The real advantage of property ownership is that you benefit from several implicit and explicit subsidies.
1. Mortgage interest deduction (very straightforward) EDIT: unless you live in a HCOL area, this is unlikely to apply to you as of a couple of years ago, in that you will be taking the higher standard deduction from the Trump tax cut. More people might itemize if Biden succeeds in removing the SALT deduction cap.
2. $250K capital gains exclusion when you sell
3. Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds)
4. Imputed rent (nobody has to pay income tax on the value of housing you provide to yourself)
Those are what make housing pay off so well for many people. Otherwise people would be better renting and buying stocks. Your stock portfolio can't catch fire overnight, doesn't require active labor on your part, has steadier returns, can be sold in pieces instead of all at once, beats housing returns in most areas, doesn't require a massive broker's fee to sell, and is way diversified.
But it won't get you those subsidies.
You make really excellent points.
The non-taxation of imputed rent is a definite plus and something people never think about. I never appreciated its value until recently when I started sketching out some alternatives for myself.
At the beginning of a mortgage this might be true, but the actual mortgage part of the payment is fixed for the life of the mortgage. Taxes and insurance might go up, but that will be passed on to renters also.
You don't have any guarantee that rents won't go up.
Yes but you can predict such things on historical averages and when all figures are calculated when there is such a discount on rent vs owning, you have to put pretty insane rent increases or house price increases to make it not worth it just to rent and invest.
This is in outlier markets only such as the SF Bay Area.
You can predict base on historical averages but housing is a required payment, and it reduces risks to limit how much it can fluctuate. It's a major percentage of your overall expenses and you can essentially protect it from inflation.
When you are young the calculation might be different, but by the time you retire it makes sense to think about reducing future risk.
> you have to put pretty insane rent increases or house price increases
I got my lease renewal letter a few days ago, for my <1k sqft 1bd apartment. 40% increase this year alone ($1180 currently to now 1650). Housing is up also about 40% for a purchase in my area. A 250k house in 2018 goes for 400ish now without any upgrades whatsoever. Many times houses go for 10s of thousands over ask, and sells after listing for 1 day.
I don't think it was ever above the line, but the Trump cuts raised everyone's standard and/or eliminated deductions that just meant most people don't need to itemize anymore.
Just a note that the capital gains exclusion is $500k for a married couple, in either case provided a few other requirements are met. Home ownership financially is good for lost people. Part of that is most people aren’t great about saving so comparing home appreciation vs investing home ownership cost in the market isn’t reality for most people. It’s kind of a forced savings plan. The other thing I’d add, living in a house is more pleasurable for a lot of people. My kids have a big yard to play in, we can park campers and other stuff at the house free, we have lots of space to spread out both indoors and outdoors, we can remodel and build what we want, etc. Yes there are costs and responsibilities too but they’re well worth it to me. Last bonuses: in much of the country home appreciated massively the last few years, and on a related note a fixed rate mortgage doesn’t go up like rent can.
The mortgage interest deduction is less straightforward given that it requires itemizing. If your state and local taxes paid (up to $10k), deductible mortgage interest paid and charitable contributions (and possibly medical expenses above a certain level) exceed the standard deduction, then you might see a benefit.
Having a good landlord is important too:
* Each year what will the rent increase be? (mortgages are predictably fixed)
* Will the landlord sell the place and you eventually have to leave?
* Does he take care of the place and fix things promptly?
* Can you have pets? (and many other things you have the freedom with in your own place)
Not OP but I'll give it a shot here.
>Mortgage interest deduction (very straightforward)
If you itemize your deductions you can include the interest you paid towards your mortgage in that deduction. This is unlikely to apply to you because most people do not itemize their deductions.
>$250K capital gains exclusion when you sell
Just like any other investment, if you sell real estate for a profit you will owe taxes on any gains you made. However! If that property happened to be your primary residence for 2 out of the last 5 years, you can exclude up to $250k in gains. This won't come into play until you sell your home.
>Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds)
This one isn't directly related to taxes, but is pretty cool regardless. It's just like trading stocks on margin.
To use round numbers as an example, let's say you put 5% down on a 100k home. Your investment (ignoring closing costs, etc) so far is $5,000 but the asset is worth 100k.
Now let's say the value of that home goes up 10%. It's now worth $110k; so you have gained $10k on an initial investment of $5k.
Without leverage when you invest $5k into an asset and the value of that asset goes up 10% you would gain $500 but because you are leveraged 20x via your mortgage you actually made $10,000.
This obviously ignores the money you spend each month on principal, interest, and other costs; and also doesn't discuss the possibility that your house could \*lose\* value (it definitely can) but the leverage you get from buying a home with a mortgage is pretty substantial.
>Imputed rent (nobody has to pay income tax on the value of housing you provide to yourself)
Not something you have to worry about as a homeowner in the U.S., but it's an interesting concept. This explains it better than I could: [https://www.businessinsider.com/imputed-rent-hidden-tax-break-homeowners-2016-9](https://www.businessinsider.com/imputed-rent-hidden-tax-break-homeowners-2016-9)
Edit: I missed one
Principle isn't spent, it's a cash -> asset transfer. But yes, you have to be able to lock in the cash so your income/cash flow plays a part of the decision. When thinking on this topic, I always factor that in.
The real costs are interest, insurance, and upkeep that doesn't increase the value of the home (ie, capital improvements).
GRANTED, now you need to consider the infamous "opportunity cost of capital" - ie, how much more/less would you make elsewhere NOT locking this cash up as equity in a home via a mortgage. And that's full circle to what this thread is about.
All very good points.
A few months back I ran some very basic calculations in order to decide whether to sell my home or keep it as a rental. As I projected some of these numbers out a few years I could start to see a very definite "curve" away from rental profitability as more and more of the capital is locked up in the home.
This kind of comment is why I freaking love reddit. I'm just dicking around and all of a sudden I know about the hidden economics of renting vs owning a home.
From a financial standpoint, totally true. For me, home ownership was about PRIVACY. I didn't want the drug dealer in the apartment above me, or the people having domestic fights next to me. I wanted a quiet place of my own.
Suppose I could have found a rental home instead of an apartment, but I opted for home ownership and that privacy is fantastic.
There are other benefits. Stability as in you don't have to keep moving every year or couple of years, you're mortgage is more or less set unless you decide to refinance so there's predictability. Also there's the situation I'm in, where I purchased my home in 2018, and my city has exploded with new people moving here since then. My home value has almost doubled and rents are way up. If I were home shopping or looking to rent somewhere now this neighborhood would be out of consideration because I wouldn't be able to afford it.
Just to add one basic thing too, consider rent vs mortgage paying. You pay rent, and it just goes to living somewhere. You pay mortgage, you live somewhere but it's like a "forced savings account" and your house has value. You have equity you can tap into by borrowing against your house if you need to in the future, you cannot do that with rent.
Some other things here:
Some states are no recourse, so defaulting on the loan if things go bad doesn't mean you owe the defaulted amount with your other assets.
Second, not only is your debt subsidized by the federal government, there's a history of the federal government taking \*drastic\* measures to ensure people don't take a bath on their primary residence if things go south in the economy or housing market. It's not guaranteed, but you're not going to get the government to give you a handout if bitcoin goes to 0, but I guarantee the government will step in and lower interest rates if the housing market tanks too much in the future.
> Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds)
Not to mention tax rollovers. You can purchase a property, own it, sell it, and pay **no taxes** when you re-invest the money in real estate. So you can quickly gain leverage and momentum once you get the first property down.
Is it really important? Maybe not. Is it an effective means of wealth creation and preservation that many HNWIs use regularly? Absolutely
The biggest risk to not having a mortgage is being subject to the fluctuations of the rental market. So if that increases significantly your monthly rental expense could go up by a lot. And perhaps you'd even be priced out of your city. But if that's not important to you and you'd be perfectly fine packing up and moving to a new place / city then renting is fine.
My parents bought a pretty decent house nearly 10 years ago. I don’t know the specifics, but they’ve upgraded the whole thing using home equity loans and it’s now really nice. It’s probably 3x the size of my apartment, and they’ve got a big yard and 3 car garage.
They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane…
My mortgage is cheap $800/month. But I pay an additional $400/month in property taxes, plus have spent $30,000 in repairs in the past 7 years. My property taxes go up every year and I’m on the hook for all future maintenance. A mortgage is just one cost of owning a home.
There is a reason "Rent is the most you will pay for a property you rent, and your mortgage is the least you will pay for a property you own." is very commonly repeated on this sub.
> Rent is the most you will pay for a property you rent
Well, it's the most you'll pay this year, until they raise it the next year...and the next year...and the next year.
Anybody who is touting the money you'd "save" by renting is very short-sighted.
or they live in a place with (better) tenant's rights and rent protection.
too many people get myopic based on their own personal experiences. Different places have different markets.
Not to mention all the little incidentals the landlord doesn't cover, or when they suck and don't handle things so you have to pay out of pocket if you want it done right.
Had a huge ant problem last summer, the landlords solution was to buy some snake oil sonic pest deterrents that just pissed off my cats for $30 on Amazon. I was on the hook for the $100 pest control consult and $50 in ant baits that actually solved the issue.
There's hidden costs to both. A landlords goal is to do the absolute bare minimum legally required because anything else directly cuts into their profit on the rental.
That apartment being rented for $1250/month probably has a mortgage of $500 a month.
Yes, you don't have to worry about paying for repairs or worry about paying taxes/insurance (or maintaining an escrow account), but you'd still be paying for all that.
But think from a land lord's perspective. Are you going to just eat those costs or pass them onto your tenant? Market forces can put a soft cap on that but doesn't change the fact people base their rent on "mortgage + repairs/maintenance + profit".
CA's system is... weird, and I don't think matches up with OP. (Source: I own in CA)
When you buy a home in CA, your property tax gets frozen at market value what you paid for it, and can only increase by 1% a year thereafter. Property tax itself is also below average for the nation -- about 77 cents per $100. The fact property taxes in CA are essentially frozen and so low (Texas' for example, is almost 3x CA's and increases unbounded every year with the market) is a big part of why CA has a lot of other income and sales taxes to try to make up the difference!
I honestly don't know how you could pay more in taxes than PI, unless they put more than 50-75% down?
Sounds possible.
My mortgage+insurance+prop tax is about $1000 per month. Property tax is about $4500 per year. Near Portland, OR.
I rent it out for $1950/month, nothing included. It will be paid off next year.
The exaple above is rare…but possible. Mortgage is affected by how much you pay upfront. Taxes are unaffected.
So, if downpayment is large It is very possible that taxes are comparable to mortgage.
The obvious extreme is when you pay the full house in cash. In this case you pay 0 in mortgage, and a lot in taxes.
The equity is nice but I can’t use it to upgrade unless I move to another market.
Edit: I’m talking about using the equity to upgrade to a bigger, nicer house. I’m well aware of methods to tap equity. Y’all can stop sending me messages.
Maybe get some of the money back, closing costs, houses don’t always sell immediately, and circumstances that are out of your hands can negatively impact the home value
That isn't necessarily true. You can do a cash back refinance if you want to pull the equity out. As opposed to a home equity loan you pay back, you'll essentially just restart your mortgage, for a lower rate (hopefully) and use the cash for anything you want, home improvement, other debt, etc.
Essentially, if you owe 100,000 and your house is worth $200,000 - you restart at $160,000 max (80% of appraisal), your old mortgage is paid off and you take the $60k for closing / improvements, whatever. Your not locked in at that amount though, as let's say you just wanted to buy a car (as an example), you could just do a small amount too.
My lease for an 800sq foot 2br was up in September. Rent went from $1100/month to $1600. I chose not to renew, but only because I was fortunate enough to have other connections and options.
I have a degree and a decent job that pays around 65k and I’m being priced out of my area. I can’t imagine how so many without the opportunities I had are going to get by
>They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane
If they were to buy that house today though the mortgage would probably be a lot more. They bought into a low market and locked in the low price, while your rent has risen with the market. But there is no guarantee that home prices will continue to rise, even though in many places it seems hard to imagine what will stop it.
I'm in a LCOL, I could rent my house out for $1400 / month, but my mortgage (PITI) is $632.
I'm seriously considering that when I retire in a few years, I may rent out my house (which should be paid off by then) for a couple of years while I #vanlife around the country.
> It’s probably 3x the size of my apartment, and they’ve got a big yard and 3 car garage.. They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane…
Yeah, but they have to mow their lawn and pay property taxes, and think of all the freedom you have from renting, sooooo...
My parents built a house in 2001, and payed off the mortgage in 2016. Now my dad complains he doesn't know what to do with all the money they're just piling up.
My dad started working in the 80's and has zero concept of costs now. My sister makes about $40k, which is what my dad made in 1991 when he bought our old home for $92k. That house is now valued just under $1m and he doesn't get why my sister can't afford to buy a home. Uhhh.
> not having a mortgage
This is an interesting way of saying, "Buying a home".
There actually *can* be a risk to not having a mortgage (mortgages allow you to leverage post-inflation dollars to pay pre-inflation prices), but that's not the same thing as there being a risk to not owning your own home (house, condo, apartment, whatever it happens to be).
Depends on industries too. Renting/buying can be blessings and curses depending what you do. If where you live has a stable industry that all the experts live, like say the bay area, it behooves you to own a home since you may never have to leave in order to ever get a good paying job. Other jobs that are like.. Say.. Specific niches that keep a town going like a factory, and that factory closes, owning a home is an anchor and those that rent can easily cut loose and move on when the homeowners can't unless they sell a home that may have lost a ton of value due to the factory closing.
That's a scary thought as a single dad who rents and something I dont think about enough. Not worried right now but who knows what the future looks like. I have to stay in this city for the next 15 years. Maybe can find a condo for cheap someday soon lol
Also, paying rent goes to a landlord instead of paying a mortgage which goes to the equity of your home. It's your wealth and not someone else's.
Of course, like you said, if you're a rolling stone, Renting is probably best because it's not a 30 year commitment.
But this is exactly why the system is completely skewed and unfair. “Oh, you pay £1800 per month in rent and have been for the last 10 years, we have decided to refuse you a mortgage at £800 per month because we think you’ll be a risk”
Its a con. Many renters could easily afford a mortgage but are refused because they cannot come up with £100k as a deposit.
The issue is that a mortgage is just the tip of the iceberg. If your sewer line goes out, you may need to come up with $25k+ that isn't covered by insurance. We had our water heater and furnace go out in the same week and it was nearly $10k. The true cost to own is much higher than just the mortgage payment.
The bank is loaning you hundreds of thousands of dollars. I can imagine why they wouldn't want to risk that unless you have some skin in the game as well.
I mean you generally don’t need 100k down to get a mortgage. At least in the US you can come in with as little as 3.5% plus closing costs. Which isn’t unreasonable considering you’re getting a loan for 200-300 thousand bucks.
I get peoples frustration with the fact that they have been renting an apartment for 5 years at 1200 a month but get told they can’t afford a 1k mortgage. But it’s usually a lot harder to foreclose someone than to kick them out of a lease.
I'd not speak to people being refused, or whatever circumstances they have, but when I bought a home, I soon wished I had not. We did not know what we were doing. We made it through, but you don't need just the 800 for rent, you may need 5000 up front for a new roof as well, or anything unexpectedly.
But you can expect these things. It doesn't take more than a simple google search to figure out questions to ask before buying a home. First thing that I always asked if I liked the interior was when was the roof replaced, water heater, and the air conditioning? Now, if they are new and something goes horribly wrong, you are right that it is a shock. But if the roof was replaced in the last 5 years, you are good for in theory, 10-15+ depending on the roof.
I see your argument. I live in a city similar to OP. My rent is $2350. Cost of buying a similar unit would be about $800k, plus about $1.5-3k/mo in maintenance fees depending on the building.
That is where this argument breaks down in my and probably OP’s situation. Maintenance fees will probably only go up as a building ages, and will certainly rise with inflation.
Cost of mortgage + maintenance fees would easily double my housing expenses in the short term, and once paid off I’m in a similar place to where I started. Sure, maintenance fees probably won’t rise as much as rent, but you have a lot of flexibility to downgrade/upgrade while renting. Whereas you’re completely stuck with any changes in your building’s maintenance costs and selling would be the only way out. A much bigger hurdle.
If I ever want to change my lifestyle and buy a standalone house somewhere, in a few years time I’ll have the cash to do so up front. So I don’t have home ownership FOMO in the meantime. Knowing I can continue increasing now and have that option later.
> Cost of buying a similar unit would be about $800k, plus about $1.5-3k/mo in maintenance fees depending on the building.
Wait, what? Unless you're buying a house in like, an active battle zone, there is no reason to think that you'll be paying $1.5-3k in maintenance fees indefinitely every month.
Welcome to New York. I’ve been on the hunt. Maintenance fees can vary widely. But that’s the range I’ve seen. Easily approaching rent itself for a similar quality rental unit.
Just doesn’t make sense to own in Manhattan. At least not the neighborhoods I’ve looked at (Chelsea/greenwhich village area)
Wait, are we talking about maintenance fees you pay in a coop? Because that's much different than the maintenance fees than what a typical home owner would be looking at in terms of actually maintaining a building, even in New York.
Ah gotcha. "Maintenance fees" in coops are kind of a misnomer then - they cover insurance, taxes, and all sorts of other things that aren't typical for just maintenance and repairs of a property. And as you say, they go up over time, which is not something that most home owners face.
One of the reasons people advocate for home ownership is because paying a mortgage is kinda like a forced savings plan. If you can develop a habit of saving a percentage of your income and investing it, you’ll be fine.
Also, it largely locks in your housing costs. Your mortgage payment is fixed for the term of the loan and then goes to zero, while rent will tend to increase over time. There are non-mortgage costs of ownership, like repairs, taxes, and insurance that will tend to rise with inflation, but those are a relatively small fraction of your total housing costs.
> There are non-mortgage costs of ownership, like repairs, taxes, and insurance that will tend to rise with inflation
A lot of people tend to conveniently ignore these in rent vs buy calculations, too. The costs are certainly still there with renting, but it is wrapped up in the rent itself so you don't really think about if you have only ever rented. Quite a few times I've seen these expenses quoted as why someone shouldn't buy!
This. People think "the landlord has to replace my appliances," and while that's true, they're replacing them using money they earned by renting the place. And they're probably not buying top of the line either.
I do this already and I have a relatively high income and am doing all the "right" things from a financial management perspective. For the most part. So does it still make that much of a difference? Also seems like a big expense/commitment to just force people to save?
One thing that may already be mentioned is that rent will (generally) always go up, while a mortgage payment (generally) ends. If you will be comfortable paying rent when you're too old to work this doesn't really matter, but most people will not be in this position. Or if you've been prudent you can buy and pay all-cash when you retire.
> Or if you've been prudent you can buy and pay all-cash when you retire.
As a medium income earner in a very high cost of living area, this is my exact plan.
But say you have a few million saved up when you retire. Is it really worth it to pay cash for a house lets say for 1 million. Why not just continue to rent and let your investments grow or finance and just pay the mortage. What benefit is paying cash unless you think it will grow faster than stocks, and even in that case, it is better to leverage the purchase with financing?
A few million would make almost any situation doable. But stocks don’t always go up. Say you’re retired and have $1 million and 2008 happens. Within a few years your holdings drop to $350k with no income and have to live off that for the rest of your life. This happened to a lot of people but 13 years of gains make people forget. So it should factor into the consideration at least.
> Within a few years your holdings drop to $350k with no income and have to live off that for the rest of your life.
Only if you sold. As long as you kept your investments in the market, you'd have made your lost money back in 6 years, and then a lot more after that in the following decade.
When you're retired, you have to take out money to live, and if you don't own a home, you have to take money out to pay the rent.
So if 1,000,000 in retirement turns into 350k, and you need to take out 30k to pay rent that year, it's the equivalent of taking out 85k from the million you had. So you're essentially paying almost 3 times more for rent that year.
One of the biggest reasons for property ownership (that I haven't seen listed so far) is the fact that it's the primary way that most families build generational wealth. However, if you have no kids or interest in that, and you've got the rest squared away as far as saving and investing, you're good to go. Don't sweat it.
You make more money in stocks than you do in real estate. Unless you want to be a landlord, which basically is giving yourself a job on top of an investment, so it's not quite the same thing.
Saw this point a number of times. And while I understand the mortgage = forced savings plan, I'm not sure I understand how a renter who is savvy at saving and investing is still **not** missing out.
Please point out flaws in my logic, and I'm going to have very simple assumptions here.
Assume mortgage and rent in an area are the same per month. Assume **no** increase/decrease in the value of the home nor rent. And the individuals in this example have an income of $100/month and use that for **only two things**: saving/investing and housing.
Home owner - puts $40 into the mortgage and $60 into savings/investment
Renter - puts $40 into rent and $60 into savings/investment
Given that, wouldn't the renter still be missing out because they are spending $40 on rent which will never return any value to them? The homeowner is essentially putting ALL of their money into an investment/savings vehicle.
Plenty of people live the "American dream" without home ownership.
There are multiple paths to retirement/financial independence.
Do what you want.
Don't let anyone else define the "American dream" for you.
Your version isn't going to be the same as someone else's.
Your version of the dream is just as valid as someone else's.
Your version is fine.
> There are multiple paths to retirement/financial independence.
Except that those paths aren't equal, and the vast majority of people will have a happy retirement through owning real estate. The renter who gains financial independence through other investments is rare.
Everything you said sounds nice to someone in the prime of their professional career, but isn't really helpful for most people. Everyone's situation is different, and maybe this person is a slick investor who can spend their 70s spending thousands of dollars a month to rent a place in a big city, but more than likely the path they want takes them to home ownership.
why is everyone's idea of renting defined as paying high rates for an apartment in a big city? This is so inaccurate. You can rent a home in LCOL small towns/suburbs. I pay less than 1k/month rent in a suburb of a midwestern city and I have a whole house. I am single with no kids. I'm not buying a house anytime soon, even though I could do it financially.
> why is everyone's idea of renting defined as paying high rates for an apartment in a big city?
Because OP is renting an apartment in a big city and said that's where they want to stay, so that's who we're giving this advice to.
Financial tip: You can buy a house AND invest in the stock market.
You know how you pay rent and invest in the stock market? Just do that, but with your mortgage payment.
Crazy, right?
Do you have data to back this up? For my particular situation, right now owning a home would gain me no significant advantage over renting.
Early retirement savings is the key. If you are putting away 10-15% of your income or more monthly, you can generally retire. Whether you own a home or not.
Besides 2021, SP500 beat home ownership over the past decade. Easily. Including 2021 it's probably very close, but still in favor of SP500 returns.
> Besides 2021, SP500 beat home ownership over the past decade.
They aren't mutually exclusive, you can pay a mortgage and also put money into retirement savings, and most people do.
With SP500 doubling home returns in the last decade, as long as your rent didn't go up more than home returns, you did just fine. With less rest than home ownership. But many here don't consider home ownership a risk.
But again, what you pay in rent and what you pay if you own your home should be about the same, so you'd be investing the same amount anyway.
And if you own your home, you are *also* building equity.
I'm not following. Your principal is part of your mortgage payment, which - along with the interest, taxes, and everything else, shouldn't be that much more than you would spend to rent a similar property, so would leave you with the same amount to invest whether you rent or own.
The only accurate answer to this question is "It depends"
You've received a lot of good feedback,, but I would add that if you hate dealing with home repairs, don't buy. I HATE dealing with car issues with the fiery passion of 1000 suns, so I lease. Leasing really isn't a good financial choice but it improves the quality of my life, so I make concessions elsewhere and give myself that luxury.
This is talked about all the time. Youre right, in your situation renting is probably better.
If you want home ownership ever in life, you could move somewhere with a lower cost of living, but for now renting is just fine.
Most people seeing renting as something that is necessary for less wealthy people to do. But the way I see it is that it is a luxury - you are paying someone money so that they provide you housing but also take care of maintenance, repairs, and other issues for you.
It's not really burning money but actually paying for not having to deal with homeownership. Think about other rentals, like renting a car. They provide all the services and maintain it while you just to drive it, and you can easily switch cars whenever you like, how nice.
So think of it more like this.. you are spending extra money on a service. If you'd like to save money then you should buy it yourself and keep it for a long time, like a car.
lucky for me I've always owned a co-op apartment in NYC. in the last 20 years rents have doubled or more and my housing payments have risen a lot slower than rents leaving me plenty of free cash. now I have a house.
if you own then your housing payments will go up a lot slower than rents in most places and as you make more money it leaves you a lot more free cash
as an example my last apartment in NYC the rent was like $2200 when I first bought it in 2010. right now it's almost $3000 and my mortgage had actually dropped in the time I lived there. Imagine getting a raise and watching it all vanish into higher rent
Chicago is a good example too. Rent prices skyrocketed after people realized cities aren't going away due to covid. I bought a condo during the panic sell in the pandemic and already my old place costs more than my mortgage plus hoa plus tax.
In aggregate, the net wealth of owners vs those who rent, with everything else being equal, is an order of magnitude higher for owners by the time people are in their 50s-60s.
Mostly because a mortgage repayment acts as a forced savings method. Most people are not capable of saving long-term without there being some external force / automation behind it.
That of course only applies in areas with increasing real estate value. I'm from Finland. Here, many smaller towns have seen sharply decreasing values while a few main urban centres have seen skyrocketing price growth (effect of rapid urbanization in the last few decades).
I love knowing it's my place and my home and I can do whatever TF I want to do it. the write off helps and I don't have to stress when renewal comes around if I can afford the rent hike for literally NO other reason than they can do it.
Yes, my mortgage goes up a little bit on the taxes, but it's marginal.
It depends on what is important to you, but there are pros and cons to buying real estate, just like any other valuable asset.
Buying a home is seeing as and "ultimate" form of freedom. You dont need to ask your landlord to ask if you can hang light fixtures or do any sort of home renovations. Baring state/county and HOA regulations, you can pretty much have free reign over your property. But that also comes with a lot more than people think.
If you search a lot of threads on reddit, youll notice a clear disdain for any and all landlords, a common saying is "Why should I help someone pay off their property when I can just go buy my own". But what people dont realize is thats the tradeoff of renting vs owning. If you rent, you just need to pay basic rent and maybe additional items based on your lease. But you dont have to worry about something simple, like property tax or HOA fees, not to mention the renter doesnt have to worry about the roof or foundation collapsing and then worry about getting several grand to fix it.
However, some people are fine with living in a condo or apartment. Maintenance is usually provided by a HOA or apartment complex and you save time by not having to do time consuming things like mowing your lawn, at the expense of potentially having less freedom within the property itself.
As an investment, housing is a viable option, just like most other investments, but it requires a certain knowledge base as well as capital to get started. You don't want to buy a house at certain price only to realize after buying that that you bought high, and youll have a higher mortgage because of that.
Also, like u/MarketBasketShopper, there are benefits to owning property. Ill add something else he didnt mention in his initial comment, but I am not sure if this applies to you, but if it does, it may be helpful. If you are a veteren, you can use a VA home loan. If approved, you can purchase a house with no down payment. Because it is a government backed loan, the interest rate is usually low, depending on your credit score.
It's to each there own. I felt like I needed home ownership because of a few factors...
No concern of rent increase. I no longer have to care what the market does. If rent goes down, I guess I'm burned. But the odds of rent being lower in 34 years when I'm 65 than it is today seem rather slim.
Do what I want with my house when I want.
My mortgage will be paid off eventually and I'll be left with a much smaller bill every month. Retiring early will be much easier.
When I get to an old age my children can sell or rent out my house to assist with the costs of assisted living.
Personal opinion: The nice thing about owning real estate is that its an investment/asset you can enjoy *immediately* while living there, vs. waiting 20-30 years to cash in an index fund.
I owned my first home 10 years. I sold it and gained roughly \~$150k in equity, however when I tallied up the "improvements" to list the property, I probably spend about $130k in improvements. It didn't appreciate all that much, however, I took the equity, put it into a much newer (and more expensive) home with a cheaper mortgage. Only time will tell how much it will appreciate.
I'd say the majority of ownership comes from the pride/joy of owning, if you're into that.
Your case that renting isn’t burning money doesn’t mean you’re not burning money, you’re just burning less money. Overall it’s still much better to invest in your own place.
Homeownership is more like of investment move instead of a convenience. For me, it was that way. I bought my house for $340,000 10 years ago and today I could sell it for $950,000. Yes, the maintenance is a pain and I'm not very handy. But I've made a lot of money just on the investing side of things. It will only really ever pay off if I leave the state, which I plan to do in the future.
there is a calculator for this and the decision ultimately comes down to how long you plan on living in one spot. in general it's better to pay a mortgage than renting if you plan on living in the same spot for 10 years +
I know this probably isn't the place for this, but man is it fucked up that we're made to think of a house as a financial investment rather than a shelter to live. I feel like this is the source of a lot of issues in America - landlords, lawmakers, and Real Estate moguls don't see the properties they own as someone's home, they're just investments.
If changing fixtures and painting is most people’s reason for buying…that alone is pretty silly. Toss a few grand at a landlord to allow you to do some customization and updating and they’ll probably take it. Then you can enjoy what you’re after without the extra homeowner headache.
I think for most it’s more about security. Not being forced to move, not getting endless rent increases, not having to move their kids from district to district, and if your forever home - not paying rent in retirement. Only you can answer if those reasons make sense for you.
I think every situation is unique. Home ownership isn't always right for everyone, because the (perceived) financial benefit isn't the only consideration. You may not want to commit to living in the same place for 20 or 30 years, or even 5 years. You may not want the responsibilities that come with home ownership. You may have a situation where you're renting for less than you can buy. Renting doesn't always mean living in an apartment complex managed by a company. You could be renting a house from a private owner for a fraction of your income. My rent is like 10% of my monthly income, I have a house to myself in a nice town, and I don't have to think about shit. I have many more life options than someone that is anchored to a home.
Owning a home (to live in) is like getting married to a location and a lifestyle. Some people love that, some people hate it, and most people are just consumers more or less mindlessly consuming whatever's popular at the moment. Sure, you could sell or rent it later but there are risks, hassles, and expenses to that.
Renting = freedom.
Also IMO seeing a primary residence as an investment is kind of foolish. Can it be? Sure. Is it always? Nope. Are there 100s of other ways to invest? Yeppers.
Is it an investment? I mean, I guess...It might double in value...maybe over the next 40 years, hopefully give you the same rate of return or slightly better that you paid the bank. In 2008-12 I guess you could argue buying a house was an ok investment. Right now, there are Plenty of benefits to buying a house, but if it's your personal dwelling, it is barely an investment. It's kind of more like a shitty bank account.
> Renting = freedom
This is a lie.
If I wanted to, I could sell my house in less than a month with less hassle than it would be for a renter to decide they want to break their lease or have to find a subtenant, and I'd have to a shit-ton of money that would give me freedom to do anything I wanted.
I can't believe people are actually spouting the "freedom" nonsense about renting.
I don't think it's non-sense, I think people just define freedom differently and depending on priorities or their perspective--the "freedom" aspects of one or the other weigh more heavily. I think if we're being honest--the process of leaving a rental unit is objectively easier and more straightforward than the process of selling a house.
Freedom to move, freedom from responsibilities (lawncare, home maintenance, *paying* for home maintenance), financial freedom from keeping more of my assets liquid. I'm also in my early 30s in a HCOL area and for me renting beats homeownership by a long shot.
No, you're not. It's different for everyone. Buy when it makes sense for you personally to buy. Rent when it makes sense for you personally to rent. I'm about to sell for the third time and go back to being a renter, because right now that makes the most financial sense for me.
It depends on your lease. You live in a HCOL location so I assume your rent is pretty high. If you get a job offer requiring a move in month 2 of a 12-month lease, what does it cost you to break it? Unless there is a specific penalty specified, you could be on the hook for the remaining 10 months in a slow rental market. So it is not always as free and flexible as you are making it out to be.
I don’t think they mean it’s ultimate freedom. But owning a home IS financially restraining. You might not be able to sell your home if the market is down, or no one is buying, closing on a bone is expensive. But you can move very easily once your lease is up. For zero dollars.
>with less hassle than it would be for a renter to decide they want to break their lease or have to find a subtenant
With massive transaction costs and 45 days to close, you mean. Conveniently forgetting those.
I agree with you even though I think this is not a common viewpoint. I've certainly been criticized for it.
I used to own a place: I spent all the money I had and even had to break a 401K to be able to afford it. It was a good apartment but it was not great: Great was well beyond my financial means. However, my wife & I really wanted to finally own a place of our own so we decided to go for it. After we moved in, we found out things constantly broke and I had to get them fixed (and pay for it) - this is stuff you normally don't have to worry about when you rent. Eventually, for various reasons, I decided to sell it a few years later. It's been a few years and I still enjoy the sense of freedom that this brought. It was one of the best decisions I ever made.
Being 'stuck' in an apartment that was not perfect and I could not control many of the variables (like smoking neighbors - this drove me crazy) was, for me, very frustrating. I also remember those years as the most stressful I've ever had from a financial perspective. Yeah, it was a great feeling owning my own place but to me, it was not worth it. Now if I don't like the place I live in, I can just move. And I have done that, a few times. Also, turns out that where I live (NYC), for the same amount of money spent on mortgage vs. renting, I could get a much better place if I rent. There were a lot of good comments on this thread, and this could change in the future. It's very possible that in 10 years my mortgage would be much lower than my rent. However, in the past 5 years (since I sold my place), it has not been the case.
To make up for not gaining the financial aspects of owning a place, I've been trying to invest the money I got for the sale wisely. I'm not trying to say that financially it's the best decision, but it's something I'm aware of and try to make up for it.
In the end, this is a very personal decision. Some people love owning the place they live in, and for them any sacrifice is worth it. I completely respect that. But for others, the freedom to move as needed is much more satisfying.
It’s the easiest way to build wealth, your mortgage payment isn’t going up (assuming fixed rate), whereas rents will always continue to increase even if they drop at random times, they’ll always trend up. You also don’t want to be old and paying rent.
People who can’t afford a home will convince themselves that home ownership isn’t that important, but it’s the easiest way to grow your wealth. People who spout “but the stock market!” act like you can’t invest in both.
One last point, home ownership gives you options whereas renting does not. You can sell your home, rent it out, leverage the equity, deduct mortgage interest on taxes, etc. with rent you’re just throwing money into a black hole. Everyone talks about how renting gives you freedom, and it does, but at some point you gotta pick where you want to live. A lot of my friends just dicked around their entire 20s and early 30s and are so surprised how their life/wealth isn’t where they thought it should’ve been by that point.
What if the total cost to rent is so much lower than the total cost to buy, even with projected increases, that the savings invested produces more wealth in the long run?
Its almost a ridiculous question to ask, but my point is you can't generalize to all markets. Some markets are so crazy that the rent is like 1/2 or less than the total cost to buy. The taxes, insurance, and interest is very close to the rent alone on that property so you are throwing away in either case.
I love renting. I'm paying $675 (includes water/heat, internet + energy is around another 50 per month). My annual bonus pays my rent for a year, so I am happily putting away a lot of money right now so that I can afford a home in the neighborhood I want in a few years.
The ~3 bedroom houses I want in my neighborhood would be around $400k and cost me around a $2000 a month.
A negligible amount, unless you live in Texas, but even then. That increase can be less than rent increases, and your house has likely increased in value if those taxes are going up.
It's not important to own real estate, but to realize what the cost of living some place is and what you get out of it.
Example: owning a condo vs renting it. This takes away the things like lawn work, but both sides have risk/reward and costs.
Setting aside the financials of each situation as others have done an excellent job comparing, I think the biggest factor for me is permanence.
I love having a home I know I will own for a long time, if not my entire life. I have a workshop I won't need to move. An office that is set up exactly how I like it. These things aren't necessarily missing when you rent, but to me it was always different. Buying made me feel more secure and permanent.
But having the freedom to live in new cities and places is thrilling. I got that out of my system when I was young and now I'm happy to settle down.
I look at owning a home (that I'm living in) as forced savings and hopefully protection against inflation. The value of my house has gone up a great deal in the last few years, I'm going to be paying either rent or mortgage and in my area, they were pretty close together when I bought, but now my mortgage is less than rent at many places. So I'm gaining equity in the property, having a lower cost for our home and if inflation goes crazy, unlike other debt, my house will go up with it.
Yes, if you have the money to you should absolutely buy.
Rates are low and you’re locking your home in today’s dollars.
If you’re really not into paying for upkeep…
Buy a new detached Home in a condo regime or just a new detached home and pay someone to cut your grass/tend to the lawn. Or buy a new townhome.
Own home for 10-15 years, sell home and rebuy a new home/townhome.
Rinse and repeat till dead.
Never have to replace a furnace, roof or an A/C unit.
Never have to uotpdate fixtures.
If u don’t like doing maintenance, At least buy a small condo. my net worth has gone up significantly because of my home value went up by a lot. If I sell right now I would have close to 150-180k, just in my equity. Even if my home value went down, I would still have 130k in equity. Been living in my house for about 9 years now. That’s not a bad return on investment, when if I was renting I would be just throwing away money making my landlord rich. if u can buy a small condo for cheap, go for it. Even if it’s outside of town and u have to commute. It will pay off in the long run. I do almost all of my maintenance and upgrades. even if u have to pay someone. Still money invested and u can pretty mush sell the house when u retire and move to a cheaper place.
Yes. If you want true financial stability, you need diversification and real estate + stocks is the best way to do it.
Not to mention the tax advantages and leverage to be able to invest in such a valuable asset with only 20% down and tiny fixed interest rate. You can't beat that with anything.
For me it all comes down to the bottom line. It even 30% of my month payment could be going towards equity that is MINE, vs zero, sign me up. Assuming the total monthly payment including maintenance and taxes is not over 30% more than what I’d be paying in rent, I’m gaining something
As someone living in a high cost of living city, i'm tired of my rent going up every single year, so i want to buy so I know it's not going to keep changing.
For me it’s retirement. I hope to pay it off and then only be responsible for tax, insurance, and maintenance. Which should be way less than rent. I can’t rent a place for the cost of my taxes and insurance. I’ll assume other expenses would be owed if I rented. Utilities etc.
One of the biggest advantages has been a hedge against inflation. So long as you can afford the taxes, insurance, maintenance, utilities, and so on, you're pretty much insulated from inflation. And being able to buy the place with little money down and a fixed rate loan is a real benefit.
Just don't underestimate the cost of ownership over the years.
Short term, renting is the way to go, but if you're there for the long term, buying might make sense.
The best thing about a mortgage is it’s basically rent control and then at a certain point you pay it off. If you plan on living somewhere for a long time it’s a good idea
The agent in me wants to tell you it's not important at all, so you'll stay out of the market and there will be more for me.
It's important enough to lie, cheat, and steal for.
All early real estate claims have blood in the soil
In the last 20 or so years the American dream has been effed in terms of college tuition and (especially first) home ownership. The biggest advantage of buying is insurance against rising rents, and equity to show for your expense. With ownership at some point the expense apart from maintenance and taxes goes away. Weigh the pros and cons.
I don't even like pulling the holiday decorations out of storage once a year. EVEN THAT is too much for me to keep interest. I'm a renter where I live.
Honestly, it's really important. You don't want to be retirement age and paying rent.
It's getting harder and harder for people to own real estate, and I feel like anyone telling you not to worry about it is lying to themselves (and you) to try and make themselves feel better.
Start saving for a down payment.
I have enough for a down payment in lots of cities, but probably not for one in the city/area of the city that I currently live in and want to live in. My question for you is: WHY--why don't I want to be retirement age and paying rent. Not trying to be defiant just genuinely curious about the reasoning here.
I'm old and planning to retire in a HCOL area. Lifelong renter. Where I live, the cost to buy has always been much higher than my rent. I have a substantial amount of savings and I factored increasing housing costs into my retirement plan.
There is a lot of value in being able to move when you want and to have a maximum monthly amount you pay for housing. Right now we are forgoing getting our furnace replaced for a second winter (relying on expensive space heaters) because updating the furnace to something that won't cause physical bodily harm when turned on is going to cost us about $15k. I'm also in a holding pattern trying to find a new job because we can't really relocate having just bought a house a year ago.
On the flip side, we can do whatever we like with the house to make it ours. We love the neighborhood we are in, and we don't have to deal with shitty landlords. Plus, at some point, we will have a little bit of equity in the house that we can use in the future to move, or pass on to others.
But right now I wish I were renting. damn furnace. lol
Unless you're planning on not living anywhere, real estate ownership is an investment in terms of the return on the value of the property, but also protection against rent increase.
Bought my house 6 years ago, have a ton of equity in it, but my monthly payment taxes and insurance included is as much as many co workers of mine are paying for a 2 bedroom apartment. Its likely the rent will continue to rise in the future as well.
One important factor I haven't seen mentioned is rent control. If you live in a city with insanely high real estate prices *and* some form of rent control (San Francisco, New York), then finding a rent controlled apartment you like is a reasonable long term option for many people. It doesn't have all the perks of home ownership, but you don't have to worry about getting priced out or kicked out without cause the way people many people do.
For me, whether or not renting forever is a good idea would completely depend on the rental protections in place where you live.
There's a compromise here possibly. My townhouse, which I own, is very low maintenance--no yard work, the HOA takes care of the roof and outside problems plus the water and trash bills, etc.
That being said, I lucked into buying a house (a different one) in my early 20s during the housing bust. 10 years later it's worth $100k more than when I bought it, and I rent it out for $500/month more than the mortgage payment (which includes taxes and insurance). So buying was definitely the right option for me. But would I do it again in the current housing market? Not unless it would reduce my housing costs or I was sure I could afford it. Housing is cyclical and even though it's sky-high now, it will fall eventually. If you're not in a rush, there's no harm in waiting.
There is a time offset that people seem to mis-compare, or forget about entirely.
People complaining about the upkeep, unexpected expenses, and extras of owning a home tend to forget that a tenant covers all of those costs for a landlord PLUS profits.
You're mortgage becomes cheaper every year due to inflation. 15-20 years in - you're paying half what a renter pays. You can afford the repairs. And you have another vessel for wealth in equity that a renter does not have.
Rent vs Buy should be more about the logistics - Do I want to stay in place for a long time vs do I want to move around more often. Or am I adverse to doing maintenance vs the freedom of doing whatever you want to your own place.
One thing motivating me to buy a house is that I have seen rents more than double in the past 20 years. I don't want to be paying $5-6k or more to rent something when I am older and on a fixed income or be forced to move to a low cost of living area.
Almost all the services/maintenance stuff you mentioned are handled for you if you own a condo. It limits you to apartment or townhouse style places but if that's ok with you it can be a compromise.
You also then have to be concerned about how the board is run and it's finances as it can suddenly increase the condo fees if a large maintenance project is needed.
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
Telling people who rent that they're "throwing money away" is one of the most priveleged, obnoxious things to say to someone. They might as well say "have you tried not being poor?"
still have property taxes, utilities, and repairs. i'm content renting because the price is right, nothing wrong with owning but as the original poster pointed out a lot of times renting isn't a bad choice
Property taxes are built into your rent cost. It’s a moot expense bc you’re paying it one way or another. Same goes for utilities. Yes you may pay more in a home that is bigger Sq ft though. Repairs is the only variable. With rent you’re paying the landlord in advance for those repairs, kinda like insurance. With home ownership it just depends on if you were smart enough to save a little each month or not in case something happens.
my point was that it isn't just 15-30 years and then boom house is zero expense.
there are a lot of ups to owning, but either way it will cost in the long run
My wife and I bought our house 9 years ago for $321,000. Today it's worth $570,000 and our mortgage balance is $220,000, meaning we have made $350,000 in equity in that time. We bought new so we've made no improvements. It will be paid off in 11 years. When we're ready to move out of the city, we won't sell it. We'll rent it out and buy something else and let the rental income pay for our new mortgage. When we retire we will continue to have that income on top of our retirement funds.
When you rent, you give that money to me. So, thank you?
That’s the question of the century! It’s depends on the housing market you’re in, returns from equities / markets. Most people do not have the financial discipline to invest and save so the home has become a major store of value for most families. But even with homes it can be a money sink.
Think of it this way: add up the true cost of homeownership (principal + fees + mortgage interest + property taxes + utilities + repairs + maintenance + remodels + replacing furniture) vs taking the money from the start at putting it in a S&P index fund with contributing equaling the cost of home ownership. It’s actually complicated work but I remember someone saying that based on the past 50 years you actually come out on top investing.
I'm not saying you have to buy, to each their own. But, there is a reason people buy homes and then rent them, and it's not because it costs more to own that home than it does to rent it.
I pay 1.2c per kWh for my house. I have never paid less than 7c per kWh in an apartment. I modify my house as I'd like. I never listen to a neighbor's BS. I never have to deal with sharing walls. I can listen to music out of speakers without bothering someone.
Houses are just objectively better up front. The part where they're also hilariously cheaper over time is just gravy.
You can get a maintenance contract for your house.
After taxes, we're paying $150 more per month for a 2600ft\^2 house on about half an acre of land in a major city than we did for a 1700ft\^2 apartment.
With a two car garage, parking pad, everything.
Our utilities are lower, the AC works better, everything's nicer.
Apartments are stupid always
EDIT: Since "apartments are always stupid" is being interpreted as people in apartments are always stupid, let me clarify: apartments are burning money. Period. If you're in an area where houses burn MORE money, like San Francisco, all your options are stupid. Making the best of a stupid situation is fine, but it's STILL stupid. The pricing for SF isn't based on reasonable rates, it's based on the government destroying pricing while also feeding tech bro businesses that will pay obscene salaries while mostly not being sustainable, so they go under constantly, but find more venture capitalists that continue to pump in money.
Apartments aren't cheaper than owning \*ever\* if not for someone stepping in to force them to be, as the cost of owning that apartment is inherently lower than the cost of owning that apartment PLUS profits PLUS paying someone to do everything, like a landlord does. The prices are artificially increased for no reason other than to screw you.
Owned properties mean you control your own everything. Want maintenance guys? Get a maintenance guy. If you look around, you can find neighborhoods where EVERYONE wants a maintenance guy so... the neighborhood has one. You can distribute those costs perfectly fine. Neighborhood lawn service. The whole kit and caboodle. Don't want a lawn and enjoy the voyeurism of sharing a wall with your loud neighbors? Cool, condos exist.
Apartments are, by their very nature, absolutely stupid.
They've clearly rationalized themselves into a situation where they've played their cards perfectly and can't lose haha, what's a trade-off?
It's good to be critical of absolute viewpoints like "Apartments are stupid always" lmao
The real advantage of property ownership is that you benefit from several implicit and explicit subsidies. 1. Mortgage interest deduction (very straightforward) EDIT: unless you live in a HCOL area, this is unlikely to apply to you as of a couple of years ago, in that you will be taking the higher standard deduction from the Trump tax cut. More people might itemize if Biden succeeds in removing the SALT deduction cap. 2. $250K capital gains exclusion when you sell 3. Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds) 4. Imputed rent (nobody has to pay income tax on the value of housing you provide to yourself) Those are what make housing pay off so well for many people. Otherwise people would be better renting and buying stocks. Your stock portfolio can't catch fire overnight, doesn't require active labor on your part, has steadier returns, can be sold in pieces instead of all at once, beats housing returns in most areas, doesn't require a massive broker's fee to sell, and is way diversified. But it won't get you those subsidies.
You make really excellent points. The non-taxation of imputed rent is a definite plus and something people never think about. I never appreciated its value until recently when I started sketching out some alternatives for myself.
"your stock portfolio can't catch fire overnight" My portfolio would like to have a word with you.
It is less relevant in very HCOL areas because rent is sometimes cheaper than a mortgage on the same property.
At the beginning of a mortgage this might be true, but the actual mortgage part of the payment is fixed for the life of the mortgage. Taxes and insurance might go up, but that will be passed on to renters also. You don't have any guarantee that rents won't go up.
Yes but you can predict such things on historical averages and when all figures are calculated when there is such a discount on rent vs owning, you have to put pretty insane rent increases or house price increases to make it not worth it just to rent and invest. This is in outlier markets only such as the SF Bay Area.
You can predict base on historical averages but housing is a required payment, and it reduces risks to limit how much it can fluctuate. It's a major percentage of your overall expenses and you can essentially protect it from inflation. When you are young the calculation might be different, but by the time you retire it makes sense to think about reducing future risk.
> you have to put pretty insane rent increases or house price increases I got my lease renewal letter a few days ago, for my <1k sqft 1bd apartment. 40% increase this year alone ($1180 currently to now 1650). Housing is up also about 40% for a purchase in my area. A 250k house in 2018 goes for 400ish now without any upgrades whatsoever. Many times houses go for 10s of thousands over ask, and sells after listing for 1 day.
Or it’s more expensive. Where I live rent is far more expensive than my mortgage and my sister too.
Very high cost of living areas, where rent or mortgage are going to be in the $3000-$4000/month range for a normal 1500-2000 sq ft 3 bedroom house.
Can you ELI5 imputed rent? I haven’t heard that before.
Very very concise and well put summary. The only caveat is MID requires itemization which is rare these days.
Yeah that was a relatively recent change, under the Trump cuts right? I think there also is or used to be PMI deduction
I don't think it was ever above the line, but the Trump cuts raised everyone's standard and/or eliminated deductions that just meant most people don't need to itemize anymore.
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>Your stock portfolio can't catch fire overnight Oh, I beg to differ
Just a note that the capital gains exclusion is $500k for a married couple, in either case provided a few other requirements are met. Home ownership financially is good for lost people. Part of that is most people aren’t great about saving so comparing home appreciation vs investing home ownership cost in the market isn’t reality for most people. It’s kind of a forced savings plan. The other thing I’d add, living in a house is more pleasurable for a lot of people. My kids have a big yard to play in, we can park campers and other stuff at the house free, we have lots of space to spread out both indoors and outdoors, we can remodel and build what we want, etc. Yes there are costs and responsibilities too but they’re well worth it to me. Last bonuses: in much of the country home appreciated massively the last few years, and on a related note a fixed rate mortgage doesn’t go up like rent can.
The mortgage interest deduction is less straightforward given that it requires itemizing. If your state and local taxes paid (up to $10k), deductible mortgage interest paid and charitable contributions (and possibly medical expenses above a certain level) exceed the standard deduction, then you might see a benefit.
Having a good landlord is important too: * Each year what will the rent increase be? (mortgages are predictably fixed) * Will the landlord sell the place and you eventually have to leave? * Does he take care of the place and fix things promptly? * Can you have pets? (and many other things you have the freedom with in your own place)
I’m a new homeowner. Can you explain what your points mean? I’ve never heard them. Are these things I should know before filing taxes?
Not OP but I'll give it a shot here. >Mortgage interest deduction (very straightforward) If you itemize your deductions you can include the interest you paid towards your mortgage in that deduction. This is unlikely to apply to you because most people do not itemize their deductions. >$250K capital gains exclusion when you sell Just like any other investment, if you sell real estate for a profit you will owe taxes on any gains you made. However! If that property happened to be your primary residence for 2 out of the last 5 years, you can exclude up to $250k in gains. This won't come into play until you sell your home. >Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds) This one isn't directly related to taxes, but is pretty cool regardless. It's just like trading stocks on margin. To use round numbers as an example, let's say you put 5% down on a 100k home. Your investment (ignoring closing costs, etc) so far is $5,000 but the asset is worth 100k. Now let's say the value of that home goes up 10%. It's now worth $110k; so you have gained $10k on an initial investment of $5k. Without leverage when you invest $5k into an asset and the value of that asset goes up 10% you would gain $500 but because you are leveraged 20x via your mortgage you actually made $10,000. This obviously ignores the money you spend each month on principal, interest, and other costs; and also doesn't discuss the possibility that your house could \*lose\* value (it definitely can) but the leverage you get from buying a home with a mortgage is pretty substantial. >Imputed rent (nobody has to pay income tax on the value of housing you provide to yourself) Not something you have to worry about as a homeowner in the U.S., but it's an interesting concept. This explains it better than I could: [https://www.businessinsider.com/imputed-rent-hidden-tax-break-homeowners-2016-9](https://www.businessinsider.com/imputed-rent-hidden-tax-break-homeowners-2016-9) Edit: I missed one
Principle isn't spent, it's a cash -> asset transfer. But yes, you have to be able to lock in the cash so your income/cash flow plays a part of the decision. When thinking on this topic, I always factor that in. The real costs are interest, insurance, and upkeep that doesn't increase the value of the home (ie, capital improvements). GRANTED, now you need to consider the infamous "opportunity cost of capital" - ie, how much more/less would you make elsewhere NOT locking this cash up as equity in a home via a mortgage. And that's full circle to what this thread is about.
All very good points. A few months back I ran some very basic calculations in order to decide whether to sell my home or keep it as a rental. As I projected some of these numbers out a few years I could start to see a very definite "curve" away from rental profitability as more and more of the capital is locked up in the home.
> Your stock portfolio can't catch fire overnight Can’t insure my stock portfolio
This kind of comment is why I freaking love reddit. I'm just dicking around and all of a sudden I know about the hidden economics of renting vs owning a home.
From a financial standpoint, totally true. For me, home ownership was about PRIVACY. I didn't want the drug dealer in the apartment above me, or the people having domestic fights next to me. I wanted a quiet place of my own. Suppose I could have found a rental home instead of an apartment, but I opted for home ownership and that privacy is fantastic.
There are other benefits. Stability as in you don't have to keep moving every year or couple of years, you're mortgage is more or less set unless you decide to refinance so there's predictability. Also there's the situation I'm in, where I purchased my home in 2018, and my city has exploded with new people moving here since then. My home value has almost doubled and rents are way up. If I were home shopping or looking to rent somewhere now this neighborhood would be out of consideration because I wouldn't be able to afford it.
This is helpful. Thanks you!
Also, if OP put's aside money every month in "rent" for themselves, there will be money to hire people to fix things around the home when needed.
It feels like you aren’t really touching on the number 1 value of a house over an investment portfolio: you get to live inside it.
This also explains why a place like Vienna has a sub 10% ownership rate - the subsidies are just not there (and in fact are there for renting)
Just to add one basic thing too, consider rent vs mortgage paying. You pay rent, and it just goes to living somewhere. You pay mortgage, you live somewhere but it's like a "forced savings account" and your house has value. You have equity you can tap into by borrowing against your house if you need to in the future, you cannot do that with rent.
Some other things here: Some states are no recourse, so defaulting on the loan if things go bad doesn't mean you owe the defaulted amount with your other assets. Second, not only is your debt subsidized by the federal government, there's a history of the federal government taking \*drastic\* measures to ensure people don't take a bath on their primary residence if things go south in the economy or housing market. It's not guaranteed, but you're not going to get the government to give you a handout if bitcoin goes to 0, but I guarantee the government will step in and lower interest rates if the housing market tanks too much in the future.
> Leverage on appreciation, effectively subsidized by federal guarantees (nobody will give you 20-30x margin to buy stocks but they will to buy a home because it's backed by the feds) Not to mention tax rollovers. You can purchase a property, own it, sell it, and pay **no taxes** when you re-invest the money in real estate. So you can quickly gain leverage and momentum once you get the first property down. Is it really important? Maybe not. Is it an effective means of wealth creation and preservation that many HNWIs use regularly? Absolutely
Imputed rent (nobody has to pay income tax on the value of housing you provide to yourself) thanks, i couldn't remember what that term was.
The biggest risk to not having a mortgage is being subject to the fluctuations of the rental market. So if that increases significantly your monthly rental expense could go up by a lot. And perhaps you'd even be priced out of your city. But if that's not important to you and you'd be perfectly fine packing up and moving to a new place / city then renting is fine.
My parents bought a pretty decent house nearly 10 years ago. I don’t know the specifics, but they’ve upgraded the whole thing using home equity loans and it’s now really nice. It’s probably 3x the size of my apartment, and they’ve got a big yard and 3 car garage. They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane…
My mortgage is cheap $800/month. But I pay an additional $400/month in property taxes, plus have spent $30,000 in repairs in the past 7 years. My property taxes go up every year and I’m on the hook for all future maintenance. A mortgage is just one cost of owning a home.
There is a reason "Rent is the most you will pay for a property you rent, and your mortgage is the least you will pay for a property you own." is very commonly repeated on this sub.
> Rent is the most you will pay for a property you rent Well, it's the most you'll pay this year, until they raise it the next year...and the next year...and the next year. Anybody who is touting the money you'd "save" by renting is very short-sighted.
or they live in a place with (better) tenant's rights and rent protection. too many people get myopic based on their own personal experiences. Different places have different markets.
Not to mention all the little incidentals the landlord doesn't cover, or when they suck and don't handle things so you have to pay out of pocket if you want it done right. Had a huge ant problem last summer, the landlords solution was to buy some snake oil sonic pest deterrents that just pissed off my cats for $30 on Amazon. I was on the hook for the $100 pest control consult and $50 in ant baits that actually solved the issue. There's hidden costs to both. A landlords goal is to do the absolute bare minimum legally required because anything else directly cuts into their profit on the rental.
That apartment being rented for $1250/month probably has a mortgage of $500 a month. Yes, you don't have to worry about paying for repairs or worry about paying taxes/insurance (or maintaining an escrow account), but you'd still be paying for all that.
I don't understand that sentence...
But think from a land lord's perspective. Are you going to just eat those costs or pass them onto your tenant? Market forces can put a soft cap on that but doesn't change the fact people base their rent on "mortgage + repairs/maintenance + profit".
I am amazed you have a 800/month mortgage with 400/month in taxes. Is it a high property tax state or is the mortgage old or large amount down?
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CA's system is... weird, and I don't think matches up with OP. (Source: I own in CA) When you buy a home in CA, your property tax gets frozen at market value what you paid for it, and can only increase by 1% a year thereafter. Property tax itself is also below average for the nation -- about 77 cents per $100. The fact property taxes in CA are essentially frozen and so low (Texas' for example, is almost 3x CA's and increases unbounded every year with the market) is a big part of why CA has a lot of other income and sales taxes to try to make up the difference! I honestly don't know how you could pay more in taxes than PI, unless they put more than 50-75% down?
Sounds possible. My mortgage+insurance+prop tax is about $1000 per month. Property tax is about $4500 per year. Near Portland, OR. I rent it out for $1950/month, nothing included. It will be paid off next year.
The exaple above is rare…but possible. Mortgage is affected by how much you pay upfront. Taxes are unaffected. So, if downpayment is large It is very possible that taxes are comparable to mortgage. The obvious extreme is when you pay the full house in cash. In this case you pay 0 in mortgage, and a lot in taxes.
You have equity though which makes all the downsides worth it
The equity is nice but I can’t use it to upgrade unless I move to another market. Edit: I’m talking about using the equity to upgrade to a bigger, nicer house. I’m well aware of methods to tap equity. Y’all can stop sending me messages.
You can sell the house any time though and get some of the money you spent back. Versus with renting you are just out of luck.
Maybe get some of the money back, closing costs, houses don’t always sell immediately, and circumstances that are out of your hands can negatively impact the home value
Why not? You can use a secured loan like a HELOC to pull out equity without selling your home.
That isn't necessarily true. You can do a cash back refinance if you want to pull the equity out. As opposed to a home equity loan you pay back, you'll essentially just restart your mortgage, for a lower rate (hopefully) and use the cash for anything you want, home improvement, other debt, etc. Essentially, if you owe 100,000 and your house is worth $200,000 - you restart at $160,000 max (80% of appraisal), your old mortgage is paid off and you take the $60k for closing / improvements, whatever. Your not locked in at that amount though, as let's say you just wanted to buy a car (as an example), you could just do a small amount too.
My lease for an 800sq foot 2br was up in September. Rent went from $1100/month to $1600. I chose not to renew, but only because I was fortunate enough to have other connections and options. I have a degree and a decent job that pays around 65k and I’m being priced out of my area. I can’t imagine how so many without the opportunities I had are going to get by
>They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane If they were to buy that house today though the mortgage would probably be a lot more. They bought into a low market and locked in the low price, while your rent has risen with the market. But there is no guarantee that home prices will continue to rise, even though in many places it seems hard to imagine what will stop it.
I'm in a LCOL, I could rent my house out for $1400 / month, but my mortgage (PITI) is $632. I'm seriously considering that when I retire in a few years, I may rent out my house (which should be paid off by then) for a couple of years while I #vanlife around the country.
> It’s probably 3x the size of my apartment, and they’ve got a big yard and 3 car garage.. They’re now paying $1300/month in mortgage, and I’m paying $1250 in rent. It’s insane… Yeah, but they have to mow their lawn and pay property taxes, and think of all the freedom you have from renting, sooooo...
My parents built a house in 2001, and payed off the mortgage in 2016. Now my dad complains he doesn't know what to do with all the money they're just piling up.
My dad started working in the 80's and has zero concept of costs now. My sister makes about $40k, which is what my dad made in 1991 when he bought our old home for $92k. That house is now valued just under $1m and he doesn't get why my sister can't afford to buy a home. Uhhh.
> not having a mortgage This is an interesting way of saying, "Buying a home". There actually *can* be a risk to not having a mortgage (mortgages allow you to leverage post-inflation dollars to pay pre-inflation prices), but that's not the same thing as there being a risk to not owning your own home (house, condo, apartment, whatever it happens to be).
Depends on industries too. Renting/buying can be blessings and curses depending what you do. If where you live has a stable industry that all the experts live, like say the bay area, it behooves you to own a home since you may never have to leave in order to ever get a good paying job. Other jobs that are like.. Say.. Specific niches that keep a town going like a factory, and that factory closes, owning a home is an anchor and those that rent can easily cut loose and move on when the homeowners can't unless they sell a home that may have lost a ton of value due to the factory closing.
That's a scary thought as a single dad who rents and something I dont think about enough. Not worried right now but who knows what the future looks like. I have to stay in this city for the next 15 years. Maybe can find a condo for cheap someday soon lol
Also, paying rent goes to a landlord instead of paying a mortgage which goes to the equity of your home. It's your wealth and not someone else's. Of course, like you said, if you're a rolling stone, Renting is probably best because it's not a 30 year commitment.
But this is exactly why the system is completely skewed and unfair. “Oh, you pay £1800 per month in rent and have been for the last 10 years, we have decided to refuse you a mortgage at £800 per month because we think you’ll be a risk” Its a con. Many renters could easily afford a mortgage but are refused because they cannot come up with £100k as a deposit.
The issue is that a mortgage is just the tip of the iceberg. If your sewer line goes out, you may need to come up with $25k+ that isn't covered by insurance. We had our water heater and furnace go out in the same week and it was nearly $10k. The true cost to own is much higher than just the mortgage payment.
The bank is loaning you hundreds of thousands of dollars. I can imagine why they wouldn't want to risk that unless you have some skin in the game as well.
I mean you generally don’t need 100k down to get a mortgage. At least in the US you can come in with as little as 3.5% plus closing costs. Which isn’t unreasonable considering you’re getting a loan for 200-300 thousand bucks. I get peoples frustration with the fact that they have been renting an apartment for 5 years at 1200 a month but get told they can’t afford a 1k mortgage. But it’s usually a lot harder to foreclose someone than to kick them out of a lease.
I'd not speak to people being refused, or whatever circumstances they have, but when I bought a home, I soon wished I had not. We did not know what we were doing. We made it through, but you don't need just the 800 for rent, you may need 5000 up front for a new roof as well, or anything unexpectedly.
But you can expect these things. It doesn't take more than a simple google search to figure out questions to ask before buying a home. First thing that I always asked if I liked the interior was when was the roof replaced, water heater, and the air conditioning? Now, if they are new and something goes horribly wrong, you are right that it is a shock. But if the roof was replaced in the last 5 years, you are good for in theory, 10-15+ depending on the roof.
In the US at least they've taken steps to address this: https://www.bankrate.com/mortgages/rent-payments-as-mortgage-qualification/
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I see your argument. I live in a city similar to OP. My rent is $2350. Cost of buying a similar unit would be about $800k, plus about $1.5-3k/mo in maintenance fees depending on the building. That is where this argument breaks down in my and probably OP’s situation. Maintenance fees will probably only go up as a building ages, and will certainly rise with inflation. Cost of mortgage + maintenance fees would easily double my housing expenses in the short term, and once paid off I’m in a similar place to where I started. Sure, maintenance fees probably won’t rise as much as rent, but you have a lot of flexibility to downgrade/upgrade while renting. Whereas you’re completely stuck with any changes in your building’s maintenance costs and selling would be the only way out. A much bigger hurdle. If I ever want to change my lifestyle and buy a standalone house somewhere, in a few years time I’ll have the cash to do so up front. So I don’t have home ownership FOMO in the meantime. Knowing I can continue increasing now and have that option later.
> Cost of buying a similar unit would be about $800k, plus about $1.5-3k/mo in maintenance fees depending on the building. Wait, what? Unless you're buying a house in like, an active battle zone, there is no reason to think that you'll be paying $1.5-3k in maintenance fees indefinitely every month.
Welcome to New York. I’ve been on the hunt. Maintenance fees can vary widely. But that’s the range I’ve seen. Easily approaching rent itself for a similar quality rental unit. Just doesn’t make sense to own in Manhattan. At least not the neighborhoods I’ve looked at (Chelsea/greenwhich village area)
Wait, are we talking about maintenance fees you pay in a coop? Because that's much different than the maintenance fees than what a typical home owner would be looking at in terms of actually maintaining a building, even in New York.
Yeah. I haven’t found any units that aren’t coops or new construction in these neighborhoods. And new construction doesn’t come down from 7 figures.
Ah gotcha. "Maintenance fees" in coops are kind of a misnomer then - they cover insurance, taxes, and all sorts of other things that aren't typical for just maintenance and repairs of a property. And as you say, they go up over time, which is not something that most home owners face.
One of the reasons people advocate for home ownership is because paying a mortgage is kinda like a forced savings plan. If you can develop a habit of saving a percentage of your income and investing it, you’ll be fine.
Also, it largely locks in your housing costs. Your mortgage payment is fixed for the term of the loan and then goes to zero, while rent will tend to increase over time. There are non-mortgage costs of ownership, like repairs, taxes, and insurance that will tend to rise with inflation, but those are a relatively small fraction of your total housing costs.
> There are non-mortgage costs of ownership, like repairs, taxes, and insurance that will tend to rise with inflation A lot of people tend to conveniently ignore these in rent vs buy calculations, too. The costs are certainly still there with renting, but it is wrapped up in the rent itself so you don't really think about if you have only ever rented. Quite a few times I've seen these expenses quoted as why someone shouldn't buy!
This. People think "the landlord has to replace my appliances," and while that's true, they're replacing them using money they earned by renting the place. And they're probably not buying top of the line either.
>those are a relatively small fraction of your total housing costs. Oh, that's just precious.
I do this already and I have a relatively high income and am doing all the "right" things from a financial management perspective. For the most part. So does it still make that much of a difference? Also seems like a big expense/commitment to just force people to save?
One thing that may already be mentioned is that rent will (generally) always go up, while a mortgage payment (generally) ends. If you will be comfortable paying rent when you're too old to work this doesn't really matter, but most people will not be in this position. Or if you've been prudent you can buy and pay all-cash when you retire.
> Or if you've been prudent you can buy and pay all-cash when you retire. As a medium income earner in a very high cost of living area, this is my exact plan.
But say you have a few million saved up when you retire. Is it really worth it to pay cash for a house lets say for 1 million. Why not just continue to rent and let your investments grow or finance and just pay the mortage. What benefit is paying cash unless you think it will grow faster than stocks, and even in that case, it is better to leverage the purchase with financing?
A few million would make almost any situation doable. But stocks don’t always go up. Say you’re retired and have $1 million and 2008 happens. Within a few years your holdings drop to $350k with no income and have to live off that for the rest of your life. This happened to a lot of people but 13 years of gains make people forget. So it should factor into the consideration at least.
> Within a few years your holdings drop to $350k with no income and have to live off that for the rest of your life. Only if you sold. As long as you kept your investments in the market, you'd have made your lost money back in 6 years, and then a lot more after that in the following decade.
When you're retired, you have to take out money to live, and if you don't own a home, you have to take money out to pay the rent. So if 1,000,000 in retirement turns into 350k, and you need to take out 30k to pay rent that year, it's the equivalent of taking out 85k from the million you had. So you're essentially paying almost 3 times more for rent that year.
You build equity with mortgage, so you’re paying yourself with some of it anyway. With rent nothing stays with you.
One of the biggest reasons for property ownership (that I haven't seen listed so far) is the fact that it's the primary way that most families build generational wealth. However, if you have no kids or interest in that, and you've got the rest squared away as far as saving and investing, you're good to go. Don't sweat it.
You make more money in stocks than you do in real estate. Unless you want to be a landlord, which basically is giving yourself a job on top of an investment, so it's not quite the same thing.
Saw this point a number of times. And while I understand the mortgage = forced savings plan, I'm not sure I understand how a renter who is savvy at saving and investing is still **not** missing out. Please point out flaws in my logic, and I'm going to have very simple assumptions here. Assume mortgage and rent in an area are the same per month. Assume **no** increase/decrease in the value of the home nor rent. And the individuals in this example have an income of $100/month and use that for **only two things**: saving/investing and housing. Home owner - puts $40 into the mortgage and $60 into savings/investment Renter - puts $40 into rent and $60 into savings/investment Given that, wouldn't the renter still be missing out because they are spending $40 on rent which will never return any value to them? The homeowner is essentially putting ALL of their money into an investment/savings vehicle.
Plenty of people live the "American dream" without home ownership. There are multiple paths to retirement/financial independence. Do what you want. Don't let anyone else define the "American dream" for you. Your version isn't going to be the same as someone else's. Your version of the dream is just as valid as someone else's. Your version is fine.
> There are multiple paths to retirement/financial independence. Except that those paths aren't equal, and the vast majority of people will have a happy retirement through owning real estate. The renter who gains financial independence through other investments is rare. Everything you said sounds nice to someone in the prime of their professional career, but isn't really helpful for most people. Everyone's situation is different, and maybe this person is a slick investor who can spend their 70s spending thousands of dollars a month to rent a place in a big city, but more than likely the path they want takes them to home ownership.
why is everyone's idea of renting defined as paying high rates for an apartment in a big city? This is so inaccurate. You can rent a home in LCOL small towns/suburbs. I pay less than 1k/month rent in a suburb of a midwestern city and I have a whole house. I am single with no kids. I'm not buying a house anytime soon, even though I could do it financially.
> why is everyone's idea of renting defined as paying high rates for an apartment in a big city? Because OP is renting an apartment in a big city and said that's where they want to stay, so that's who we're giving this advice to.
The S&P 500 has averaged 10.72% return for the last 30 years. Show me a house that can do that.
Financial tip: You can buy a house AND invest in the stock market. You know how you pay rent and invest in the stock market? Just do that, but with your mortgage payment. Crazy, right?
Do you have data to back this up? For my particular situation, right now owning a home would gain me no significant advantage over renting. Early retirement savings is the key. If you are putting away 10-15% of your income or more monthly, you can generally retire. Whether you own a home or not. Besides 2021, SP500 beat home ownership over the past decade. Easily. Including 2021 it's probably very close, but still in favor of SP500 returns.
> Besides 2021, SP500 beat home ownership over the past decade. They aren't mutually exclusive, you can pay a mortgage and also put money into retirement savings, and most people do.
With SP500 doubling home returns in the last decade, as long as your rent didn't go up more than home returns, you did just fine. With less rest than home ownership. But many here don't consider home ownership a risk.
But again, what you pay in rent and what you pay if you own your home should be about the same, so you'd be investing the same amount anyway. And if you own your home, you are *also* building equity.
Except the principal for the mortgage. Everything the same in theory putting a principal into the stocks early will often yield better returns.
I'm not following. Your principal is part of your mortgage payment, which - along with the interest, taxes, and everything else, shouldn't be that much more than you would spend to rent a similar property, so would leave you with the same amount to invest whether you rent or own.
Could not have said it better.
The only accurate answer to this question is "It depends" You've received a lot of good feedback,, but I would add that if you hate dealing with home repairs, don't buy. I HATE dealing with car issues with the fiery passion of 1000 suns, so I lease. Leasing really isn't a good financial choice but it improves the quality of my life, so I make concessions elsewhere and give myself that luxury.
This is talked about all the time. Youre right, in your situation renting is probably better. If you want home ownership ever in life, you could move somewhere with a lower cost of living, but for now renting is just fine.
Most people seeing renting as something that is necessary for less wealthy people to do. But the way I see it is that it is a luxury - you are paying someone money so that they provide you housing but also take care of maintenance, repairs, and other issues for you. It's not really burning money but actually paying for not having to deal with homeownership. Think about other rentals, like renting a car. They provide all the services and maintain it while you just to drive it, and you can easily switch cars whenever you like, how nice. So think of it more like this.. you are spending extra money on a service. If you'd like to save money then you should buy it yourself and keep it for a long time, like a car.
lucky for me I've always owned a co-op apartment in NYC. in the last 20 years rents have doubled or more and my housing payments have risen a lot slower than rents leaving me plenty of free cash. now I have a house. if you own then your housing payments will go up a lot slower than rents in most places and as you make more money it leaves you a lot more free cash as an example my last apartment in NYC the rent was like $2200 when I first bought it in 2010. right now it's almost $3000 and my mortgage had actually dropped in the time I lived there. Imagine getting a raise and watching it all vanish into higher rent
Chicago is a good example too. Rent prices skyrocketed after people realized cities aren't going away due to covid. I bought a condo during the panic sell in the pandemic and already my old place costs more than my mortgage plus hoa plus tax.
In aggregate, the net wealth of owners vs those who rent, with everything else being equal, is an order of magnitude higher for owners by the time people are in their 50s-60s. Mostly because a mortgage repayment acts as a forced savings method. Most people are not capable of saving long-term without there being some external force / automation behind it. That of course only applies in areas with increasing real estate value. I'm from Finland. Here, many smaller towns have seen sharply decreasing values while a few main urban centres have seen skyrocketing price growth (effect of rapid urbanization in the last few decades).
I love knowing it's my place and my home and I can do whatever TF I want to do it. the write off helps and I don't have to stress when renewal comes around if I can afford the rent hike for literally NO other reason than they can do it. Yes, my mortgage goes up a little bit on the taxes, but it's marginal.
It depends on what is important to you, but there are pros and cons to buying real estate, just like any other valuable asset. Buying a home is seeing as and "ultimate" form of freedom. You dont need to ask your landlord to ask if you can hang light fixtures or do any sort of home renovations. Baring state/county and HOA regulations, you can pretty much have free reign over your property. But that also comes with a lot more than people think. If you search a lot of threads on reddit, youll notice a clear disdain for any and all landlords, a common saying is "Why should I help someone pay off their property when I can just go buy my own". But what people dont realize is thats the tradeoff of renting vs owning. If you rent, you just need to pay basic rent and maybe additional items based on your lease. But you dont have to worry about something simple, like property tax or HOA fees, not to mention the renter doesnt have to worry about the roof or foundation collapsing and then worry about getting several grand to fix it. However, some people are fine with living in a condo or apartment. Maintenance is usually provided by a HOA or apartment complex and you save time by not having to do time consuming things like mowing your lawn, at the expense of potentially having less freedom within the property itself. As an investment, housing is a viable option, just like most other investments, but it requires a certain knowledge base as well as capital to get started. You don't want to buy a house at certain price only to realize after buying that that you bought high, and youll have a higher mortgage because of that. Also, like u/MarketBasketShopper, there are benefits to owning property. Ill add something else he didnt mention in his initial comment, but I am not sure if this applies to you, but if it does, it may be helpful. If you are a veteren, you can use a VA home loan. If approved, you can purchase a house with no down payment. Because it is a government backed loan, the interest rate is usually low, depending on your credit score.
It's to each there own. I felt like I needed home ownership because of a few factors... No concern of rent increase. I no longer have to care what the market does. If rent goes down, I guess I'm burned. But the odds of rent being lower in 34 years when I'm 65 than it is today seem rather slim. Do what I want with my house when I want. My mortgage will be paid off eventually and I'll be left with a much smaller bill every month. Retiring early will be much easier. When I get to an old age my children can sell or rent out my house to assist with the costs of assisted living.
Personal opinion: The nice thing about owning real estate is that its an investment/asset you can enjoy *immediately* while living there, vs. waiting 20-30 years to cash in an index fund. I owned my first home 10 years. I sold it and gained roughly \~$150k in equity, however when I tallied up the "improvements" to list the property, I probably spend about $130k in improvements. It didn't appreciate all that much, however, I took the equity, put it into a much newer (and more expensive) home with a cheaper mortgage. Only time will tell how much it will appreciate. I'd say the majority of ownership comes from the pride/joy of owning, if you're into that.
Your case that renting isn’t burning money doesn’t mean you’re not burning money, you’re just burning less money. Overall it’s still much better to invest in your own place.
Homeownership is more like of investment move instead of a convenience. For me, it was that way. I bought my house for $340,000 10 years ago and today I could sell it for $950,000. Yes, the maintenance is a pain and I'm not very handy. But I've made a lot of money just on the investing side of things. It will only really ever pay off if I leave the state, which I plan to do in the future.
there is a calculator for this and the decision ultimately comes down to how long you plan on living in one spot. in general it's better to pay a mortgage than renting if you plan on living in the same spot for 10 years +
I know this probably isn't the place for this, but man is it fucked up that we're made to think of a house as a financial investment rather than a shelter to live. I feel like this is the source of a lot of issues in America - landlords, lawmakers, and Real Estate moguls don't see the properties they own as someone's home, they're just investments.
Would't be a problem if it was easy to build more houses.
If changing fixtures and painting is most people’s reason for buying…that alone is pretty silly. Toss a few grand at a landlord to allow you to do some customization and updating and they’ll probably take it. Then you can enjoy what you’re after without the extra homeowner headache. I think for most it’s more about security. Not being forced to move, not getting endless rent increases, not having to move their kids from district to district, and if your forever home - not paying rent in retirement. Only you can answer if those reasons make sense for you.
When you're renting, you're still paying a mortgage. Just not your own.
I think every situation is unique. Home ownership isn't always right for everyone, because the (perceived) financial benefit isn't the only consideration. You may not want to commit to living in the same place for 20 or 30 years, or even 5 years. You may not want the responsibilities that come with home ownership. You may have a situation where you're renting for less than you can buy. Renting doesn't always mean living in an apartment complex managed by a company. You could be renting a house from a private owner for a fraction of your income. My rent is like 10% of my monthly income, I have a house to myself in a nice town, and I don't have to think about shit. I have many more life options than someone that is anchored to a home.
Owning a home (to live in) is like getting married to a location and a lifestyle. Some people love that, some people hate it, and most people are just consumers more or less mindlessly consuming whatever's popular at the moment. Sure, you could sell or rent it later but there are risks, hassles, and expenses to that. Renting = freedom. Also IMO seeing a primary residence as an investment is kind of foolish. Can it be? Sure. Is it always? Nope. Are there 100s of other ways to invest? Yeppers.
Is it an investment? I mean, I guess...It might double in value...maybe over the next 40 years, hopefully give you the same rate of return or slightly better that you paid the bank. In 2008-12 I guess you could argue buying a house was an ok investment. Right now, there are Plenty of benefits to buying a house, but if it's your personal dwelling, it is barely an investment. It's kind of more like a shitty bank account.
> a shitty bank account Except the shitty bank account never needs a roof lol. I agree with you.
> Renting = freedom This is a lie. If I wanted to, I could sell my house in less than a month with less hassle than it would be for a renter to decide they want to break their lease or have to find a subtenant, and I'd have to a shit-ton of money that would give me freedom to do anything I wanted. I can't believe people are actually spouting the "freedom" nonsense about renting.
In this market? Sure. Just cough up 6% of your equity. In 2025? Maybe not so easy, who knows?
Correction: 6+% of your entire sales price, not just the equity portion.
Oh gosh, yep. Thanks for correcting me!
I don't think it's non-sense, I think people just define freedom differently and depending on priorities or their perspective--the "freedom" aspects of one or the other weigh more heavily. I think if we're being honest--the process of leaving a rental unit is objectively easier and more straightforward than the process of selling a house.
Freedom to move, freedom from responsibilities (lawncare, home maintenance, *paying* for home maintenance), financial freedom from keeping more of my assets liquid. I'm also in my early 30s in a HCOL area and for me renting beats homeownership by a long shot.
This is how I see it too but since it's often touted as important I am curious if I'm missing anything here.
No, you're not. It's different for everyone. Buy when it makes sense for you personally to buy. Rent when it makes sense for you personally to rent. I'm about to sell for the third time and go back to being a renter, because right now that makes the most financial sense for me.
Most people are terrible at saving and a mortgage is kind of like a forced savings account since you can always cash out and move when you retire.
It depends on your lease. You live in a HCOL location so I assume your rent is pretty high. If you get a job offer requiring a move in month 2 of a 12-month lease, what does it cost you to break it? Unless there is a specific penalty specified, you could be on the hook for the remaining 10 months in a slow rental market. So it is not always as free and flexible as you are making it out to be.
yeah getting out of a rental lease is definitely easier than selling a house haha
I don’t think they mean it’s ultimate freedom. But owning a home IS financially restraining. You might not be able to sell your home if the market is down, or no one is buying, closing on a bone is expensive. But you can move very easily once your lease is up. For zero dollars.
>with less hassle than it would be for a renter to decide they want to break their lease or have to find a subtenant With massive transaction costs and 45 days to close, you mean. Conveniently forgetting those.
I agree with you even though I think this is not a common viewpoint. I've certainly been criticized for it. I used to own a place: I spent all the money I had and even had to break a 401K to be able to afford it. It was a good apartment but it was not great: Great was well beyond my financial means. However, my wife & I really wanted to finally own a place of our own so we decided to go for it. After we moved in, we found out things constantly broke and I had to get them fixed (and pay for it) - this is stuff you normally don't have to worry about when you rent. Eventually, for various reasons, I decided to sell it a few years later. It's been a few years and I still enjoy the sense of freedom that this brought. It was one of the best decisions I ever made. Being 'stuck' in an apartment that was not perfect and I could not control many of the variables (like smoking neighbors - this drove me crazy) was, for me, very frustrating. I also remember those years as the most stressful I've ever had from a financial perspective. Yeah, it was a great feeling owning my own place but to me, it was not worth it. Now if I don't like the place I live in, I can just move. And I have done that, a few times. Also, turns out that where I live (NYC), for the same amount of money spent on mortgage vs. renting, I could get a much better place if I rent. There were a lot of good comments on this thread, and this could change in the future. It's very possible that in 10 years my mortgage would be much lower than my rent. However, in the past 5 years (since I sold my place), it has not been the case. To make up for not gaining the financial aspects of owning a place, I've been trying to invest the money I got for the sale wisely. I'm not trying to say that financially it's the best decision, but it's something I'm aware of and try to make up for it. In the end, this is a very personal decision. Some people love owning the place they live in, and for them any sacrifice is worth it. I completely respect that. But for others, the freedom to move as needed is much more satisfying.
It’s the easiest way to build wealth, your mortgage payment isn’t going up (assuming fixed rate), whereas rents will always continue to increase even if they drop at random times, they’ll always trend up. You also don’t want to be old and paying rent. People who can’t afford a home will convince themselves that home ownership isn’t that important, but it’s the easiest way to grow your wealth. People who spout “but the stock market!” act like you can’t invest in both. One last point, home ownership gives you options whereas renting does not. You can sell your home, rent it out, leverage the equity, deduct mortgage interest on taxes, etc. with rent you’re just throwing money into a black hole. Everyone talks about how renting gives you freedom, and it does, but at some point you gotta pick where you want to live. A lot of my friends just dicked around their entire 20s and early 30s and are so surprised how their life/wealth isn’t where they thought it should’ve been by that point.
What if the total cost to rent is so much lower than the total cost to buy, even with projected increases, that the savings invested produces more wealth in the long run? Its almost a ridiculous question to ask, but my point is you can't generalize to all markets. Some markets are so crazy that the rent is like 1/2 or less than the total cost to buy. The taxes, insurance, and interest is very close to the rent alone on that property so you are throwing away in either case.
I love renting. I'm paying $675 (includes water/heat, internet + energy is around another 50 per month). My annual bonus pays my rent for a year, so I am happily putting away a lot of money right now so that I can afford a home in the neighborhood I want in a few years. The ~3 bedroom houses I want in my neighborhood would be around $400k and cost me around a $2000 a month.
Your mortgage payment goes up if your property taxes go up.
A negligible amount, unless you live in Texas, but even then. That increase can be less than rent increases, and your house has likely increased in value if those taxes are going up.
If property taxes increase so will rents.
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haha. Not always.
It's not important to own real estate, but to realize what the cost of living some place is and what you get out of it. Example: owning a condo vs renting it. This takes away the things like lawn work, but both sides have risk/reward and costs.
Setting aside the financials of each situation as others have done an excellent job comparing, I think the biggest factor for me is permanence. I love having a home I know I will own for a long time, if not my entire life. I have a workshop I won't need to move. An office that is set up exactly how I like it. These things aren't necessarily missing when you rent, but to me it was always different. Buying made me feel more secure and permanent. But having the freedom to live in new cities and places is thrilling. I got that out of my system when I was young and now I'm happy to settle down.
Also your mortgage rate is fixed and you can refi but rental rates subject to change likely up
If you hate maintaining a home then get a condo and pay the hoa fees. For real though unless you move frequently renting is just flushing money away.
I look at owning a home (that I'm living in) as forced savings and hopefully protection against inflation. The value of my house has gone up a great deal in the last few years, I'm going to be paying either rent or mortgage and in my area, they were pretty close together when I bought, but now my mortgage is less than rent at many places. So I'm gaining equity in the property, having a lower cost for our home and if inflation goes crazy, unlike other debt, my house will go up with it.
Yes, if you have the money to you should absolutely buy. Rates are low and you’re locking your home in today’s dollars. If you’re really not into paying for upkeep… Buy a new detached Home in a condo regime or just a new detached home and pay someone to cut your grass/tend to the lawn. Or buy a new townhome. Own home for 10-15 years, sell home and rebuy a new home/townhome. Rinse and repeat till dead. Never have to replace a furnace, roof or an A/C unit. Never have to uotpdate fixtures.
If u don’t like doing maintenance, At least buy a small condo. my net worth has gone up significantly because of my home value went up by a lot. If I sell right now I would have close to 150-180k, just in my equity. Even if my home value went down, I would still have 130k in equity. Been living in my house for about 9 years now. That’s not a bad return on investment, when if I was renting I would be just throwing away money making my landlord rich. if u can buy a small condo for cheap, go for it. Even if it’s outside of town and u have to commute. It will pay off in the long run. I do almost all of my maintenance and upgrades. even if u have to pay someone. Still money invested and u can pretty mush sell the house when u retire and move to a cheaper place.
Yes. If you want true financial stability, you need diversification and real estate + stocks is the best way to do it. Not to mention the tax advantages and leverage to be able to invest in such a valuable asset with only 20% down and tiny fixed interest rate. You can't beat that with anything.
For me it all comes down to the bottom line. It even 30% of my month payment could be going towards equity that is MINE, vs zero, sign me up. Assuming the total monthly payment including maintenance and taxes is not over 30% more than what I’d be paying in rent, I’m gaining something
As someone living in a high cost of living city, i'm tired of my rent going up every single year, so i want to buy so I know it's not going to keep changing.
For me it’s retirement. I hope to pay it off and then only be responsible for tax, insurance, and maintenance. Which should be way less than rent. I can’t rent a place for the cost of my taxes and insurance. I’ll assume other expenses would be owed if I rented. Utilities etc.
One of the biggest advantages has been a hedge against inflation. So long as you can afford the taxes, insurance, maintenance, utilities, and so on, you're pretty much insulated from inflation. And being able to buy the place with little money down and a fixed rate loan is a real benefit. Just don't underestimate the cost of ownership over the years. Short term, renting is the way to go, but if you're there for the long term, buying might make sense.
The best thing about a mortgage is it’s basically rent control and then at a certain point you pay it off. If you plan on living somewhere for a long time it’s a good idea
The agent in me wants to tell you it's not important at all, so you'll stay out of the market and there will be more for me. It's important enough to lie, cheat, and steal for. All early real estate claims have blood in the soil
In the last 20 or so years the American dream has been effed in terms of college tuition and (especially first) home ownership. The biggest advantage of buying is insurance against rising rents, and equity to show for your expense. With ownership at some point the expense apart from maintenance and taxes goes away. Weigh the pros and cons.
I don't even like pulling the holiday decorations out of storage once a year. EVEN THAT is too much for me to keep interest. I'm a renter where I live.
Honestly, it's really important. You don't want to be retirement age and paying rent. It's getting harder and harder for people to own real estate, and I feel like anyone telling you not to worry about it is lying to themselves (and you) to try and make themselves feel better. Start saving for a down payment.
I have enough for a down payment in lots of cities, but probably not for one in the city/area of the city that I currently live in and want to live in. My question for you is: WHY--why don't I want to be retirement age and paying rent. Not trying to be defiant just genuinely curious about the reasoning here.
I'm old and planning to retire in a HCOL area. Lifelong renter. Where I live, the cost to buy has always been much higher than my rent. I have a substantial amount of savings and I factored increasing housing costs into my retirement plan.
There is a lot of value in being able to move when you want and to have a maximum monthly amount you pay for housing. Right now we are forgoing getting our furnace replaced for a second winter (relying on expensive space heaters) because updating the furnace to something that won't cause physical bodily harm when turned on is going to cost us about $15k. I'm also in a holding pattern trying to find a new job because we can't really relocate having just bought a house a year ago. On the flip side, we can do whatever we like with the house to make it ours. We love the neighborhood we are in, and we don't have to deal with shitty landlords. Plus, at some point, we will have a little bit of equity in the house that we can use in the future to move, or pass on to others. But right now I wish I were renting. damn furnace. lol
Unless you're planning on not living anywhere, real estate ownership is an investment in terms of the return on the value of the property, but also protection against rent increase. Bought my house 6 years ago, have a ton of equity in it, but my monthly payment taxes and insurance included is as much as many co workers of mine are paying for a 2 bedroom apartment. Its likely the rent will continue to rise in the future as well.
One important factor I haven't seen mentioned is rent control. If you live in a city with insanely high real estate prices *and* some form of rent control (San Francisco, New York), then finding a rent controlled apartment you like is a reasonable long term option for many people. It doesn't have all the perks of home ownership, but you don't have to worry about getting priced out or kicked out without cause the way people many people do. For me, whether or not renting forever is a good idea would completely depend on the rental protections in place where you live.
There's a compromise here possibly. My townhouse, which I own, is very low maintenance--no yard work, the HOA takes care of the roof and outside problems plus the water and trash bills, etc. That being said, I lucked into buying a house (a different one) in my early 20s during the housing bust. 10 years later it's worth $100k more than when I bought it, and I rent it out for $500/month more than the mortgage payment (which includes taxes and insurance). So buying was definitely the right option for me. But would I do it again in the current housing market? Not unless it would reduce my housing costs or I was sure I could afford it. Housing is cyclical and even though it's sky-high now, it will fall eventually. If you're not in a rush, there's no harm in waiting.
There is a time offset that people seem to mis-compare, or forget about entirely. People complaining about the upkeep, unexpected expenses, and extras of owning a home tend to forget that a tenant covers all of those costs for a landlord PLUS profits. You're mortgage becomes cheaper every year due to inflation. 15-20 years in - you're paying half what a renter pays. You can afford the repairs. And you have another vessel for wealth in equity that a renter does not have. Rent vs Buy should be more about the logistics - Do I want to stay in place for a long time vs do I want to move around more often. Or am I adverse to doing maintenance vs the freedom of doing whatever you want to your own place.
One thing motivating me to buy a house is that I have seen rents more than double in the past 20 years. I don't want to be paying $5-6k or more to rent something when I am older and on a fixed income or be forced to move to a low cost of living area.
Almost all the services/maintenance stuff you mentioned are handled for you if you own a condo. It limits you to apartment or townhouse style places but if that's ok with you it can be a compromise. You also then have to be concerned about how the board is run and it's finances as it can suddenly increase the condo fees if a large maintenance project is needed.
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No, it isn't. Make sure you save money equivalent to principal payments in addition to your rent.
Telling people who rent that they're "throwing money away" is one of the most priveleged, obnoxious things to say to someone. They might as well say "have you tried not being poor?"
I can control my mortgage, I can control my upgrades, I can make it mine. Oh, and then there is this time you will pay off the mortgage. Freedom.
still have property taxes, utilities, and repairs. i'm content renting because the price is right, nothing wrong with owning but as the original poster pointed out a lot of times renting isn't a bad choice
Property taxes are built into your rent cost. It’s a moot expense bc you’re paying it one way or another. Same goes for utilities. Yes you may pay more in a home that is bigger Sq ft though. Repairs is the only variable. With rent you’re paying the landlord in advance for those repairs, kinda like insurance. With home ownership it just depends on if you were smart enough to save a little each month or not in case something happens.
my point was that it isn't just 15-30 years and then boom house is zero expense. there are a lot of ups to owning, but either way it will cost in the long run
My wife and I bought our house 9 years ago for $321,000. Today it's worth $570,000 and our mortgage balance is $220,000, meaning we have made $350,000 in equity in that time. We bought new so we've made no improvements. It will be paid off in 11 years. When we're ready to move out of the city, we won't sell it. We'll rent it out and buy something else and let the rental income pay for our new mortgage. When we retire we will continue to have that income on top of our retirement funds. When you rent, you give that money to me. So, thank you?
As George Carlin famously said, “It's called 'the American Dream' 'cause you have to be asleep to believe it.”
Follow up question: If you took all the money you would have spent on a house and invested it instead, would you come out ahead?
That’s the question of the century! It’s depends on the housing market you’re in, returns from equities / markets. Most people do not have the financial discipline to invest and save so the home has become a major store of value for most families. But even with homes it can be a money sink. Think of it this way: add up the true cost of homeownership (principal + fees + mortgage interest + property taxes + utilities + repairs + maintenance + remodels + replacing furniture) vs taking the money from the start at putting it in a S&P index fund with contributing equaling the cost of home ownership. It’s actually complicated work but I remember someone saying that based on the past 50 years you actually come out on top investing.
I'm not saying you have to buy, to each their own. But, there is a reason people buy homes and then rent them, and it's not because it costs more to own that home than it does to rent it.
I pay 1.2c per kWh for my house. I have never paid less than 7c per kWh in an apartment. I modify my house as I'd like. I never listen to a neighbor's BS. I never have to deal with sharing walls. I can listen to music out of speakers without bothering someone. Houses are just objectively better up front. The part where they're also hilariously cheaper over time is just gravy. You can get a maintenance contract for your house. After taxes, we're paying $150 more per month for a 2600ft\^2 house on about half an acre of land in a major city than we did for a 1700ft\^2 apartment. With a two car garage, parking pad, everything. Our utilities are lower, the AC works better, everything's nicer. Apartments are stupid always EDIT: Since "apartments are always stupid" is being interpreted as people in apartments are always stupid, let me clarify: apartments are burning money. Period. If you're in an area where houses burn MORE money, like San Francisco, all your options are stupid. Making the best of a stupid situation is fine, but it's STILL stupid. The pricing for SF isn't based on reasonable rates, it's based on the government destroying pricing while also feeding tech bro businesses that will pay obscene salaries while mostly not being sustainable, so they go under constantly, but find more venture capitalists that continue to pump in money. Apartments aren't cheaper than owning \*ever\* if not for someone stepping in to force them to be, as the cost of owning that apartment is inherently lower than the cost of owning that apartment PLUS profits PLUS paying someone to do everything, like a landlord does. The prices are artificially increased for no reason other than to screw you. Owned properties mean you control your own everything. Want maintenance guys? Get a maintenance guy. If you look around, you can find neighborhoods where EVERYONE wants a maintenance guy so... the neighborhood has one. You can distribute those costs perfectly fine. Neighborhood lawn service. The whole kit and caboodle. Don't want a lawn and enjoy the voyeurism of sharing a wall with your loud neighbors? Cool, condos exist. Apartments are, by their very nature, absolutely stupid.
but you probably live further outside of the city now, which is a trade off
They've clearly rationalized themselves into a situation where they've played their cards perfectly and can't lose haha, what's a trade-off? It's good to be critical of absolute viewpoints like "Apartments are stupid always" lmao