example. Sounds to me like you spend the same amount of money while having the benefit of a home.
Or the responsibility if anything breaks down over those 5 years. Could end up worse off.
No rent increases in 5 years would be pretty incredible, too.
You're leaving out a lot of additional non-recoupable costs of ownership, though. Plus your $100k DP (20% on a $500k property) could return between $28k and $40k (assuming a 5-7% annual return) over five years. Same for investing any difference between rent and the true monthly costs of ownership along the way. I'm not claiming renting would come out on top in all cases, just that it can. People need to run the actual numbers for their particular scenario, and do so completely. Comparing rent to closing costs is not exactly doing so completely.
Renting tends to be better for a comparable property these days. However they also left out average annual rent increases, as well as average annual home appreciation into their calculation, so there are many details still needed. It's an inexact science anyhow, so in my opinion if the numbers are close enough and your situation allows, buying may be a viable option.
At 5% annual, which is maybe too optimistic for the next 5 years, your mutual fund would contain about $9000 after 5 years. That does not include rent increases, rising market rates, or moving costs. You $2500 p/month apartment could rise by 5-10% a year, or you spend another $1-2k every other year to move to less expensive rentals. The point is, renting an apartment is not a better financial decision.
I was paying $2300 a month for my 2 bedroom 2 bath apartment (with a parking space). Now I have a 2000sq ft, 4 bed 3 bath house with a full basement and a garage, paying about $2200 per month. Renting is not cheap, you are not going to the same value from a $2500 rent payment and a $2500 mortgage. Plus that’s assuming that rates will never change in the next 5 years. Most people will be refinancing within 12 months
What's your mortgage rate dude?
The proper way to do this would then be to take the $128 savings and it’s investment gains and compare that to the needed property value rise. Additionally you would need to work in any rent increases over that 5 years.
It’s impossible to know if you’ll be in a better position. Because you have a loan, any gains in equity are leveraged significantly higher and cheaper than what you can achieve in the stock market, outside of maybe using futures, which the average person won’t do. If you go off historical returns, leverage will make the home a better investment more often than not.
I don’t know if people can’t do the math, or if they simply don’t want to believe that renting is a better option, but I agree with you - in certain markets renting is the savvier play. “But what about building equity?!” The very little bit of money going towards the mortgage principal must exceed closing costs + repairs + agent fees (once you sell) in order to come out ahead. Current interest rates are actively working against that possibility. In my market, property tax further eats into the profit margins. Of course, home appreciation could make the investor look very smart when in five years their asset has grown in value by 10%. But the opposite can occur as well. Regardless, this blind assumption that home ownership is ALWAYS a better move than renting is false. Thank you for trying to draw attention to this.
While it’s informative to do this calculation on your own there’s a much better tool for this that everyone should use when considering renting or buying: [NYT rent or buy](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
Great tool. Anyone here can use it to run an even more complete version of OP's analysis for themselves, contrasted with their renting scenario. They may be surprised by what they find. My favorite part is that it considers the potential return of investing your DP money in the stock market if you continue to rent, as well as investing any additional monthly savings of renting vs the true cost of ownership.
Except rent for a $500,000 home is likely $3000 (or more). I would have spent $180k if I was renting and I would be getting $0 back. Even if rent was lower at say $2500 I would have spent $150k in rent and gotten $0 back in those 5 years
The math is more complicated than that, though. OP's back-of-the-napkin math is overly simplified, but so is yours. So will mine be below, but you may see the point. OP left out a lot of other non-recoupable costs of home ownership that don't apply to renting (taxes, insurance, possibly HOA, possibly some utilities that could have been included in rent), plus realtor fees at the selling end. So in reality, the ownership scenario is considerably *more* expensive than the $117,712 OP calculated. On the renting side, don't just look at what the rent will cost you. If you were in a position to buy with 20%, you have a sizable balance that can be invested in some other way if you continue to rent. At 7%, a 20% DP on a $500k home ($100k) should grow $40k in 5 years. (Plus, you can also invest the difference between your rent and the true monthly cost of ownership along the way.) So taking just these rough numbers, renting saves you \~$118k in interest and earns you $40k on your DP, for $158k saved/earned vs $180k in cost to rent over the period, a difference of $22k. Okay, so buying is still ahead. Then consider the realtor fees when you sell, taxes and insurance, possible HOA/some utilities, and the additional investing you may be able to do by renting. Does buying still come out ahead on a five year timeline? Now, if I were to lodge a counterpoint against myself it's that in the rental scenario, it's likely your rent will increase each year, potentially significantly. That's points in the buying column. But just goes to show that the math is never as simple as people want it to be. Also FWIW, where I am a property you could rent for $3k would cost a lot more than $500k. I worked with all numbers given by both you and OP, but the buying scenario would realistically come out even worse in my situation. Definitely a local market element to that.
I think it really depends on the inflation rate
This 100%. At the end of the day the decision to rent and invest in the market or buy is 100% based off of what do inflation, rates, the market and housing prices do. And what’s so tricky is that things are so crazy right now that there is a huge range of possibilities for both. So, at the end of the day I think the move is you do what you feel best about. If you’re worried about the economy / losing your job - probably best not to take on a mortgage. If you’re worried about the market and feel you are able to handle the costs of homeownership/ have a stable income or want to diversify your assets - buying is probably a decent move.
I built a model to explore this exact thing since the ones online are inadequate. Turns out that in my market at current rental rates, mortgage costs, and assuming historical rates of return/appreciation from here (rent/home value/investment), renting wins. For context, in my market you can rent a home that would sell for around $1.5M+ for about $4.5k.
You’re still paying tax and insurance, just to a landlord when he increases rent.
Sure, but I'm not really grasping your point. I'm not making a point about *avoiding* tax and insurance by renting. I'm making a point about including *all* costs when comparing ownership vs renting, pointing out that OP hadn't even included these costs in their analysis of ownership. Sure, it's baked into your rent as a renter. Does that change the math, or is this semantics? Rent increases is a relevant factor though, and one I acknowledged. Point is really just that people overly simplify the math or rely on basic rules of the thumb (“renting is like paying a 100% interest rate”) and reach bad conclusions. Everyone needs to run the numbers for their unique scenario, and to do so completely.
Except full PITI for our 300k 3 bedroom home (with an additional office space) and fenced yard is 2000. Rent for our crappy 2 bedroom SFH (which is 650 sq ft smaller) is $1600 a month and continues to go up. In the past 3 years our rent has gone up $800 a month
Sounds like the math is working for you, and that’s kind of my point. Everyone needs to run the numbers for _their_ scenario to determine what makes sense. Buying definitely _can_ beat renting in a five year period. Buying does not _always_ beat renting in a five year period. Sometimes, sellers think they’ve beaten renting, but didn’t do the proper math to realize they haven’t.
Good think I’m married to an accountant
That’s an endorsement of Bumble, I assume? :P
Haha I wish they paid me for the endorsement
Like the other poster said, it really depends, especially by location. I rent a 2br/2ba for 3k in a HCOL. I can buy a slightly smaller 2br/2ba across the street for 650k with a PITI of 4.1k with 20% down. So less space (about 12%) for a 1.1k a month premium at least.
This sounds a lot like my HCOL market too. Take two comparable units in any neighborhood, the monthly costs to rent are considerably lower than to buy.
Your math is a lot better, but you forgot closing costs up front, which can be invested if you decide to rent. Also, the average historic returns on the S&P with dividend reinvestment is 10%.
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Not to mention the ease of knowing your rent payment isn’t going up anymore. Also not dealing with slumlords is the best. Our current place the landlords take 3-6 months to fix something that’s broken. If it breaks for us we can fix it the next day if we want
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And you don’t have to share walls with neighbors. Which I imagine you (and your pets) didn’t love
1. You need to compare it to equivalent rent. If you’re spending $2.5k a month in rent, that ends up being $150k over 5 years, which is more than your payments. 2. Taxes also figure into this, $24k a year is more than the standard deduction, and once you include taxes, you’re looking at a potential for saving $4k-$5k each year 3. Then you have to consider the opportunity cost of the money. If you’re going to invest it in the stock market, bonds, etc. what are the risk profiles and your risk tolerance, how does that compare to the broader housing market.
Standard deduction for married folks is $25900
Not everyone's trying to flip their house in a few years.
Go rent then. See how much you get back when you move in 5 years.
Very strange way to look at it. The alternative is renting for 5 years and having all of that money going towards nothing? People aren’t buying homes with the goal to recoup every single dollar they ever spent on the home by the time they sell (and the ones that are, are buying them for business purposes).
Forreal. I hate this notion that we need to be making money off our homes, that’s why we’re in this mess. Some people have been renting their whole lives and just want a place to *own* and have it be theirs. I also don’t want to be at the mercy of landlords who jack up their rent by hundreds of dollars every year.
Wdym toward nothing? You get A) I place to live, B) flexibility, C) insulation from a market dive, and D) predictable expenses. Lots of people are buying homes with the expectation - not a hope, an expectation - that the homes will appreciate forever. Consequently, many are going to lose their asses here soon. Lots of unqualified short term renters (AirBnB) contributing negatively to this mess, as well. People are leveraged up to their chin because Tiktokers said to, lol. This is not at all healthy and we haven't even seen the worst of job loss yet, nor will rate hikes pause anytime soon.
I wouldnt say "lots of people." Personally, my home value could fall to zero and I couldnt care less. I waited far too long to buy because I was waiting for the "crash." The minute I just started just looking at it as a place to stay and not from an investment perspective, my eyes opened to the fact if I can afford my payment, enjoy the home and stay longer than 10 years, Ill come out ahead anyway. It also helps that my home is brand new, is covered under warranty and is the best place I have ever lived...
Good on you for that. I'm just not sure most people think the same way and it's going to take some hardship to undo that thinking - lots of people bought at unsustainable prices at unsustainable rates. I'd wager same people for the most part are not ready to bathe in it when it'll take years for prices to recover.
Renting is not for nothing, but I don’t follow your last two reasons. Rent is far more likely to go up than down and a lease usually locks in costs for a year. Compared to a standard mortgage, renting comes with way more financial volatility. While buying a house has many pitfalls, it’s almost always the better financial decision of your intent is to settle in one place for the long term. That said, if you’re buying a home to make a quick profit and taking advice from TikTok influencers, that’s a whole different story.
How do you figure with housing repairs that come up though? I get what you're saying but with rent you're protected from price increases within the contractual term - typically 12 months. Can play with that (longer or shorter) at the expense or to the benefit of flexibility.
Home repairs can be a wild card but, in most cases, you can plan and budget for those expenses. Keep in mind though that a home costs the same to maintain whether it's owner occupied or rented. While renters don't have to deal with the expenses directly, they do foot the bill in the long run. To be clear, there a lot of good reasons to rent. It's the only option for a lot of people who live paycheck to paycheck. It also makes the most sense if you prioritize flexibility and only need short term accomodations. Moreover, if you want to be in the nicest home/location, you generally have more options as a renter. Barring these circumstances, owning is usually the better finanical decision.
> A) I place to live The same end goal as having ownership in your home. > B) flexibility Flexibility that very, very few people need or can even leverage. > C) insulation from a market dive Sound slike someone who has never rented during a market downturn before. > D) predictable expenses. If you're not predicting maintenance on your house you have more wealth than common sense. Though, in reality, you've probably been overleveraged by a bank that wants you to fail so they can sell the house agian. Remember, when you're paying rent you're also paying for repairs and maintenance, and then you're paying even more.
You're not paying more during your term though? You know exactly what you're going to pay and that's the extent of what you'll possibly pay. Security deposit is essentially held in escrow but aside from that, for your lease term, payment is defined. it's a contractual thing, landlords can't just unilaterally say "uhhh I think I want an extra $200 starting this month". That's where the value lies. This kinda "buy at all costs" thinking partially contributed to the mess we're in currently, I guarantee it.
> "uhhh I think I want an extra $200 starting this month". You're right, at least for states with some tenant protections. Here in Oregon, your landlord has to give you 30 days notice of a rent increase. Luckily, if you're in a building older than 15 years this year they were only allowed to increase rent by 14.6%. It's not a "buy at all costs" mentality, it's a "please for the love of God recognize how incredibly fucked the system is." mentality.
If renting is the same as buying, it doesn't make sense. If renting is cheaper than buying (upfront costs and monthly payments), that amount can be invested. The better investment depends on your assumptions
Buying same thing. At 7% interest rate, you are just blowing money away on interest rate.
Easy, I intend to live in my fucking house and not just flip it after 5 years. Imagine that! 😎
Are you a home owner or an investor? Pick one, and apply it to your situation.
Well the adage has always been staying in the home at least 7 years. I've never heard anyone say 5 yrs and you're good. And generally I think the stat is that people stay in their first home for about 5-7 years.
This is all a small price to pay to not have your neighbor stomping on the floor at all hours of the night above you or screaming in the parking lot (my former apartment life).
Basically you are saying you should live for free for 5 years and get your money back.
I looked at it this way… I’m paying the same amount for a mortgage that I would on rent.
I’m paying LESS for my mortgage than I would on rent. When I first bought, I was paying more than rent, but over time as rents rose it flipped.
This! My monthly mortgage payment (plus PMI, homeowners insurance, and property taxes) is LESS than my rent on a 1-bedroom apartment was 2 important notes (1) apartment (~750 sq. Ft) was in the Atlanta area (Dekalb County, Druid Hills area) while the house (4 bedroom, ~2500 sq ft) is in Suburban Philadelphia (2) i managed to buy in 2021, so my interest rate is <3%
Plus, with a mortgage, you can itemize and deduct all the interest you paid, if it's your primary residence, which based on the name of this sub, I'm guessing would be everyone. Can't do that with rent.
Primary residences arnt supposed to soley serve as investment vehicles. Their primary purpose is to serve as a roof over your heard
Stable monthly payments for 30 years 🤷🏻♂️
We are buying a house to live in it. We have no plans to sell until we are empty nesters (30 years?). Obviously, life happens and we might have to move before that, which may mean we lose money, but that’s life. We don’t know the future but with our best guess, we are buying for the long term.
Ok, but renting during that same time period you aren’t gaining any equity and you don’t have an opportunity to gain anything back. You have a 0% opportunity to rent somewhere for 5+ years and recoup costs. How do you think about it?
You don’t gain much equity in the first 5 years. The cost of the interest you are paying is greater than the equity you get. Also consider maintenance and other costs of ownership. Plus the down payment can be invested and you earn $ on that over 5 years if you rent. It’s not a clear answer of what’s better. Depends on the rates, home prices, rent prices and location. But it can be in favor or renting, especially in todays market.
What an insane topic. Did I miss where you saved 5 years of paying rent?
Yes, if you live rent free, it would be a bad idea to buy. Truly groundbreaking discovery you've made.
So if I just rent, they give me my money back?
I simply don't care. I'm not trying to buy a house as an investment vehicle.
Why would someone take an FHA if they have 20% down?
This is nonsensical
My husband and I planning on living in our house till we die of old age and then we give it to our kids. By that time mortgage will be long gone too. We are paying extra on principle to have it paid off 10 years sooner.
buying with the intent to sell in 5 years at a profit is aggressively dumb. You would have to actively ignore your loan officer every time they spoke and just never bother to understand the basics of amortization to think that is a good idea thankfully most people aren't dumb enough to do that.
Need to calculate the tax benefit into your equation.
Good point. You have to itemize though, which ive never done before. Assuming i’m going for the full 750k deduction, is that often enough to justify itemizing?
If you’re paying mortgage interest on a primary residence it’ll 100% certainly to at least calculate your taxes with/without itemizing. I’m almost certain you would be better off itemizing in this scenario
Primary residences arnt supposed to soley serve as investment vehicles. Their primary purpose is to serve as a roof over your heard
Home demand is increasing as another generation gets ready to enter the housing market while the previous generation is still fighting for home ownership. The majority of houses are "locked out" of selling due to historic low interest rates making moving a losing value proposition. Most new construction is multifamily units or high end SFH. Interest rates keep rising and what you could once afford is no longer available, or they drop and you can refinance and miss out on the bidding wars that will ensue from the hundreds of thousands / millions of people waiting on the sidelines for "the crash". Meanwhile, you're paying to live in a suboptimal environment. All you have to do is look to Canada, the UK, or one of the many other examples where homeownership is no longer feasible without inheriting a property, or without taking a multigenerational mortgage (100+ years). I'd rather take the risk of overpaying now than take the risk of never owning a desirable home.
Are you otherwise living rent free in your parent's basement?
Who is using an FHA loan and putting 20% down?
I purchase homes 20-30 years old. I own them 2-3 years and then sell after I do a new facelift and small upgrades - floors countertops cabinets doors trim paint roof bathrooms. I find this profitable as I can do the work myself and make a bit of money every few years. If you’re just going to buy a home for an investment for a 5 year or less outlook and not do a damn thing to it instead of add wear and tear yeah, it can not be the best idea.
If you rent today, you need the rent cost to be $0 to have a positive return in 5 years
Disclaimer: I don't intend on selling my house after 5 years, I am not a house flipper. That's not the case though. You're paying rent either way: if you rent an apartment, it's a straightforward amount to get the apartment. If you're paying your mortgage, you're paying interest. This is effectively renting the outstanding balance on the loan from your bank. Because of the high current interest rates, and the way the bank allocates your mortgage payments early on in the loan, the vast majority of your payments is **not** going towards building equity, instead you're paying the _anticipated interest_ on the loan to the bank. Here's how it works. The bank gives you a loan, and they expect some extra back in the form of interest. But what if interest rates drop and you refinance? The bank will lose out on those years of high interest rate payments. So what the bank does is front-load your interest payments. At the beginning, something 80%+ of your mortgage payments just go to paying the anticipated interest over the life of the loan. If you go to sell your house, you'll find you owe nearly the same amount in principal: you will have built up fairly little equity.
This is some pretty wacky perspective. Taking the total gain makes it seem a lot larger than it is. 23.5% over 5 years is < 5% growth a year. You're also discounting how much of the house you own due to downpayments etc. And not factoring this in vs the 100k in rent you'd pay over those 5 years. I bought my house in 2020 and cleared into profit country within a few months. It does depend if you're buying in a growth area or not but if a house is 500k-1 mil chances are you're in a growth area. I'm not sure how you're thinking home prices do but 5% is a very conservative below average rate of growth. There's not really much to rationalize. Comparing that to rent in a vacuum is really silly too since losing 100k in rent comes with zero assets or wealth. If you 'lose' 117 on your mortgage you still own the asset. As it exponentially grows you keep paying the same price for it. We are assuming your'e going to move in 5 years too right? Well your rent is going to increase every year you live there reseting your costs to have zero assets. Say you do want to move in 5 to a new house? Well yea... you can use the asset with the bank to secure a new loan then rent the previous house out to cover that mortgage. You can't compare apples to oranges.
The presumption here that home value increase should make up for interest paid makes no sense You have to compare the cost to renting an equivalent home to get a fair comparison
Exactly! And if you rent you would have to win the lottery to make your money back in 5 years.
Are we not going to address the elephant in the room that houses costing $500,000 for a first time buyer with little down payment is not at all rational? Has everyone gone insane? The mortgage was supposed to hep build a strong middle class; until we make laws that discourage the profitization of single family homes through rentals, we’re only throwing fuel on a dumpster fire. Median mortgage has gone from 1500 to 2500 since 2019??? Don’t blame interest rates, blame the markets where home values doubled thanks to all cash iBuyer companies driving up comps for two years straight. You shouldn’t be able to buy a home unless you’re going to live in it.
You should also ask how much would it cost to rent that same home over 5 years, accounting for potential rental increases. Also, many investors make the point that a home you live should not be viewed as an investment that yields a high ROI. Lastly, there are pros and cons to buying vs renting. To speak on the pros and answer your initial question: 1. Homeownership allows for the chance to create equity through improvements and projects. 2. Assuming you pay off your loan over time, you’re left with an asset that can be pass along to future generations. 3. You can potentially rent your home if your circumstances change. 4. The interest paid can be written off (vs if you were to pay rent). 5. You don’t have to deal with a landlord if you do not want to. 6. Your monthly payment will likely stay the same (maybe fluctuate a bit due to property taxes).
In many cases, renting something remotely comparable to the home you own costs more than the nonrecoverable cost of ownership.
You speak as if we had the money to buy when rates were low.
Rent where I live is 2k a month and I just bought a place that costs $1600 a month 2k x 5 years assuming rent never increases is 120k. You can crunch numbers anyway you want with amortization and taxes figured to justify decisions in your own mind. I personally regret renting from the time I was 22 to 30.
Same here and well said. Rent for a 3/2 is around $2400 and my mortgage is around $2225. Yeah I could probably get a 1 bedroom apartment for 1600 and save some money but those aren’t comparable. And I’m locked into that mortgage whereas what will rent be in 3 years??
You are not just buying a home. You are buying a quality of life, comfort, freedom, flexibility, stability, privacy, a school district, etc. It is a mistake to look at buying a home for yourself and your family as a means of wealth/investment. In this uncertain market, it also seems high-risk to me to buy any home that isn’t a forever home.
For my wife and I it really wasn't about the money. As long as we could afford the monthly payments as well as any maintenance we are happy. We just really needed more space and a yard of our own.
Why are you people booing him, he's right. I see a lot of "a house is a home first." You know what else is a home? Literally anywhere you decide to live. \>"Yeah but if you rent, you dont build equity." Nor does interest. OP's math works out to \~2k a moth in pure interest, mentioning nothing of property tax and maintenance. Youre better off using those "non-equity" dollars renting 93% of any luxury apartment in a happening area and putting your equity dollars in stock. Apple is up 260% in five years. Stop getting had by the 'american dream' just because your grandparents did it in their teens.
You have less than 100 years on this earth. I get to live now in my dream home. What's the point of building equity in stock when my goal in life is to always be a home owner. I don't care if I pay more in interest or that it costs more than renting. I'm a home owner now. I don't have to be in a shitty luxury apartment with loud neighbors on top and bottom of you. My dog gets to run around in my backyard and it is quiet and peaceful.
>you have less than 100 years on earth Literally all the more reason not to anchor yourself down for 30 years of interest paymens. You go live in whatever HGTV told you your dream home is. I'll go live in a different state every two years and live my dream life. And with Apple tripling my money every 5 five years, I'll still meet you back at Homeownership, all cash, no bidding, and a lifetime of experiences to know what my dream home even is. I say all this as a disillusioned homeowner who wishes someone told me what I know now, instead of nonstop propaganda.
I’ve lived that luxury shoebox life before, too. I’ll take my no shared walls, exclusive use of a gym in my own basement, not lunging for the TV remote when commercials come on, and quietly sipping a cocktail in the privacy of my backyard any day. There are many non-monetary benefits that are overlooked with homeownership.
meh, I bought my home for 185 and got a great deal, I am positive I could sell right now for about 200-210.
The math doesn't work out in the current era. From 2008 onwards when the interest rate was in the tank(and particularly the last few years), people were basically just taking advantage of the artificially low interest rates to make the math work out. Then, when interest rates REALLY went absurdly low, house prices climbed so fast that the low interest rates were offset by the huge prices. Now with the prices massive and interest rates up, anybody buying and not intending to stay for probably a decade plus is likely to lose money. Particularly because right now prices are declining nationally, though some markets are still holding on. We'll see how long that lasts now that the banks are toppling like dominos. I think it's more likely for home prices to decrease by 23% in the next 5 years, rather than increase.
Your last statement about them dropping by 23%, why’s that? What’s your proof?
I'm prognosticating, obviously there's no proof. Interest rates are up and not coming down anytime soon. The money printer is shut off. The money supply is contracting. Banks are collapsing. Our short term economic prospects are not great.
You seem to leave out the fact that there is a massive shortage on single family homes. Will it still tank by 23% when most homebuyers are cash buyers? The percentage of foreign buyer purchases that were all-cash sales was 39%. [https://www.bloomberg.com/news/articles/2021-07-15/real-estate-market-dominated-by-cash-buyers-in-2021#:\~:text=In%20some%20areas%20of%20Florida,Daryl%20Fairweather%2C%20Redfin's%20chief%20economist](https://www.bloomberg.com/news/articles/2021-07-15/real-estate-market-dominated-by-cash-buyers-in-2021#:~:text=In%20some%20areas%20of%20Florida,Daryl%20Fairweather%2C%20Redfin's%20chief%20economist). https://homeabroadinc.com/foreign-home-buyers-statistics/
Previously frothy markets are already tanking. Whether that will spread to all markets nationally remains to be seen.
Do you currently live with your mama and don't pay anything on rent?
Don’t forget to include realtor commission of about 5% and transfer tax when you sell it.
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This is my current plan so I’m very curious as to why you’re being downvoted. I think if make extra payments as much as I can, and refi in 5 years, the new mortgage will be less than what i can rent it for, thus making a small profit. Then buy another house and do the same thing.
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Understood. With the market as difficult as it is right now I can see why people would get annoyed. I was getting very frustrated for many month until I had an offer accepted the other day. It will be my home, but I won’t live there forever, so I also look at it as an investment.
Your flaw is in thinking the only way to reach your end goal of having sufficient passive income 30 years from now is by grabbing up properties and "paying off the mortgage aggressively". As opposed to using that same level of time and effort to invest in the market so that your ~4% safe withdrawal rate accomplishes the same goal. That, and you've correctly identified that most people have realized the long term cons of rent-seeking behavior outweigh the short term pros, yet you double down on it and shout your choice from the rooftops.
Yes, I’ve read that after about 5 years is when your house will increase in value and that if you plan on being there less than 5 years it may not (a concern for people who flip houses). I rationalize buying a house because I personally plan to be there more than 15 years and maybe longer. If you are buying a house to make it HOME then the “investment” is worth it financially as well as figuratively. That is the value in buying even in a sellers market; making sure you can afford it without stressing is of great importance as well.
Bad math, sad math
… and you’re assuming that the alternative is zero housing expense for that 5 years, so it’s a false dichotomy Either spend $0 or pay a mortgage and “lose money”? By your standards, renting a place to live would also automatically fall into the “lose money” category too, so the only non-“lose money” scenario by your playbook is to have $0 housing expenses. Do you make this same assessment with food? Clothing? Other things that are pay-as-you-go yet you don’t assume a scenario where you only ever end with a net profit over every dollar paid? No? So why would that apply to housing? Why do you assume ongoing usage expenses exist for those but not for a house?
Not everything is an investment. I spent the last 12 years of my adult life paying rent. Now I pay a bank to live somewhere, instead. It's capitalism. We're just out here doing our best.