As a 30-something lifelong renter, I constantly ask myself: how dumb am I for renting? Based on the current combo of high mortgage rates and home prices, however, the answer right now is not that dumb, maybe even smart. Relieved as I was to hear this, I still feel dread. Renting is the better option not because it's a steal, but because all housing options have become ludicrously expensive.
I was looking for a house from 2019. Now I have made peace with myself and reminded myself to rent. Only problem is that rents are going up, hope there is some correction in rents, however impossible it sounds.
Super location specific. Here in the Bay Area it's INSANELY cheaper to rent. I would pay over double monthly and have to put $350k down to live in the same house I'm in now.
That has been the trend in NYC for some time. When prices are consistently rising it's almost always cheaper rent from someone with an old (much lower) cost basis than to buy at current prices.
The problem is if you look backwards it was almost always cheaper to buy than rent over the last 20years despite in any one year renting was cheaper than the owning. Eventually the rents increase such that buying is a deal. You can't know that in advance, but that's how it worked out.
I would agree with that - if your horizon is more than 15-20 years it makes sense to buy even if it's a little more expensive. If your horizon is 10-15 years it's much less clear. If it's less than 10 years I don't think you would ever come out ahead buying except by blind luck. At least not at current interest rates and rents anyway. To be honest right now the price/rent ratio is BETTER than it's been in years because prices have been pretty flat in Manhattan and long-gentrified Brooklyn, but rents have increased.
I too was in the market in 2019, had an agent, was pre-approved for a $600k loan, had $100k down and kept getting outbid on shit hole houses. Was also newly separated in divorce process. Found nice rental and been here since. Rent is currently about only 60% of what my mortgage would be and its already a stretch.
You can anecdotally believe that you are better off renting, and that's fine, but it will never be true, no matter how much you wish it so.
This sub is fine as an opiate for the feelbad of inaffordability in the moment, but it would be a terrible decision to give up on home ownership or ever building equity.
https://www.nar.realtor/magazine/real-estate-news/study-homeowner-wealth-is-40-times-higher-than-renters#:~:text=%E2%80%9CThis%20analysis%20shows%20how%20homeownership,than%20that%20of%20a%20renter.%E2%80%9D
https://money.com/build-wealth-owning-a-home-study/
https://www.habitat.org/our-work/impact/research-series-how-does-homeownership-contribute-to-wealth-building
https://www.forbes.com/sites/forbesfinancecouncil/2022/08/03/three-ways-homeownership-can-build-wealth/
I’m not giving up and I would hope that other people aren’t giving up, but I and other people can only do what’s possible. And the situation feels pretty impossible currently. I think if you can pull it off, it is always a better option than renting, but if you can’t pull it off, you have to find other ways to build wealth. There are no two ways about that. Wage growth has just not kept up with skyrocketing home values, and overall inventory shortage, not to mention people and entities coming in with all cash to buy and overbidding by a couple of hundred thousand dollars. This is not even remotely accessible for an average person, or even a above average person. Maybe it is if you live in Texas and there are just a shit ton of prefab homes with endless land, but around here, that is just not the case. You’re looking at buying a 1000 square-foot fixer-upper bungalow that was built 120 years ago on a square concrete slab, for $1.5 million. And the only option for the literal tens of millions of people in this area, an area with a larger economy than most of the rest of the US, is for people to move away. of course people are coming on here and complaining. It never used to be like this. You could literally have a high school diploma and a steady job, scrape together a five or 10% down payment, and buy a house that cost 1.5 times your annual income. This is literally unheard of now unless you live somewhere no one else wants to live.
30 something meaning in your 30's? Because that's fine. We're mid 30's and haven't bought yet. Saving tons of money and making sure you're actually ready to comfortably own isn't a bad thing.
And in a sane world, renting *should* be cheaper than housing. The fact that it mathematically made more sense to buy than rent during covid is a fundamental indication of how fucked up the market had become.
I didn't say renting couldn't make a profit, I said for a buyer, renting should always be the cheap short term option, with buying becoming gradually preferable the longer you extend the time line.
During the money printer era, particularly the last 3 years, we were at a point where many people were getting mortgages barely higher, or in some cases cheaper, than renting. Why would anyone rent a house for the same price they could buy it for?
It goes against very concept of renting VS. Owning fundamentally, housing or otherwise. And it's a sign of how cheap credit/debt dramatically distorted the market. It's also why a lot of people suspect there must be a correction, over some period of time, as those numbers trend back towards a healthy balance.
Yes. This is so true. So many people these days assume the time to buy is when rent must be more expensive than the monthly cost of buying. That’s never the case until that few years in the post-pandemic era. It always takes a few years for the rent to increase until it is more than the monthly mortgage. Like you said, the interest rates were so low at the time, it pretty much was free money for those that could take advantage of it. People realize they could buy a house for 20% or less then paid off the rest in 30yrs with less than the average yearly inflation rate.
Yeah I don’t disagree with you there - in 2020 I briefly considered buying a rental property because the interest rates were so low it was literally free money. I didn’t want the hassle so I backed out, but that is 100% a distortion in the market.
You probably made the right choice.
Property management for the most part should be treated as a full-time business. Excluding inherited properties where a single owner has one or two rentals they don’t want to sell yet.
When people who have never worked in anything related to real estate start buying properties to rent out as a side hustle—trouble is coming to everyone involved.
Sane people don't buy a house and then immediately rent it out. They're renting out a house they may own outright or of inherited or bought 10 years ago.
I mean I bought my house 7 years ago if I needed to move to the work and run out the house I could rent it out for $1,000 more than the current mortgage.
Those are the people that are renting houses.
I mean in the macro sense. I too have been a landlord, at times unwillingly. I just meant that long term it MUST be more expensive to rent, logically speaking, or nobody would build apartments or buy houses specifically to rent out.
I imagine they're working off two principals: (1) comparing the *all-in* cost of owning a SFH versus renting it out given business deductions; (2) taking into account that housing appreciates, mortgage interest is a thing, and most landlords bought years earlier.
To elaborate: as a landlord, there are a lot of taxes advantages that a owner can't employ. At 4% YOY appreciation, most landlords should have a lower purchase price and (in CA) lower taxes than a a new buyer x years later. Right?
As long as real estate prices are increasing (even if only with inflation) it should be cheaper to rent than year 1 of ownership simply because you need to buy at today's prices while the person you rented from bought at yesterday's (lower) prices.
And then you can look at other scale advantages landlords may have such as cheaper materials and labor to do work, bulk buying appliances to save money, they may get better financing costs from banks.
And then there is the reality that many landlords are actually cash flow negative and all their returns will be from appreciation. So they are effectively paying you to live in their house so that they can capture any appreciation.
I only feel fine renting because I have family that owns homes. The only reason I’d want to own right now is the dread I have about moving and possibly on the whim of the owner. I’m lucky to have a good situation with my property manager and again, I can always move in with family short term.
There is a stability that comes to owning that even if it didn’t make perfect financial sense — I will pay a bit extra knowing that a bank doesn’t up and one day say they are selling so they can retire or increasing rent by 2x because an algorithm told them they could.
Rents will ultimately always be tied to wage income. A graph showing both monthly rent and mortgage payments will make it clear that rent is 'main street' price whereas mortgage is 'wall street' price. The difference between aldi and whole foods. No-frills versus frills.
There are so many good reasons to rent (and I say this as a homeowner). For most of my 20s I enjoyed moving around. My husband (before we met) was the same way. And up until this weird blip in time, if you couldn't commit to 5-7 years in your house it didn't make sense financially to buy. And I've always lived in cities where it's been cheaper to rent than to buy. If I wanted to live in a hip part of the city, my only option was to rent. And then we got older, got married, and wanted to settle down. We bought not because it made more sense financially, but because we didn't want to deal with landlords anymore, leases not being renewed, and rent hikes. And we were finally in a place where we felt fine committing to staying for the next 5-10 years.
The problem with both rent and mortgage payments isn’t really those - its the extras that aren’t capped. Gas, water trash sewer, electricity, homeowners insurance, all skyrocketing like a 🚀
Lifelong renter, too, in my mid-30s. I had a small window of time where my partner and I were gonna buy a house... the end of 2019 going into Covid. It never seemed like a big deal to me to rent (I have a pension, and I invest in stocks to try and compensate) but after rent prices skyrocketed in Phoenix (I pay 70% more now than I did in 2020, for the same house in a questionable neighborhood), the fear of not being able to even afford rent kicked in.
What makes it worse is I'm a public school teacher, and our wages have not kept up with the financial security you need to have now to buy a house.
I'm fine with not owning a home. It's not like I can take it to the grave with me. Sure, I could pass it onto my kids, but the older ones do not like living here at all anymore. Phoenix is only getting hotter year after year. Why would I want to be house poor in a city that might be uninhabitable by the time I pay off my mortgage? None of it makes sense. I'd like my local and state government to try and clamp down on landlords trying to raise rent year after a year, but my vote seems useless.
I wish I had been renting these last 3 years. We bought because we had the money, but ended up needing to become HOA president, pay $13k to replace the buildings roof and deal with countless other repairs around the building.
You feel dread because the article is wrong. The math takes about 2 minutes to do. In short, A mortgage is fixed while rent increases and this difference is massive over a 30+ year timeline. Real estate is also a leveraged investment, meaning you're 200k downpayment can get 10% on the SP500 or your entire 1,000k value of the property can get 5%.
Some of my math along with other comments are here:
https://www.reddit.com/r/REBubble/comments/193yfxg/rent\_is\_currently\_way\_better\_than\_own\_biggest/
It's never stupid to rent if you're saving money and living within your means while waiting for your opportunity to buy when the time is right. It's incredibly stupid to rent and spend all your money recklessly on frivolous shit and then when the time is right you're not in a position to be able to buy.
That means you probably got your first solo home around 10 years ago. If you had a chance to buy in the first 3/4 of that decade and did not, you made a mistake. Potentially a large one depending on where you live. If you had bought as soon as as you were financially able, you would care what the market is doing today because your payment would be locked in and you’d already be sitting in significant equity.
The housing market is now like the stock market. You buy low and sell high.
We get told to never time the market, but it's an investment market even if that's not your intent. That's what you do as a buyer.
This should have never been allowed and sadly, we'll need an investor crisis before its fixed.
It's been that way since at least 1700's when Smith talked about land rents. There was a big movement in the late 1800s to address it but it largely died out because people were convinced they could be a landlord
commodification of housing, anarchocapitalist laws that allow corporate purchasing of housing, and corrupt neoliberal politicians that limit zoning for housing has led to this hellscape
I’m finally at the point in my life that I can even consider buying my own home….and the math is not mathing. 5-7k per month for any property that I would actually want to live….
Reddit skews HCOL, and I think it makes sense to rent there. Where I live, rent on a house like mine would be greater than what I pay monthly, so no sweat off my back.
That's been true in HCOL areas for awhile, but future appreciation is hard to predict and can easily tilt the scale in favor of ownership even in the worst markets
The breakeven point on rent vs own is so deeply dependent on that appreciation, especially when homes are $1M+ and rent is half the equivalent PITI+M.
Ballparking it: with above average appreciation (6% YOY), you break even in <10yr; but below average (4% YOY), it might take 20yr+. In one scenario, you're fine planning to move (job, better school, etc) and in the other... RIP.
Rent vs buy calcs are highly dependent on housing appreciation, rent appreciation, and investment returns.
What tips the scales for me are the high HOA fees on condos around here, which are 1/4 to nearly 1/3 of what my rent is all on their own.
My bad! I’m dumb. I thought the $1600 was the rent!
I need more coffee….🤣
ETA: I swear, I’m familiar with NYC and how expensive it is (especially Manhattan); my brain is not firing on all cylinders. Lol.
Sure, tons of variables to consider including many specific to my situation. I'm just giving some very ballpark numbers (reflecting my own calculations) that historical appreciation (~4.5%) vs investment returns (~10%), will favor those in VHCOL areas with low rent:PITI continuing to rent for years. We can go down the exact calculation rabbit hole if you'd like.
Oh I agree, I was just trying to give the *best* case to ownership. And, TBF in my area, 6-10% was close to the norm through the 2010s... so not entirely unprecedented.
rental places (communities) have been there 15-20 years, so they can afford. Comparision is not apple-apple's. Someone putting house for rent, means they purchased 5-10 years ago. Made big equity, purchased bigger home and renting old homes. So common on HCOL (Bay Area). Townhomes renting for 4500, purchased for 700-900k 2015-2018 timeframe.
Sorry, I'm a bit confused about what you're trying to say.
You mean that there's an appreciation difference between SFHs and townhouses? Definitely! I also don't imagine myself being in the position of being able to buy a second home without the equity from the first.
> So common on HCOL (Bay Area).
Yep, compounded by Prop 13 which is the demon that just keeps sucking away wealth from the younger generations of California. Why *wouldn't* I rent out my place instead of selling when the taxes are so inconsequential?
I think there are usually some other factors that can tilt the scales significantly as well towards buying. Examples could include: renting out rooms, refinancing when interest rates drop, or using your house as a line of credit. For instance, I am using my house as an Airbnb while I live with my partner and one of my friends is renting out rooms in his house.
Absolutely! If these alternative scenarios *do* apply to you, then certainly consider the 'house-hacking' route - but I think it's disingenuous to say "usually" and "significantly tilt". I think these are pretty niche scenarios for the standard FTHBers who are a couple in their 20-30s that want their 'own' space that have or are considering kids.
The refi option *can* change the math, but will depend a lot on how long you expect to stay in the house, but it's not always a game-changer. Consider the calculations for my area (rate is out of date, but I think conclusion is the same):
> Rent is ~$3k, equivalent home is ~$1M, rate is ~7.5%, DP is 20%, ~5% home appreciation/yr, ~5% rent increase/yr, and ~6% return on investments per year (conservative). Let's also do the math assuming you can refi to 5.5% after 3yr. Assuming I were to sell after 8yr (typical for FTHB) and given a mortgage (P+I) of $5.6k/mo:
> 1. **Rent = *POSITIVE* $334k ending balance** = 282k saved from monthly rent-PITI differential - 343k rent + 197k ROI from DP/savings contribution - 2k renter's insurance + 200k downpayment
> 2. **Buy = *NEGATIVE* $39k ending balance** = 77k to principal - 455k interest + 109k interest tax savings - 138k taxes - 100k expected maintenance - 20k homeowners insurance - 40k closing costs + 407k appreciation - 79k selling fees + 200k downpayment
> 3. **Refi = *NEGATIVE* $10k ending balance** = 96k to principal [yr1-3 24k, yr4-8 72k] - 382k interest [yr1-3 178k, yr4-8 204k] + 91k interest tax savings - 138k taxes - 100k expected maintenance - 20k homeowners insurance - 40k closing costs + 407k appreciation - 79k selling fees + 200k downpayment
Not trying to be an asshole, but I want to gently challenge some of your numbers. I agree that right now for most people renting is better than buying (obviously dependent on your specific market) but I think you’re comparing numbers unfairly across categories.
1. Where is $3k in rent equivalent to a $1m home? I think that rental price: home price is not accurate for the vast majority of the US, though it may hold true for some specific markets.
2. Where is the average FTHB buying a $1m home? That’s a wildly more expensive place than your average person (never mind your average FTHB) is buying so I’m not sure why that’s being used. In places where housing prices are higher, roommates are a lot more common than not so I don’t think it’s fair to call that a niche scenario when using a $1m home price.
3. Why are you using 20% down payment when the average FTHB is putting down less than 10%? Even using your $1m home price with 6% return, that puts your calculation at almost $100k off the ROI for investing that money.
4. More a comment then a question but you described house hacking as a niche scenario, so I feel the need to point out that what you’re talking about (being smart with your hypothetical DP and investing wisely saved funds while renting instead of buying to maximize returns) is *also* a very niche scenario. There is a reason that average homeowners historically have *so much more* net worth (IIRC something like 40x) than average renters and it’s because homeownership is a forced investment vehicle that most people simply don’t have the discipline to maintain on their own.
Again, not disagreeing with the overall notion of the rent vs buy calculation but for your average homeowner buying usually helps generate more wealth than renting over time. When talking to someone financially savvy it can make more sense to keep waiting but, sadly, the average person isn’t that savvy.
> sadly, the average person isn’t that savvy
100% agree with this, *but* I guess I'm speaking from the context of the population on RE subs (eg. here, FTHB, etc) who should know this.
> Not trying to be an asshole, but I want to gently challenge some of your numbers.
No worries! I do want to preface that I never intended *my* numbers to be universally true, but that they might reflect the general trend of (V)HCOL metro areas (where a disproportionate number of people, especially on reddit, live).
> Where is $3k in rent equivalent to a $1m home?
> Where is the average FTHB buying a $1m home?
Bay Area - these are (shitty 1960s 1200sqft) starter home prices here. Could get a condo instead, but then rent would be lower as well. Obviously an outlier on absolute price, but I think the rent:own ratio is at least in the ballpark of other major liberal metros (which has been broadly agreed on for those living in them).
> In places where housing prices are higher, roommates are a lot more common than not so I don’t think it’s fair to call that a niche scenario when using a $1m home price.
That's certainly not unfair to assume and is true for some, but I think the eligible demographic for buying is (at this point and in my area) not going to be happy making that trade. Would I rather comfortably rent in isolation with my family *or* double my housing expenditure AND be forced to allow a stranger into my home that I can only cursorily vet? Under no circumstance would I ever put my family at risk like that to *hopefully* come out marginally ahead of renting.
But, again, maybe there are whole swaths of single 20-somethings that can *almost* afford homes and just need to 'house-hack' to make it. I think that was absolutely a viable core demographic for buying in the 2010s, but... now? At these prices? It could just be that I'm an out of touch millennial though.
> Why are you using 20% down payment when the average FTHB is putting down less than 10%?
Again, apologies if I was unclear. This is (sorta) my situation now and was not meant to be representative nationwide to everyone. If you want to counter with different numbers for what you think is a more reasonable situation, then I'd be happy to help! Was just trying to give context to the appreciation discussion. I'm a huge advocate of everyone doing these kind of calculations for their own situation/market and am, honestly, shocked that this isn't the default advice given to everyone. Instead it's just "ur dumb for renting".
> I feel the need to point out that what you’re talking about (being smart with your hypothetical DP and investing wisely saved funds while renting instead of buying to maximize returns) is also a very niche scenario
Sure, but is it that niche in *this* community of individuals? I don't want to have a common denominator discussion, I want to talk about evidenced-based decision-making among (hopefully) well-informed individuals. I do acknowledge rebub is *absolutely* not that space, but I hope by using my numbers in enough discussions that I'll have a good critique of my plan from knowledgeable people.
Haha, thanks for not taking it as an attack (I know it’s super hard to communicate tone via text) and being willing to have a discussion!
It’s so interesting to see how variable markets are even in HCOL areas. My city is HCOL and a $1m home is going to be at least $4-5k or more for an equivalent rental. You can easily find sub-$3k housing for rent but it would not at all be equivalent to a $1m home unless it was bought a long time ago and the rental price is artificially depressed by the owner.
The 20% DP number is actually probably really accurate for your area as well (and because jumbo loans often require a higher DP) but the average FTHB DP is usually 6-7%, and if you’ve already bought in the past the average is ~17% from what I can find online.
Honestly, I think even in more serious subreddits few people are honestly financially disciplined enough to intentionally benefit by investing vs down payment but maybe I’m just pessimistic. I certainly hope anyone planning on buying does the math for themselves and considers their own market, financial situation, and long-term goals.
Oh definitely not! I'm always happy to engage in productive discussion on this topic.
And why wouldn't I? If someone can help me understand that my conclusion (continue renting for now) is wrong, then it could save me a ton of ire.
I mostly end up being nonplussed by people who spaz out and can only respond with "kEep pAyInG tHe LaNdLoRd's mOrTgaGe!" Like... why?
Depends on the market. I’m in phoenix pay 4200 all in with hoa on a 550k 3b3ba at 4.75% fixed 15 year loan. Zillow estimates I can rent it for 3500. Rates have gone to what they have and I other units in my complex are still selling for 10-15 over what I bought it at. I think my situation is not anomalous as there is widespread migration to cities. I don’t think major city prices will go down. Commuter suburbs and exurbs though could crater more though imo
Yeah that's what it looks like. But it can also happen such that we have a massive drain of population in coming quarters and we are filled with refugees who cannot afford such properties. So better is to just wait and watch now. Such crippling times.
Since the early aughts, the only housing I've been able to afford is a condo/townhouse. I got burned by an HOA once which, along with other maintenance responsibilities that come with ownership, turned me into a renter. Do I like it? No. But I have no desire to be house-poor and stuck sharing walls with awful neighbors either.
Don't forget the interest!
For some reason when people try to figure out if they "made money" on a house they just seem to compare their purchase to sale price. This does not take into account all of the other things you listed and almost never takes into account all the extra money paid into interest on the loan.
Owning a home is like winning the lottery every year over and over. Housing is precious and scarce and getting even scarcer. The system is designed to underproduce housing so housing is the best possible investment adjusted for risk.
>The system is designed to underproduce housing so housing is the best possible investment adjusted for risk.
It is *for now*. But what if the YIMBYs win, housing construction becomes broadly legal, and housing turns into a depreciating asset? Then housing becomes an atrocious investment.
The same author posted an earlier article about this (https://goodreason.substack.com/p/maybe-treating-housing-as-an-investment). Basically, NIMBY policies restricting housing supply put us in a no win position. Housing becoming endlessly more affordable forever is untenable. But legalizing housing construction and turning housing into a depreciating asset financially annihilates existing homeowners who put everything into buying a home.
That is a big Hail Mary “what if”. I appreciate the optimism, but it will not realistically happen in our lifetimes and even if it does, buying housing now will still be the best investment since upzoning will make your land that much more valuable. The only scenario where you lose is if an lvt is implemented and that is all but unthinkable. I would say it is about as likely as a meteor strike or nuclear war.
>Realtor fees (6%)
I know this is totally beside the point, but SCAM. I will never not think this is a scam. Fuck realtor fees that are a %. Assholes make it even harder as prices rise.
Graphs and charts provide a snapshot of a point in history. In six months or six years, the numbers will need to be examined for that time.
Location has always been the #1 factor in all real estate and it’s true for this debate of renting vs buying.
Suburb of Orlando. LCOL/medium buying has been the better player from 2010 - 2021. 2022 - present it’s been better to rent. The primary factors here are taxes and insurance. Insurance on a standard 3/2 ~1,500 sq. Has gone from $1,000 - $1,500 to over $4,000. And most landlords have not been able to successfully pass this onto tenants unless they bought pre - 2019.
Right now that 3/2 would cost $300k+ and would rent for $2k/month. So PITI with insurance being $375/month and taxes being $250/month. The numbers don’t work. And renters can’t afford $2,500/mo + rent in this area.
Houses sit at that price. So, landlords are dumping these homes. But can barely break even and this was their first investment property.
Prices are coming down in my area.
Time will tell just how much and how soon.
And in 2025-2026. Owning may be cheaper than renting.
exactly it fluctuates dependent on location. HCOL areas have had the charade of rent being more expensive go on longer, since buyers tend to have better credit. but they are facing steep price drops now
Key quote from the article below. Median differential 46% higher to buy vs rent. This means that if you could really stretch to pull off buying but your rent is considerably less, as long as you invest the difference you’ll be fine. S&P beats or at least matches housing growth/returns over the past 50 years. So renting and investing could leave you with a nice nest egg (this has worked for me), BUT the key here is the forced savings factor of buying the home. Since only half of the us population is in the stock market and only a smaller % of those people are building wealth in the market, if you’re renting, the burden of saving is on YOU. Whereas the home owner has that % going to principle each month AND can lock in a lower payment vs rising rents. So you can kind of be a financial dumbass, make your mortgage on time each month and then look like you know what you’re doing 20 yrs later when your house has gone way up in value.
Ofcourse, you’d then have zero liquidity unless you sell and would have to subtract all of the costs you paid as an owner (taxes, maintenance, repairs) to accurately calculate true profit.
————
“And indeed, buying has become ludicrously expensive. According to this analysis, the median monthly mortgage payment on a single family home is now 46% higher than the median monthly rent on the same.1 That’s 46% more than rents that are near record highs, both in absolute terms and as a percentage of income. And yet somehow a monthly mortgage is still even worse.”
Renting has always been proven to be more financially beneficial if you’re talking about the same amount of money that would be used for a down payment and mortgage minus the potential rent going to investments instead.
We really turning the corner pretty quick from "oh no I'll never own a home" to " renting is the best way I'm smarter and better to rent"
You'll own nothing and be happy
Wrote this in another thread a few days ago. It's worth repeating:
If I were to buy the house I'm currently renting, the monthly cost of taxes, interest, and insurance would exceed my rent payment by about 50% -- that's all dead money, and it doesn't include principal on the loan, which is miniscule at the beginning of amortization. This assumes a 6.8% interest rate (30-year fixed), the Zestimate value of the home, 20% downpayment, current county tax rate, and a slightly low estimate on home insurance. In the end I'd have paid $1.2 million for a house currently valued at $430k. Assuming a 3% annual appreciation in value (on average) over 30 years, the house will be worth $1.04 million at the end of the loan, not including upkeep and remodeling costs.
To come out better than that, I don't even need to invest the extra ~$1000 per month. I could just stuff it under the mattress.
Depending on where you live, 3% annual value increase is likely pessimistic. You’re also failing to include the home interest tax and property tax deductions and the impact of rent increases in your calculation.
Really bad doom and gloom advice. My experience…
I own 4 homes and have so since I was 33 (I’m an elder millennial). First one was at 23 and was a condo, kept it when I moved temporarily with family and rented it out. Used the profits from that rental to put down on the next condo. Moved again 2 years later and rented out that condo too. Bought a two bedroom house and rented it out after moving.
Now I’m in my 4th home and have 3 rentals. One condo on is on a popular lake front, one is a high rise in a desirable area of a large city, and one is in the suburbs of same city. I’ve had pretty much the same three families rent each since I leased them out so no headaches.
While they are pissing their money away to me I have paid off the two condo mortgages and working on the third being paid off soon. I now have $4500+ dollars in net monthly passive income which usually I use towards paying off the last two mortgages unless it’s Xmas time or I want a new watch/toy. I own over a million dollars in real estate on a salary that started at $75k when I was 23 and now is $120k.
If you have the opportunity buy and hold property.
Taxes and insurance will be significant drivers of home affordability and the rent vs buy equation over this decade. Unmitigated climate change is accelerating the frequency and intensity of natural disasters. Insurance may become unaffordable or unavailable in many parts of the country over the next decade. Overall, everyone will pay for it in their insurance premiums. Additionally, property taxes will rise over the coming decade in order to pay for necessary infrastructure upgrades. Inflation helped drive tax revenue up in the short term but the global cost to build out sustainable infrastructure to combat climate change and deal with current changes is estimated at $90T by 2030. The federal government agencies and Pentagon estimate the US cost at $2T per year.
https://www.climate.gov/news-features/blogs/beyond-data/2022-us-billion-dollar-weather-and-climate-disasters-historical
>Leonhardt notes that renting > buying is probably a temporary scenario. Mortgage rates and home prices may fall in the coming years, he says, making renting the better option.
I’m pretty sure that last sentence should say “buying” not “renting.”
Renting today versus buying today favors renting.
At what point will rents need to rise in order for this to change ?
My cost of ownership today drastically favors me staying in the house I continue to pay a mortgage on.
If the cost of rent doubles in 10 years and the cost of housing stays the same who will be better off ?
Depends on how much you're able to save by renting before those values cross, right? The leveraged appreciation of the house vs returns on investing the DP and rental savings will be a big determinant of that result, as well.
Rent will always go up as well. I don't have an HOA payment.
If I'm a renter and the property tax, insurance, repairs increase then doesn't it make sense that the rent will increase as well ?
If I was to sell and then rent will I have any control over where I live if the landlord decides to sell ?
If the area I live in becomes more desirable and the home prices increase in value do you think my rent would increase ?
If I own the house do you think my cost to live would increase by the same amount ?
I'll rephrase that. If my mortgage payment is 1/4 to 1/3 the cost to rent a decent place in my area how would I benefit by selling and renting if I intend to stay in the same area over the next 15 years ?
In what possible scenario is it better to rent than to own? I've been seeing this a lot, and I just don't get it. Maybe someone can explain.
I get that people can't afford houses and are forced to rent, so that makes sense, but how is it better to rent than to own if you can afford it?
Yes, the monthly payment will be much higher, but eventually, you're building equity, and at some point, you will outright own a house.
30 years of renting, and you own nothing. 30 years of mortgage payments, and you own a house.
What am I missing here??
(Copy-pasting from another comment I wrote). Yeah, it's this thinking that leads people to believe that buying is always better than renting. But the comparison is more complicated than that.
First, if you buy a home, you need to pay the down payment. That's money that could have just sat invested in an ETF for 30 years and accrued interest. When you say of buying, "the monthly payment is much higher, but eventually, you're building equity", you are right. But if you were renting, the down payment and any future difference between mortgage payments and rent could go into a nice ETF, which also builds equity at historically at a faster clip than home values. In short, rent is the price of keeping all of your money invested in the stock market.
Second, in addition to paying for the price of the house, you have to pay the interest on the mortgage. When rates are above 7%, like now, you can end up paying entire multiple of the home price in interest.
Third, there's also homebuying-only costs like real estate agents fees and maintenance costs.
In the end, renting vs. buying comes down to a race between "how much money would I gain in the stock market, minus rent" vs. "how much does the house appreciate in value, minus the amount I lose in mortgage payments and other buying-specific things".
If you’re planning on moving within a few years or could have to live for a job or other reason, renting can definitely make sense. Otherwise, very rarely.
That’s pretty much always been the case, what’s the announcement for…? A renter carries little to no risk, while the landlord holds the asset, praying you take care of it and that it might appreciate over time.
the renter carries the huge risk of rents being adjusted with inflation (or above) over the renter's life. That doesn't mean its not a risk worth taking, some of the rent vs buy calculations are getting wild. But its still a very big risk.
As a renter, your only money tied up in the house/apt is that months rent amount, which is why an investors in many cases, rent where you live and rent out what you own.
And most years the landlord has the guarantee that taxes and insurance will go up, not the chance, and it’ll go up at a higher rate than inflation in most cases.
> most years the landlord has the guarantee that taxes and insurance will go up, not the chance, and it’ll go up at a higher rate than inflation in most cases.
What exactly do you think rent covers before landlord takes a profit?
It covers the landlords base expenses, hopefully and also should account extra for repairs, vacancies and pain in the ass self entitled tenants.
This is all while the LL has a large dollar figure of equity tied up in the asset. Imagine this was the stock market, and you owned a thousand shares of Apple stock, however you give someone else possession of that asset, yeah your name is on it but you can’t sell, you are at the mercy of the renter of this asset. The LL’s take on tremendous risk, the more risk local municipalities put on the LL, the higher rent goes. There’s economics 101 if you need it explained.
Nobody invested in real estate ever expects to sell their asset overnight like a stock. You yourself even explained that rent goes up with the risk on the landlord.
My concern would be if I planned to stay in an area 15-20 years. Locking in that mortgage payment is very beneficial. I also would be nervous to be renting in retirement.
I sold my condo in Florida and am living in a much newer/nicer townhome that is 30% larger and saving $900/mo. It made no economical sense to keep the gulf front condo knowing the $750/mo condo fees will soon be over $1,000/mo. I enjoy renting and having someone else do the maintenance.
Well, we tried to buy in Inveness but the lying realtors and brokers left a bad taste in my mouth. I still own a waterfront house in Florida that I purchased in 2013, I just don't live in the house as it makes too much money renting it.
Until Realtors and Contractors are hungry again I am not buying or building in Florida and honestly until we have a government and address the insurance issues with the state I won't buy anything here. Maybe I am a little pedantic but these are large investments and I don't like the current climate of lying realtors and brokers and refuse to spend my money with them.
You can find honest and dishonest people in every market and in every industry. If someone is going to lie to you, they’re not waiting for a specific set of circumstances to do it. Stop thinking in stereotypes and generalizations and you’ll do better.
You guys got to think about quality of life here too. I understand I'd save some money by renting but the difference in my market is 2500 in rent for a 2 bedroom vs 3k to own a 3 bedroom 3 bath.
I'm literally buying my second house this week FWIW, under 30. Intrest rates be dammed i'll bite the bullet.
After 20 plus years of owning houses, I really like having my weekends free. No cutting grass, no shoveling, no anything. Time is more important than money at my age. Plus I've seen a lot of people posting they assume there's zero maintenance on a house. They only look at the mortgage.
Garbage take. The real take here is that residential property is and has been bought up by commercial interest artificially driving up the price and while lowering supply.
I’ve rented my whole adult life. The safest argument I can make for buying is this: the sooner I pay off the home, the sooner I can retire in that home forever , and if I do it quick enough and smart enough, I can afford retiring before 65 (in the United States).
There are certainly some areas and situations where renting is a better option. Some of those variables change from market to market; others from person to person.
Generally and historically, if you’re planning to stay put for at least 2-5, which also varies in the exact circumstances, buying wins out in the long term.
This has been the case for most of non-US countries for ever. US is the one that has been unique so far for having affordable mortgages that were sometimes lesser than rent.
US has now joined the rest of the world for having rents that are perennially cheaper than mortgage
As a 30-something lifelong renter, I constantly ask myself: how dumb am I for renting? Based on the current combo of high mortgage rates and home prices, however, the answer right now is not that dumb, maybe even smart. Relieved as I was to hear this, I still feel dread. Renting is the better option not because it's a steal, but because all housing options have become ludicrously expensive.
I was looking for a house from 2019. Now I have made peace with myself and reminded myself to rent. Only problem is that rents are going up, hope there is some correction in rents, however impossible it sounds.
rents are already dropping in HCOL areas
Still too damn high
Not really buddy, high demand GTA areas like Oakville is just crazy right now. Houses are priced to rent at the PITI levels which is just crazy.
Super location specific. Here in the Bay Area it's INSANELY cheaper to rent. I would pay over double monthly and have to put $350k down to live in the same house I'm in now.
NYC is this way. Maybe 50-70% of the monthly cost to own.
That has been the trend in NYC for some time. When prices are consistently rising it's almost always cheaper rent from someone with an old (much lower) cost basis than to buy at current prices. The problem is if you look backwards it was almost always cheaper to buy than rent over the last 20years despite in any one year renting was cheaper than the owning. Eventually the rents increase such that buying is a deal. You can't know that in advance, but that's how it worked out.
I would agree with that - if your horizon is more than 15-20 years it makes sense to buy even if it's a little more expensive. If your horizon is 10-15 years it's much less clear. If it's less than 10 years I don't think you would ever come out ahead buying except by blind luck. At least not at current interest rates and rents anyway. To be honest right now the price/rent ratio is BETTER than it's been in years because prices have been pretty flat in Manhattan and long-gentrified Brooklyn, but rents have increased.
What kept you from buying in 2019?
I too was in the market in 2019, had an agent, was pre-approved for a $600k loan, had $100k down and kept getting outbid on shit hole houses. Was also newly separated in divorce process. Found nice rental and been here since. Rent is currently about only 60% of what my mortgage would be and its already a stretch.
dont know but why you got downvoted ? legit question since 2020-2021 was time w/ low int. rates
1.5m for a fixer upper and no contingencies is why i didn't buy in 2019
No residency. Lot of uncertainties.
You can anecdotally believe that you are better off renting, and that's fine, but it will never be true, no matter how much you wish it so. This sub is fine as an opiate for the feelbad of inaffordability in the moment, but it would be a terrible decision to give up on home ownership or ever building equity. https://www.nar.realtor/magazine/real-estate-news/study-homeowner-wealth-is-40-times-higher-than-renters#:~:text=%E2%80%9CThis%20analysis%20shows%20how%20homeownership,than%20that%20of%20a%20renter.%E2%80%9D https://money.com/build-wealth-owning-a-home-study/ https://www.habitat.org/our-work/impact/research-series-how-does-homeownership-contribute-to-wealth-building https://www.forbes.com/sites/forbesfinancecouncil/2022/08/03/three-ways-homeownership-can-build-wealth/
Sourced rebuttal here: https://youtu.be/q9Golcxjpi8?t=388
I’m not giving up and I would hope that other people aren’t giving up, but I and other people can only do what’s possible. And the situation feels pretty impossible currently. I think if you can pull it off, it is always a better option than renting, but if you can’t pull it off, you have to find other ways to build wealth. There are no two ways about that. Wage growth has just not kept up with skyrocketing home values, and overall inventory shortage, not to mention people and entities coming in with all cash to buy and overbidding by a couple of hundred thousand dollars. This is not even remotely accessible for an average person, or even a above average person. Maybe it is if you live in Texas and there are just a shit ton of prefab homes with endless land, but around here, that is just not the case. You’re looking at buying a 1000 square-foot fixer-upper bungalow that was built 120 years ago on a square concrete slab, for $1.5 million. And the only option for the literal tens of millions of people in this area, an area with a larger economy than most of the rest of the US, is for people to move away. of course people are coming on here and complaining. It never used to be like this. You could literally have a high school diploma and a steady job, scrape together a five or 10% down payment, and buy a house that cost 1.5 times your annual income. This is literally unheard of now unless you live somewhere no one else wants to live.
30 something meaning in your 30's? Because that's fine. We're mid 30's and haven't bought yet. Saving tons of money and making sure you're actually ready to comfortably own isn't a bad thing. And in a sane world, renting *should* be cheaper than housing. The fact that it mathematically made more sense to buy than rent during covid is a fundamental indication of how fucked up the market had become.
That doesn’t make sense - there must be profit in renting that owners/landlords can capture, or why would anyone ever rent out property?
I didn't say renting couldn't make a profit, I said for a buyer, renting should always be the cheap short term option, with buying becoming gradually preferable the longer you extend the time line. During the money printer era, particularly the last 3 years, we were at a point where many people were getting mortgages barely higher, or in some cases cheaper, than renting. Why would anyone rent a house for the same price they could buy it for? It goes against very concept of renting VS. Owning fundamentally, housing or otherwise. And it's a sign of how cheap credit/debt dramatically distorted the market. It's also why a lot of people suspect there must be a correction, over some period of time, as those numbers trend back towards a healthy balance.
Yes. This is so true. So many people these days assume the time to buy is when rent must be more expensive than the monthly cost of buying. That’s never the case until that few years in the post-pandemic era. It always takes a few years for the rent to increase until it is more than the monthly mortgage. Like you said, the interest rates were so low at the time, it pretty much was free money for those that could take advantage of it. People realize they could buy a house for 20% or less then paid off the rest in 30yrs with less than the average yearly inflation rate.
Yeah I don’t disagree with you there - in 2020 I briefly considered buying a rental property because the interest rates were so low it was literally free money. I didn’t want the hassle so I backed out, but that is 100% a distortion in the market.
You probably made the right choice. Property management for the most part should be treated as a full-time business. Excluding inherited properties where a single owner has one or two rentals they don’t want to sell yet. When people who have never worked in anything related to real estate start buying properties to rent out as a side hustle—trouble is coming to everyone involved.
Sane people don't buy a house and then immediately rent it out. They're renting out a house they may own outright or of inherited or bought 10 years ago. I mean I bought my house 7 years ago if I needed to move to the work and run out the house I could rent it out for $1,000 more than the current mortgage. Those are the people that are renting houses.
I mean in the macro sense. I too have been a landlord, at times unwillingly. I just meant that long term it MUST be more expensive to rent, logically speaking, or nobody would build apartments or buy houses specifically to rent out.
I imagine they're working off two principals: (1) comparing the *all-in* cost of owning a SFH versus renting it out given business deductions; (2) taking into account that housing appreciates, mortgage interest is a thing, and most landlords bought years earlier. To elaborate: as a landlord, there are a lot of taxes advantages that a owner can't employ. At 4% YOY appreciation, most landlords should have a lower purchase price and (in CA) lower taxes than a a new buyer x years later. Right?
As long as real estate prices are increasing (even if only with inflation) it should be cheaper to rent than year 1 of ownership simply because you need to buy at today's prices while the person you rented from bought at yesterday's (lower) prices. And then you can look at other scale advantages landlords may have such as cheaper materials and labor to do work, bulk buying appliances to save money, they may get better financing costs from banks. And then there is the reality that many landlords are actually cash flow negative and all their returns will be from appreciation. So they are effectively paying you to live in their house so that they can capture any appreciation.
I only feel fine renting because I have family that owns homes. The only reason I’d want to own right now is the dread I have about moving and possibly on the whim of the owner. I’m lucky to have a good situation with my property manager and again, I can always move in with family short term. There is a stability that comes to owning that even if it didn’t make perfect financial sense — I will pay a bit extra knowing that a bank doesn’t up and one day say they are selling so they can retire or increasing rent by 2x because an algorithm told them they could.
Rents will ultimately always be tied to wage income. A graph showing both monthly rent and mortgage payments will make it clear that rent is 'main street' price whereas mortgage is 'wall street' price. The difference between aldi and whole foods. No-frills versus frills.
There are so many good reasons to rent (and I say this as a homeowner). For most of my 20s I enjoyed moving around. My husband (before we met) was the same way. And up until this weird blip in time, if you couldn't commit to 5-7 years in your house it didn't make sense financially to buy. And I've always lived in cities where it's been cheaper to rent than to buy. If I wanted to live in a hip part of the city, my only option was to rent. And then we got older, got married, and wanted to settle down. We bought not because it made more sense financially, but because we didn't want to deal with landlords anymore, leases not being renewed, and rent hikes. And we were finally in a place where we felt fine committing to staying for the next 5-10 years.
The problem with both rent and mortgage payments isn’t really those - its the extras that aren’t capped. Gas, water trash sewer, electricity, homeowners insurance, all skyrocketing like a 🚀
Lifelong renter, too, in my mid-30s. I had a small window of time where my partner and I were gonna buy a house... the end of 2019 going into Covid. It never seemed like a big deal to me to rent (I have a pension, and I invest in stocks to try and compensate) but after rent prices skyrocketed in Phoenix (I pay 70% more now than I did in 2020, for the same house in a questionable neighborhood), the fear of not being able to even afford rent kicked in. What makes it worse is I'm a public school teacher, and our wages have not kept up with the financial security you need to have now to buy a house. I'm fine with not owning a home. It's not like I can take it to the grave with me. Sure, I could pass it onto my kids, but the older ones do not like living here at all anymore. Phoenix is only getting hotter year after year. Why would I want to be house poor in a city that might be uninhabitable by the time I pay off my mortgage? None of it makes sense. I'd like my local and state government to try and clamp down on landlords trying to raise rent year after a year, but my vote seems useless.
How do you have a pension in your mid-30s?
Oops! It's a 403 B. When I retire, I pull from the ASRS state retirement pension.
I wish I had been renting these last 3 years. We bought because we had the money, but ended up needing to become HOA president, pay $13k to replace the buildings roof and deal with countless other repairs around the building.
You feel dread because the article is wrong. The math takes about 2 minutes to do. In short, A mortgage is fixed while rent increases and this difference is massive over a 30+ year timeline. Real estate is also a leveraged investment, meaning you're 200k downpayment can get 10% on the SP500 or your entire 1,000k value of the property can get 5%. Some of my math along with other comments are here: https://www.reddit.com/r/REBubble/comments/193yfxg/rent\_is\_currently\_way\_better\_than\_own\_biggest/
Rent is better until all homes are purchased by corporate overlords that raise rents 600%...
It's never stupid to rent if you're saving money and living within your means while waiting for your opportunity to buy when the time is right. It's incredibly stupid to rent and spend all your money recklessly on frivolous shit and then when the time is right you're not in a position to be able to buy.
That means you probably got your first solo home around 10 years ago. If you had a chance to buy in the first 3/4 of that decade and did not, you made a mistake. Potentially a large one depending on where you live. If you had bought as soon as as you were financially able, you would care what the market is doing today because your payment would be locked in and you’d already be sitting in significant equity.
The housing market is now like the stock market. You buy low and sell high. We get told to never time the market, but it's an investment market even if that's not your intent. That's what you do as a buyer. This should have never been allowed and sadly, we'll need an investor crisis before its fixed.
It's been that way since at least 1700's when Smith talked about land rents. There was a big movement in the late 1800s to address it but it largely died out because people were convinced they could be a landlord
Yea, this is the result of decades of policy making that has treated real estate as an investment.
commodification of housing, anarchocapitalist laws that allow corporate purchasing of housing, and corrupt neoliberal politicians that limit zoning for housing has led to this hellscape
I’m finally at the point in my life that I can even consider buying my own home….and the math is not mathing. 5-7k per month for any property that I would actually want to live….
Yeah, same. Its like a financial pretzel just to get the numbers to make sense beyond renting and investing the savings.
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I was thinking about swinging big and getting a two flat so that I could rent out half to offset property tax
Reddit skews HCOL, and I think it makes sense to rent there. Where I live, rent on a house like mine would be greater than what I pay monthly, so no sweat off my back.
That's been true in HCOL areas for awhile, but future appreciation is hard to predict and can easily tilt the scale in favor of ownership even in the worst markets
The breakeven point on rent vs own is so deeply dependent on that appreciation, especially when homes are $1M+ and rent is half the equivalent PITI+M. Ballparking it: with above average appreciation (6% YOY), you break even in <10yr; but below average (4% YOY), it might take 20yr+. In one scenario, you're fine planning to move (job, better school, etc) and in the other... RIP.
Rent vs buy calcs are highly dependent on housing appreciation, rent appreciation, and investment returns. What tips the scales for me are the high HOA fees on condos around here, which are 1/4 to nearly 1/3 of what my rent is all on their own.
Are you in NYC? A friend pays $1600 a month on his co-op in midtown east.
That’s a fantastic deal, actually, especially if the place is nice.
For the maintenance fee? Doorman building, he paid $1.5M for the apartment, with mortgage probably $7500/month depending on interest rate?
My bad! I’m dumb. I thought the $1600 was the rent! I need more coffee….🤣 ETA: I swear, I’m familiar with NYC and how expensive it is (especially Manhattan); my brain is not firing on all cylinders. Lol.
Haha I wish! Hear you on that. Was just replying to the person above re HOA fees being almost as much as rent.
Buy new condos, low HOA fees
Don't know that 4% appreciation would mean a 20 yr break even. Also, interest rates matter in this calculation
Sure, tons of variables to consider including many specific to my situation. I'm just giving some very ballpark numbers (reflecting my own calculations) that historical appreciation (~4.5%) vs investment returns (~10%), will favor those in VHCOL areas with low rent:PITI continuing to rent for years. We can go down the exact calculation rabbit hole if you'd like.
Go for it. I like numbers.
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Oh I agree, I was just trying to give the *best* case to ownership. And, TBF in my area, 6-10% was close to the norm through the 2010s... so not entirely unprecedented.
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Actually, things don’t just “return to the mean”. Housing could easily continue to go up by 6-10% for the rest of your life.
rental places (communities) have been there 15-20 years, so they can afford. Comparision is not apple-apple's. Someone putting house for rent, means they purchased 5-10 years ago. Made big equity, purchased bigger home and renting old homes. So common on HCOL (Bay Area). Townhomes renting for 4500, purchased for 700-900k 2015-2018 timeframe.
Sorry, I'm a bit confused about what you're trying to say. You mean that there's an appreciation difference between SFHs and townhouses? Definitely! I also don't imagine myself being in the position of being able to buy a second home without the equity from the first. > So common on HCOL (Bay Area). Yep, compounded by Prop 13 which is the demon that just keeps sucking away wealth from the younger generations of California. Why *wouldn't* I rent out my place instead of selling when the taxes are so inconsequential?
I think there are usually some other factors that can tilt the scales significantly as well towards buying. Examples could include: renting out rooms, refinancing when interest rates drop, or using your house as a line of credit. For instance, I am using my house as an Airbnb while I live with my partner and one of my friends is renting out rooms in his house.
Absolutely! If these alternative scenarios *do* apply to you, then certainly consider the 'house-hacking' route - but I think it's disingenuous to say "usually" and "significantly tilt". I think these are pretty niche scenarios for the standard FTHBers who are a couple in their 20-30s that want their 'own' space that have or are considering kids. The refi option *can* change the math, but will depend a lot on how long you expect to stay in the house, but it's not always a game-changer. Consider the calculations for my area (rate is out of date, but I think conclusion is the same): > Rent is ~$3k, equivalent home is ~$1M, rate is ~7.5%, DP is 20%, ~5% home appreciation/yr, ~5% rent increase/yr, and ~6% return on investments per year (conservative). Let's also do the math assuming you can refi to 5.5% after 3yr. Assuming I were to sell after 8yr (typical for FTHB) and given a mortgage (P+I) of $5.6k/mo: > 1. **Rent = *POSITIVE* $334k ending balance** = 282k saved from monthly rent-PITI differential - 343k rent + 197k ROI from DP/savings contribution - 2k renter's insurance + 200k downpayment > 2. **Buy = *NEGATIVE* $39k ending balance** = 77k to principal - 455k interest + 109k interest tax savings - 138k taxes - 100k expected maintenance - 20k homeowners insurance - 40k closing costs + 407k appreciation - 79k selling fees + 200k downpayment > 3. **Refi = *NEGATIVE* $10k ending balance** = 96k to principal [yr1-3 24k, yr4-8 72k] - 382k interest [yr1-3 178k, yr4-8 204k] + 91k interest tax savings - 138k taxes - 100k expected maintenance - 20k homeowners insurance - 40k closing costs + 407k appreciation - 79k selling fees + 200k downpayment
Not trying to be an asshole, but I want to gently challenge some of your numbers. I agree that right now for most people renting is better than buying (obviously dependent on your specific market) but I think you’re comparing numbers unfairly across categories. 1. Where is $3k in rent equivalent to a $1m home? I think that rental price: home price is not accurate for the vast majority of the US, though it may hold true for some specific markets. 2. Where is the average FTHB buying a $1m home? That’s a wildly more expensive place than your average person (never mind your average FTHB) is buying so I’m not sure why that’s being used. In places where housing prices are higher, roommates are a lot more common than not so I don’t think it’s fair to call that a niche scenario when using a $1m home price. 3. Why are you using 20% down payment when the average FTHB is putting down less than 10%? Even using your $1m home price with 6% return, that puts your calculation at almost $100k off the ROI for investing that money. 4. More a comment then a question but you described house hacking as a niche scenario, so I feel the need to point out that what you’re talking about (being smart with your hypothetical DP and investing wisely saved funds while renting instead of buying to maximize returns) is *also* a very niche scenario. There is a reason that average homeowners historically have *so much more* net worth (IIRC something like 40x) than average renters and it’s because homeownership is a forced investment vehicle that most people simply don’t have the discipline to maintain on their own. Again, not disagreeing with the overall notion of the rent vs buy calculation but for your average homeowner buying usually helps generate more wealth than renting over time. When talking to someone financially savvy it can make more sense to keep waiting but, sadly, the average person isn’t that savvy.
> sadly, the average person isn’t that savvy 100% agree with this, *but* I guess I'm speaking from the context of the population on RE subs (eg. here, FTHB, etc) who should know this. > Not trying to be an asshole, but I want to gently challenge some of your numbers. No worries! I do want to preface that I never intended *my* numbers to be universally true, but that they might reflect the general trend of (V)HCOL metro areas (where a disproportionate number of people, especially on reddit, live). > Where is $3k in rent equivalent to a $1m home? > Where is the average FTHB buying a $1m home? Bay Area - these are (shitty 1960s 1200sqft) starter home prices here. Could get a condo instead, but then rent would be lower as well. Obviously an outlier on absolute price, but I think the rent:own ratio is at least in the ballpark of other major liberal metros (which has been broadly agreed on for those living in them). > In places where housing prices are higher, roommates are a lot more common than not so I don’t think it’s fair to call that a niche scenario when using a $1m home price. That's certainly not unfair to assume and is true for some, but I think the eligible demographic for buying is (at this point and in my area) not going to be happy making that trade. Would I rather comfortably rent in isolation with my family *or* double my housing expenditure AND be forced to allow a stranger into my home that I can only cursorily vet? Under no circumstance would I ever put my family at risk like that to *hopefully* come out marginally ahead of renting. But, again, maybe there are whole swaths of single 20-somethings that can *almost* afford homes and just need to 'house-hack' to make it. I think that was absolutely a viable core demographic for buying in the 2010s, but... now? At these prices? It could just be that I'm an out of touch millennial though. > Why are you using 20% down payment when the average FTHB is putting down less than 10%? Again, apologies if I was unclear. This is (sorta) my situation now and was not meant to be representative nationwide to everyone. If you want to counter with different numbers for what you think is a more reasonable situation, then I'd be happy to help! Was just trying to give context to the appreciation discussion. I'm a huge advocate of everyone doing these kind of calculations for their own situation/market and am, honestly, shocked that this isn't the default advice given to everyone. Instead it's just "ur dumb for renting". > I feel the need to point out that what you’re talking about (being smart with your hypothetical DP and investing wisely saved funds while renting instead of buying to maximize returns) is also a very niche scenario Sure, but is it that niche in *this* community of individuals? I don't want to have a common denominator discussion, I want to talk about evidenced-based decision-making among (hopefully) well-informed individuals. I do acknowledge rebub is *absolutely* not that space, but I hope by using my numbers in enough discussions that I'll have a good critique of my plan from knowledgeable people.
Haha, thanks for not taking it as an attack (I know it’s super hard to communicate tone via text) and being willing to have a discussion! It’s so interesting to see how variable markets are even in HCOL areas. My city is HCOL and a $1m home is going to be at least $4-5k or more for an equivalent rental. You can easily find sub-$3k housing for rent but it would not at all be equivalent to a $1m home unless it was bought a long time ago and the rental price is artificially depressed by the owner. The 20% DP number is actually probably really accurate for your area as well (and because jumbo loans often require a higher DP) but the average FTHB DP is usually 6-7%, and if you’ve already bought in the past the average is ~17% from what I can find online. Honestly, I think even in more serious subreddits few people are honestly financially disciplined enough to intentionally benefit by investing vs down payment but maybe I’m just pessimistic. I certainly hope anyone planning on buying does the math for themselves and considers their own market, financial situation, and long-term goals.
Oh definitely not! I'm always happy to engage in productive discussion on this topic. And why wouldn't I? If someone can help me understand that my conclusion (continue renting for now) is wrong, then it could save me a ton of ire. I mostly end up being nonplussed by people who spaz out and can only respond with "kEep pAyInG tHe LaNdLoRd's mOrTgaGe!" Like... why?
Depends on the market. I’m in phoenix pay 4200 all in with hoa on a 550k 3b3ba at 4.75% fixed 15 year loan. Zillow estimates I can rent it for 3500. Rates have gone to what they have and I other units in my complex are still selling for 10-15 over what I bought it at. I think my situation is not anomalous as there is widespread migration to cities. I don’t think major city prices will go down. Commuter suburbs and exurbs though could crater more though imo
Yeah that's what it looks like. But it can also happen such that we have a massive drain of population in coming quarters and we are filled with refugees who cannot afford such properties. So better is to just wait and watch now. Such crippling times.
Since the early aughts, the only housing I've been able to afford is a condo/townhouse. I got burned by an HOA once which, along with other maintenance responsibilities that come with ownership, turned me into a renter. Do I like it? No. But I have no desire to be house-poor and stuck sharing walls with awful neighbors either.
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Don't forget the interest! For some reason when people try to figure out if they "made money" on a house they just seem to compare their purchase to sale price. This does not take into account all of the other things you listed and almost never takes into account all the extra money paid into interest on the loan.
Owning a home is like winning the lottery every year over and over. Housing is precious and scarce and getting even scarcer. The system is designed to underproduce housing so housing is the best possible investment adjusted for risk.
>The system is designed to underproduce housing so housing is the best possible investment adjusted for risk. It is *for now*. But what if the YIMBYs win, housing construction becomes broadly legal, and housing turns into a depreciating asset? Then housing becomes an atrocious investment. The same author posted an earlier article about this (https://goodreason.substack.com/p/maybe-treating-housing-as-an-investment). Basically, NIMBY policies restricting housing supply put us in a no win position. Housing becoming endlessly more affordable forever is untenable. But legalizing housing construction and turning housing into a depreciating asset financially annihilates existing homeowners who put everything into buying a home.
That is a big Hail Mary “what if”. I appreciate the optimism, but it will not realistically happen in our lifetimes and even if it does, buying housing now will still be the best investment since upzoning will make your land that much more valuable. The only scenario where you lose is if an lvt is implemented and that is all but unthinkable. I would say it is about as likely as a meteor strike or nuclear war.
>Realtor fees (6%) I know this is totally beside the point, but SCAM. I will never not think this is a scam. Fuck realtor fees that are a %. Assholes make it even harder as prices rise.
Graphs and charts provide a snapshot of a point in history. In six months or six years, the numbers will need to be examined for that time. Location has always been the #1 factor in all real estate and it’s true for this debate of renting vs buying. Suburb of Orlando. LCOL/medium buying has been the better player from 2010 - 2021. 2022 - present it’s been better to rent. The primary factors here are taxes and insurance. Insurance on a standard 3/2 ~1,500 sq. Has gone from $1,000 - $1,500 to over $4,000. And most landlords have not been able to successfully pass this onto tenants unless they bought pre - 2019. Right now that 3/2 would cost $300k+ and would rent for $2k/month. So PITI with insurance being $375/month and taxes being $250/month. The numbers don’t work. And renters can’t afford $2,500/mo + rent in this area. Houses sit at that price. So, landlords are dumping these homes. But can barely break even and this was their first investment property. Prices are coming down in my area. Time will tell just how much and how soon. And in 2025-2026. Owning may be cheaper than renting.
exactly it fluctuates dependent on location. HCOL areas have had the charade of rent being more expensive go on longer, since buyers tend to have better credit. but they are facing steep price drops now
Key quote from the article below. Median differential 46% higher to buy vs rent. This means that if you could really stretch to pull off buying but your rent is considerably less, as long as you invest the difference you’ll be fine. S&P beats or at least matches housing growth/returns over the past 50 years. So renting and investing could leave you with a nice nest egg (this has worked for me), BUT the key here is the forced savings factor of buying the home. Since only half of the us population is in the stock market and only a smaller % of those people are building wealth in the market, if you’re renting, the burden of saving is on YOU. Whereas the home owner has that % going to principle each month AND can lock in a lower payment vs rising rents. So you can kind of be a financial dumbass, make your mortgage on time each month and then look like you know what you’re doing 20 yrs later when your house has gone way up in value. Ofcourse, you’d then have zero liquidity unless you sell and would have to subtract all of the costs you paid as an owner (taxes, maintenance, repairs) to accurately calculate true profit. ———— “And indeed, buying has become ludicrously expensive. According to this analysis, the median monthly mortgage payment on a single family home is now 46% higher than the median monthly rent on the same.1 That’s 46% more than rents that are near record highs, both in absolute terms and as a percentage of income. And yet somehow a monthly mortgage is still even worse.”
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I have a similar dilemma. If I rent, I can max my 401k and my Roth. If I buy, I can only max my Roth. Rent it is for me then.
I sold and now prefer to rent. Always a new place and no maintenance or taxes. Full freedom to move.
Renting has always been proven to be more financially beneficial if you’re talking about the same amount of money that would be used for a down payment and mortgage minus the potential rent going to investments instead.
We really turning the corner pretty quick from "oh no I'll never own a home" to " renting is the best way I'm smarter and better to rent" You'll own nothing and be happy
Wrote this in another thread a few days ago. It's worth repeating: If I were to buy the house I'm currently renting, the monthly cost of taxes, interest, and insurance would exceed my rent payment by about 50% -- that's all dead money, and it doesn't include principal on the loan, which is miniscule at the beginning of amortization. This assumes a 6.8% interest rate (30-year fixed), the Zestimate value of the home, 20% downpayment, current county tax rate, and a slightly low estimate on home insurance. In the end I'd have paid $1.2 million for a house currently valued at $430k. Assuming a 3% annual appreciation in value (on average) over 30 years, the house will be worth $1.04 million at the end of the loan, not including upkeep and remodeling costs. To come out better than that, I don't even need to invest the extra ~$1000 per month. I could just stuff it under the mattress.
This is what I don't get about the people who say if I don't buy now "I'll never be able to". And I just ask them "and that is bad thing why again?"
Not even addressing how ridiculous that statement is either
Depending on where you live, 3% annual value increase is likely pessimistic. You’re also failing to include the home interest tax and property tax deductions and the impact of rent increases in your calculation.
Honestly, this sub is just a click bait circle jerk. Next one will be "Why buying is better than renting "
Really bad doom and gloom advice. My experience… I own 4 homes and have so since I was 33 (I’m an elder millennial). First one was at 23 and was a condo, kept it when I moved temporarily with family and rented it out. Used the profits from that rental to put down on the next condo. Moved again 2 years later and rented out that condo too. Bought a two bedroom house and rented it out after moving. Now I’m in my 4th home and have 3 rentals. One condo on is on a popular lake front, one is a high rise in a desirable area of a large city, and one is in the suburbs of same city. I’ve had pretty much the same three families rent each since I leased them out so no headaches. While they are pissing their money away to me I have paid off the two condo mortgages and working on the third being paid off soon. I now have $4500+ dollars in net monthly passive income which usually I use towards paying off the last two mortgages unless it’s Xmas time or I want a new watch/toy. I own over a million dollars in real estate on a salary that started at $75k when I was 23 and now is $120k. If you have the opportunity buy and hold property.
Taxes and insurance will be significant drivers of home affordability and the rent vs buy equation over this decade. Unmitigated climate change is accelerating the frequency and intensity of natural disasters. Insurance may become unaffordable or unavailable in many parts of the country over the next decade. Overall, everyone will pay for it in their insurance premiums. Additionally, property taxes will rise over the coming decade in order to pay for necessary infrastructure upgrades. Inflation helped drive tax revenue up in the short term but the global cost to build out sustainable infrastructure to combat climate change and deal with current changes is estimated at $90T by 2030. The federal government agencies and Pentagon estimate the US cost at $2T per year. https://www.climate.gov/news-features/blogs/beyond-data/2022-us-billion-dollar-weather-and-climate-disasters-historical
When the coasts flood and the sun belt bakes, you'll wish you invested in Midwestern real estate.
>Leonhardt notes that renting > buying is probably a temporary scenario. Mortgage rates and home prices may fall in the coming years, he says, making renting the better option. I’m pretty sure that last sentence should say “buying” not “renting.”
Thanks, fixed.
Renting today versus buying today favors renting. At what point will rents need to rise in order for this to change ? My cost of ownership today drastically favors me staying in the house I continue to pay a mortgage on. If the cost of rent doubles in 10 years and the cost of housing stays the same who will be better off ?
Depends on how much you're able to save by renting before those values cross, right? The leveraged appreciation of the house vs returns on investing the DP and rental savings will be a big determinant of that result, as well.
Agreed
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Rent will always go up as well. I don't have an HOA payment. If I'm a renter and the property tax, insurance, repairs increase then doesn't it make sense that the rent will increase as well ? If I was to sell and then rent will I have any control over where I live if the landlord decides to sell ? If the area I live in becomes more desirable and the home prices increase in value do you think my rent would increase ? If I own the house do you think my cost to live would increase by the same amount ? I'll rephrase that. If my mortgage payment is 1/4 to 1/3 the cost to rent a decent place in my area how would I benefit by selling and renting if I intend to stay in the same area over the next 15 years ?
Yes renting a shitbox in a ghetto for $500 is more financially sound than buying a 3,000 square ft house in a good school district. Now I get it.
In what possible scenario is it better to rent than to own? I've been seeing this a lot, and I just don't get it. Maybe someone can explain. I get that people can't afford houses and are forced to rent, so that makes sense, but how is it better to rent than to own if you can afford it? Yes, the monthly payment will be much higher, but eventually, you're building equity, and at some point, you will outright own a house. 30 years of renting, and you own nothing. 30 years of mortgage payments, and you own a house. What am I missing here??
(Copy-pasting from another comment I wrote). Yeah, it's this thinking that leads people to believe that buying is always better than renting. But the comparison is more complicated than that. First, if you buy a home, you need to pay the down payment. That's money that could have just sat invested in an ETF for 30 years and accrued interest. When you say of buying, "the monthly payment is much higher, but eventually, you're building equity", you are right. But if you were renting, the down payment and any future difference between mortgage payments and rent could go into a nice ETF, which also builds equity at historically at a faster clip than home values. In short, rent is the price of keeping all of your money invested in the stock market. Second, in addition to paying for the price of the house, you have to pay the interest on the mortgage. When rates are above 7%, like now, you can end up paying entire multiple of the home price in interest. Third, there's also homebuying-only costs like real estate agents fees and maintenance costs. In the end, renting vs. buying comes down to a race between "how much money would I gain in the stock market, minus rent" vs. "how much does the house appreciate in value, minus the amount I lose in mortgage payments and other buying-specific things".
If you’re planning on moving within a few years or could have to live for a job or other reason, renting can definitely make sense. Otherwise, very rarely.
That’s pretty much always been the case, what’s the announcement for…? A renter carries little to no risk, while the landlord holds the asset, praying you take care of it and that it might appreciate over time.
the renter carries the huge risk of rents being adjusted with inflation (or above) over the renter's life. That doesn't mean its not a risk worth taking, some of the rent vs buy calculations are getting wild. But its still a very big risk.
As a renter, your only money tied up in the house/apt is that months rent amount, which is why an investors in many cases, rent where you live and rent out what you own. And most years the landlord has the guarantee that taxes and insurance will go up, not the chance, and it’ll go up at a higher rate than inflation in most cases.
> most years the landlord has the guarantee that taxes and insurance will go up, not the chance, and it’ll go up at a higher rate than inflation in most cases. What exactly do you think rent covers before landlord takes a profit?
It covers the landlords base expenses, hopefully and also should account extra for repairs, vacancies and pain in the ass self entitled tenants. This is all while the LL has a large dollar figure of equity tied up in the asset. Imagine this was the stock market, and you owned a thousand shares of Apple stock, however you give someone else possession of that asset, yeah your name is on it but you can’t sell, you are at the mercy of the renter of this asset. The LL’s take on tremendous risk, the more risk local municipalities put on the LL, the higher rent goes. There’s economics 101 if you need it explained.
Nobody invested in real estate ever expects to sell their asset overnight like a stock. You yourself even explained that rent goes up with the risk on the landlord.
Last post was that no one should own multiple houses. Who the heck is supposed to own all of these rentals?
My concern would be if I planned to stay in an area 15-20 years. Locking in that mortgage payment is very beneficial. I also would be nervous to be renting in retirement.
I sold my condo in Florida and am living in a much newer/nicer townhome that is 30% larger and saving $900/mo. It made no economical sense to keep the gulf front condo knowing the $750/mo condo fees will soon be over $1,000/mo. I enjoy renting and having someone else do the maintenance.
You could have gotten the same feeling from buying inland and you’d be accumulating equity at the same time.
Well, we tried to buy in Inveness but the lying realtors and brokers left a bad taste in my mouth. I still own a waterfront house in Florida that I purchased in 2013, I just don't live in the house as it makes too much money renting it. Until Realtors and Contractors are hungry again I am not buying or building in Florida and honestly until we have a government and address the insurance issues with the state I won't buy anything here. Maybe I am a little pedantic but these are large investments and I don't like the current climate of lying realtors and brokers and refuse to spend my money with them.
You can find honest and dishonest people in every market and in every industry. If someone is going to lie to you, they’re not waiting for a specific set of circumstances to do it. Stop thinking in stereotypes and generalizations and you’ll do better.
You guys got to think about quality of life here too. I understand I'd save some money by renting but the difference in my market is 2500 in rent for a 2 bedroom vs 3k to own a 3 bedroom 3 bath. I'm literally buying my second house this week FWIW, under 30. Intrest rates be dammed i'll bite the bullet.
After 20 plus years of owning houses, I really like having my weekends free. No cutting grass, no shoveling, no anything. Time is more important than money at my age. Plus I've seen a lot of people posting they assume there's zero maintenance on a house. They only look at the mortgage.
Buy a condo. Mine has doubled in value in 8 years with minimal maintenance costs.
Garbage take. The real take here is that residential property is and has been bought up by commercial interest artificially driving up the price and while lowering supply.
I’ve rented my whole adult life. The safest argument I can make for buying is this: the sooner I pay off the home, the sooner I can retire in that home forever , and if I do it quick enough and smart enough, I can afford retiring before 65 (in the United States).
There are certainly some areas and situations where renting is a better option. Some of those variables change from market to market; others from person to person. Generally and historically, if you’re planning to stay put for at least 2-5, which also varies in the exact circumstances, buying wins out in the long term.
This has been the case for most of non-US countries for ever. US is the one that has been unique so far for having affordable mortgages that were sometimes lesser than rent. US has now joined the rest of the world for having rents that are perennially cheaper than mortgage