Beyond financial costs, I was caught off guard at how much time home ownership took up. House maintenance and projects have taken up most of every single weekend of mine for the past few years.
Part of it is simply that I bought a house with more space than the places I usually rented. More to clean, more to maintain, more things that can go wrong, etc.
But the biggest thing is that I'm the only one in charge of maintenance. There's no one person I can call for every single problem. Keeping track of regular maintenance, performing that maintenance, and learning how to DIY things takes a lot of time. And even if I want to pay someone to do it for me, I still have to research contractors, coordinate estimates, and schedule the project. And I still need to learn enough about the project to determine whether they're doing it right!
Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
>But the biggest thing is that I'm the only one in charge of maintenance. There's no one person I can call for every single problem. Keeping track of regular maintenance, performing that maintenance, and learning how to DIY things takes a lot of time. And even if I want to pay someone to do it for me, I still have to research contractors, coordinate estimates, and schedule the project. And I still need to learn enough about the project to determine whether they're doing it right!
The thing is, you can actually find these people. My landlord has one. Sage old handiman who knows everything about how the building works and fixed half of it himself already. Seemingly he can do every trade. He's under the building doing plumbing or electric one day. Landscaping the next. Installing appliances. Paint and drywall. Roofing. Most of the time it's him by himself, but he will occasionally bring out his crew of similar sage old handimen who know seemingly everything there is to know.
You don't need a contractor. They will give you the runaround. You need to find a handiman like this. Not easy I'm sure, but they are out there.
> Seemingly he can do every trade. He's under the building doing plumbing or electric one day. Landscaping the next.
Doing this is basically illegal in modern day. The requirements to get even one trade license, much less more than one, are set up to make it uneconomical unless that trade is your full-time profession. Who can justify doing a multi-year full-time apprenticeship in each trade when they expect to spend 85% of their time mowing lawns and painting decks and other things that aren't that trade?
There are still people who do it, of course, but then you're stymied by their inability to lawfully advertise their services.
The other trouble is that every handyman thinks they have a great handle on everything but have at least one blind spot where they do really, really stupid stuff.
More often it's just that the situation changes with time.
Like someone will work with existing shared neutral aluminum circuit spaghetti because that seemed right when the scope was narrow. Maybe they're just throwing an outlet on the opposite side of the wall for someone's CPAP machine. Maybe they're actively avoiding putting it on the bedroom circuit because of which window the A/C goes in. Then the scope grows, circumstances change and the specialized solution is no longer optimal.
Then the next owner shows up and has to troubleshoot something and between hindsight and the smug know-it-alls on /r/everytrade (seriously, the internet is great at driving off people with wisdom and experience) they pronounce the prior guy to have been an idiot.
A large number of people can't afford contractor rates, so the alternative to the handyman is doing the work themselves. Who is more likely to screw it up, the person who does it once a month but not every day, or the person who does it once in their whole life?
The problem is the "handyperson" may "know" (but not actually) and do what they think they know. When I encounter the same task, I don't know I stop and try to learn the right way first. So there's a good chance the homeowner is actually on a better path.
A lot of the handypeople you hire, kinda by nature of being under-the-radar, also end up intentionally cutting corners where "it doesn't matter" because savings are a priority for their customers, and it can go too far. I, on the other hand, at least know I'm not trying to cheap out on my own work just because my last customers were broke and I'm conditioned to working in that mode.
> The problem is the "handyperson" may "know" (but not actually) and do what they think they know. When I encounter the same task, I don't know I stop and try to learn the right way first. So there's a good chance the homeowner is actually on a better path.
Maybe that's true for diligent technical people, but they're not the majority. The average person is going to watch a YouTube video, run out of free time and wing it.
> A lot of the handypeople you hire, kinda by nature of being under-the-radar, also end up intentionally cutting corners where "it doesn't matter" because savings are a priority for their customers, and it can go too far.
This is just humans again. Plenty of people willing to skimp out on something, even when it's for themselves, when it means saving time or money. Especially the people short on time or money.
> I, on the other hand, at least know I'm not trying to cheap out on my own work just because my last customers were broke and I'm conditioned to working in that mode.
This is the argument for doing it yourself when you have the time and wherewithal to do it yourself. It's not an argument for pressuring people to do it themselves when they don't have the time and wherewithal by making the only other lawful alternative be the one they can't afford.
I'm sure it varies from location to location, but my handyman has said that the line here is modifying existing infrastructure versus installing new stuff. The former is fine without a license, the latter not. Thankfully, I've never yet needed him to do work that falls in the latter bucket.
There's a fine line between large modifications to existing infrastructure and "new stuff". You need a handyman you can trust in order to know the difference.
It also depends on your insurance situation. If I'm doing renovations, my house insurance company will not honour my insurance if the work is being done by a contractor without knowing the insurance status of the contractor.
One thing to consider is whether there is a reasonably-priced "emergency contractor" service to which you can subscribe. Enercare in Toronto offers plumbing protection for $21/mo and electrical protection for $16/mo. Service calls — 24 hour service calls — are included and covered in the plan, and labour for fixing the problem is included. We've had multiple cases where we've needed to call a plumber out to look at issues and it would have cost ~$200 to get them in the door and more than $400 by time the work was done. We've also used them for discounted plumbing work (15% off labour and most parts) in the past when we didn't have a different contractor for something we needed done.
Honestly the most shocking think i learned when moving to Massachusetts was that only licenced trade people can request to have work done inspected. This was insane to me. Why would towns not want amature work not to be inspected. It wasn't illegal for a homeowner with poor experience to electrical, gas, HVAC, without a inspection... It was wild, I understand know its like this because its basically impossible to get certified in trades without it being your full time job and scares people from doing stuff on their own. But I think its also really damaging to society because people who don't know what they are doing will still do things and it shows in houses in Massachusetts which have incorrect wiring, bad plumbing, unlevel floors. Its because we overly protect the trade from handyman.
Oh, wow. So if you buy a house and find some sketchy looking work later on, would you have to find a pro to even call in an inspection, and would they even do that without getting some commitment to fix it if something's wrong?
If you treat your house like a rental that you rent to yourself, you can avoid a bunch of headaches - mainly because you’ve given yourself “permission” to spend on it.
wait ... There are landlords out there who will "spend on it"?
Mine took 3 weeks to replace a broken HVAC when it was 35 degress out. 5 days to fix a toilet that when flushed dumped sewage into my downstairs neighbors ceiling.
Maybe if you're treating yourself as a tenant but your run of the mill rent extracting (or worse, middle man) landlord is the cheapest creature on the land.
There are, but they're often found in places where the rent pressure isn't so great (e.g., there are many options for renters). When demand is so high or prices are fixed, everything else goes out the window; because what are you going to do, move?
Don't know about your landlord specifically, and I'm no landlord, but there's also a bunch of people (including homeowners) that will wait until summer starts to test and then complain about HVAC... just on peak season for HVAC maintenance, where the waiting times are long (and the price will probably be higher).
You jest, but a couple of years ago I added myself to my company’s workers compensation insurance in case I get injured. If I ever do I’ll have to put in a claim against myself and hope my insurance covers it. :P
The old handyman probably might not need new customers and even if they do, they probably don’t want random homeowners because the inexperienced tend to have unrealistic expectations and only own one property,
To provide a counterexample, my parents always had a handyman growing up. I think they still do. Not the same guy through all the years, but they've always managed to find one.
Most other things (besides obvious big things like foundation, drainage, roofing, load supporting areas) can be done with a good "fix it all" kinda person, or (with patience) youtube.
If you're comfortable doing DIY a lot of equipment can be rented at your local Home Depot or similar store. I had a clogged sewer line and rented a drain snake for the afternoon. Much cheaper than calling the plumber.
If schlepping packs of shingles onto a 150deg roof was as easy as pulling wire or laying pipe (heh) they'd have trade groups and lobbyists convincing the government to keep you from doing it yourself just like the lower altitude trades do.
Realtors tend to have a lot of contacts. The realtor I worked with knew “a great guy” for every aspect of the house (roof, plumbing, cabinets, driveways, etc.) due to the fact that she naturally encountered so many of these tradespeople.
She would get recommendations from sellers. Either the seller recently had work done in order to improve the home before putting it on the market, or, the seller had some trusted expert they used for years.
My realtor actually encouraged me to ask her for any contacts if I needed something done in the future. I sense that her contacts like having customer referrals as well.
Realtors often have a list of contractors they rely on to help potential sellers get their homes ready for sale. I have found and used recommended roofers, plumbers, HVAC and electricians from a local realtor that wants my future business.
I would caution seeing a Realtor as an easy way to avoid doing your homework on someone. I did this long ago and the Realtor's recommendation was one of the worst I have ever worked with.
There is, unfortunately, no shortcut to finding quality handymen.
Seconded. What Realtors value in a contractor is someone who will respond quickly and do a job that looks good on the surface to avoid delaying closing. For the most part they don't know whether the job was well done and will hold up over time since they are already on to the next house.
you can definitely save a lot of time by asking your friends for referrals. Anybody who loves their Electrician/Plumber should be listened to in particular.
A good realtor will often not recommend the same contractors that they use for prepping a home for sale. The requirements for getting a home in saleable condition and getting a home in livable condition are not always the same.
Instead they act as an information hub for homeowners.
Obviously "good realtor" is doing a lot of work here, and I don't know how you find a good realtor (kind of lucked into mine after having a terrible one for my first purchase).
It sucks to find good tradespeople because word of mouth does so much for them that they hardly advertise. So if you actively look for one, you tend to ONLY find the bad ones, and you're actually less likely to find the good ones... unless you know someone who happens to know someone. Which sucks since I don't know anyone (and trying to look for someone encounters the exact same problem)
This is my experience as well. Maintenance of the house and the property is a huge time sink, but the worst offender is the distance to everything and how you need a car. Driving around constantly in suburbia is absolutely maddening. Oh and the car needs maintenance too. Changing tires, service appointments, keeping it clean, shovelling snow so you can get to the store.
We sold the house and moved to an apartment in the city last year. Now I have time to hang out with my family, we have all these restaurants and things to do everywhere. Got rid of the car and I bike to work.
My maintenance now is pretty much:
- Mow collectively owned lawn once per summer
- Spring and autumn cleaning of collectively owned spaces. One or two chores. Last autumn I cleaned a carpet. This spring I cleaned two bathrooms and checked the fire alarm batteries. Then each time we had a barbecue after the chores.
- Service bicycles when needed
- Make sure food isn't rotting in the fridge
Oh and I have time for hobbies too. My kids have way more friends now (playgrounds are really spread out in the suburbs and they are mostly empty) and the area we moved to is a lot calmer than in the suburbs where teenagers would roam around and be loud because there was nothing else to do.
We might get something like a summer home to be close to nature when it's nice to be (currently we rent a cabin for a few weeks in the summer) but just everyday living is so much better in an urban environment.
> I don't think home ownership is an "every single weekend" thing unless you bought a fixer-upper.
It really isn't, and I don't know why so many homeowners act like it is.
I bought my house in 2015. It was built in 1983.
The only things I've had to do are a roof replacement, HVAC upgrade, and deal with a broken water main.
Sure, none of those were cheap, but that's 3 events in 11 years, and the first two I expect to not have to do again for at least 15 years, and the water main was a random one-off thing, and it didn't flood the house. It put a lot of water into my crawl space, but it didn't become a problem.
People who swear by renting will use it as evidence to show that owning is more expensive than renting, but I think they just ignore that those costs are factored into the rent, not to mention the fact that once I noticed my roof had a problem, I had people out the NEXT DAY to give quotes on replacing it. When I replaced the HVAC (Old A/C compressor was frequently tripping the breaker and was underpowered), I was able to choose to upgrade rather than dealing with a landlord who would install the cheapest thing they could find.
But ah...I've digressed.
The point was that home ownership isn't nearly the maintenance burden some owners seem to claim it is, and when there is a problem, being the one in charge of getting it solved, rather than having to harass a landlord into solving it, is nice.
The incentives change when you become a homeowner. You reap the benefit of any improvements you do to the property; you also know for sure when you're going to leave it, and you have the freedom to do whatever you want to do to it. Before, when you were renting, any improvements you did were throwaway time and money, benefitting the landlord and future tenants more than yourself.
Many homeowners respond to these incentives by doing more improvements.
This is also why many governments (both local and federal) subsidize homeownership. It incentivizes residents to improve their properties rather than let them rot, which has positive externalities for many of the surrounding properties.
Are you saying that during the 11 years you never had an electrical issue, window/door breaking, a paint job, a clogged pipe, mold growing somewhere, a tree that needed handling, etc... You either have very high quality materials, don't care or were just lucky. Usually something (small/medium) breaks every 2-3 months or so and something (medium/big) breaks every 3-4 years or so. Depends on usage too (1 person is very different than a family of 5 where 3 are kids jumping around).
> electrical issue, window/door breaking, a paint job, a clogged pipe, mold growing somewhere, a tree that needed handling, etc
I did forget about two of those. I did need to get some trees handled a few years ago. Was about $3,000 to get like 5 trees (A couple over 150 feet) removed. And we did get the house repainted, but that wasn't completely necessary, but was a nice to have. Wasn't that expensive, surprisingly.
But have not had electrical issues (Unless you count installing an EV charger), broken door/window (Unless you count my dumb ass trying to walk through a screen door and tearing it up, but that's a $150 replacement from Home Depot I install myself in 5 minutes), no clogged pipes, no mold.
Even my water heater has been fine. No idea when this tankless heater was installed, but it's been 11 years and no leaks or problems.
I did have the garage door tension spring suddenly snap, but I'm fairly sure that was only $300 to get fixed.
Again though, if I was renting the cost of all this work would have been included in rent. Sure, renting makes living costs more stable, but in the long run, I'm not convinced there's a scenario where it comes out cheaper, even if you're investing the difference. Rents in my area have gone up 75-100% in the last 10 years. My mortgage stayed the same.
EDIT: I suppose if you're in an area where rents are significantly cheaper than mortgage payments, it may be cheaper to rent. But in my area, it's very close to 1:1. When I bought my house, it was $340K, minus a $20K down payment. $320K at 4% for 30 years was $1527/month. Plus property tax brought it to about $1,900/month. Meanwhile, the rental estimated value was $1,800/month.
Rent is determined by supply/demand. In the USA, rents are higher (than buy) because rental businesses are dominated by companies who can do the math. In many parts of the world, rental businesses are small/micro by someone/family who want to own property.
So for many people around the world, it's more economical to rent. You are basically being subsidized by the people who are obsessed with the idea of owning a property.
A unit (multi-dwelling property, not necessarily an apartment) might cost 650k here, but only rent for 500$/w. 25kpa is a 4% return on that principle, before expenses (property management, maintenance, rates/taxes etc).
The only context in which it makes sense is if capital gains/land value goes up, which it has historically but that's no guarantee.
Houses make all these numbers even worse - higher upfront expense (land value) and lower rental yield (they rent for more, but tenants prefer a better house/dwelling more than they care about a back yard, so cost goes up more than rent does)
More to the point, some people just want to be constantly changing/improving things and a subset of those folks need to acknowledge that this is a choice not necessity.
Most homes are fixer-uppers. They graduate to that after just a couple decades. I owned 2 homes, both in the 20-30 year range in 2 different cities.. combined (sometimes both) they needed... new roof, new hot water heater, kitchen and bathrooms updates and water mitigation, pest damage and control, leaky pipe fixing, wood deck replacing, furnace and AC replacements, basement flooding issues, foundation issues, probably more I can't remember.
Home ownership sucks and after selling my previous home I'm so glad to be renting. Just never having to deal with another contractor makes me so happy. :)
Apartments are the middle ground. I bought one about 4 years ago and haven’t had to do anything. Any issues like water heaters and such get handled by the building management. Eventually I’ll have to repaint and repair the internals but it’s been good so far.
If professional inspectors cannot tell what makes you think you can? Our first home was inspected by a bank inspector + my wife's father who works in construction and everyone found it OK. We had the second home inspected by 2 separate inspectors and both OK'd the house with only minor issues.
All our friends have equally terrible stories. Maybe you just got lucky or haven't owned a home yet?
Most "professionals" in most professions are mediocre, and even when they have potential their incentives are rarely aligned with yours. Bank inspectors don't care about the same things you do, and construction workers don't necessarily have skills which are directly transferable to inspection, at least not without training and practice.
Saying that out loud, yes, inspection is a skill like any other, and it's a bit simplistic for me to say that "obviously that house is good/bad," at least as an intervention I'm recommending to randos I don't know.
But...if I've just gotten lucky then I should buy some lottery tickets. I'm never wrong when I point out the places a house is going to fail or the places where it's going to succeed. My background is a bit off the beaten path (lots of construction, handyman activities, bank demolitions, out-at-sea yacht repair/captaining/maintenance/emergences, electrical installations, whatever -- at least until I finally settled down into a more stable tech career); maybe that helps, or maybe I have some loose wires upstairs. Whatever the case, I don't think it's hard to avoid a bad house if you take the time and care to properly inspect it (and it might take a lot of time, including some disassembly -- big red flag if you can't peek into the internals, and I wouldn't make a multiple hundred thousand dollar investment if you aren't allowed to check on the details).
Yardwork and cleaning can easily take up hours per week. That's why we outsource it. When I was a kid, it felt like all my dad ever did on the weekend was yardwork, fix cars, and drive me to sports practice.
Hi - homeowner here who is NOT in an fixer-upper. "every single weekend" is clearly hyperbole however here is regular maintenance for me:
- once a quarter clean the pollen off the A/Cs
- once a week clean the pool (okay I pay someone but still its part of maintenance)
- inevitably something on the pool goes wrong
- once a week clean my grill
- Blow leaves (seasonal) off porch
- pull weeds
- power wash the deck
And then most homeowners, no matter how new your house is, inevitably find an endless amount of "projects" to improve their home experience. Wife wants a table for the grill made, I add automated sprinklers, we put new planters for a garden in our backyard...the list goes on..
I'm confused - so are you working on your house every single weekend, or not?
Because that list clearly says "once a week" for one item and has a ton of stuff on it that looks pretty regular, like if you're not doing it every weekend then it'll mount up to be a real problem that takes you all weekend.
Different homeowner - most of the high frequency stuff there is quick and easy to do regularly with practice and it slots in pretty well with just living.
It's more in order with keeping yourself, your dishes, your clothes clean and exercising.
Slightly physical stuff (eg: hedging - waving a weighted object about from ground level to above head level for 20 to 30 feet say) is desirable to some - cheaper than gym work, keeps the body moving, fits in well between at desk sessions and a good time for thinking while you flex.
I get that, and agree. It's just the whole "every weekend is overblown" and then listing stuff that you need to do every weekend thing that didn't make sense.
All weekend every weekend I'd agree is probably overblown, unless you enjoy it as a hobby. Or as you say, an alternative to the gym.
Depends where you live. In the midwest you might legitimately need to mow 3x a week and you might have a huge lot. If you say screw it and let it go to knee high weeds, city might show up and cut your grass and fine you for it.
Just what happens with the rain load during the peak growing season. Later in the summer it will switch to a more drought condition though and there won't be so frequent mowing. But the peak parts, yeah, not much I don't think you can do via strain selection given the quantities of rainfall.
Go ahead and try and mow that after its flopped over. Mower is going to choke with how much grass you are putting into it. You may need to weed wack it down and rake or blow it out before you can mow.
I live in the midwest and there never has been a time where any lawn I owned, nor was owned by anyone that I know, needed mowing 3x a week. You might like to do it to keep a perfectly manicured lawn, but it definitely isn't needed.
How much rainfall you get in the summer months? That is probably why. I do not kid with the 3x a week. If you don't keep up the grass gets too long and chokes the mower.
But as far as when I owned my own home, cutting the grass was just part of my routine and at least guaranteed some physical activity instead of working all day during covid.
Apparently robotic lawnmowers work pretty well these days, though it sounds like only one might not keep up if the lawn needs regular mowing that often.
You can never fully automate lawn work because a big time sink is actually stick pickup ahead of the mowing. Also, every property is loaded with edge cases.
This is true! But apparently the whatever percent that can be automated has crossed the line and become "worth it" for some.
It's also worth noting that owners have changed their behavior to favor their robot vacuums, though I have not read any similar examples for robot lawnmowers yet.
And having a grass lawn is actually quite expensive (water) and borderline illegal/immoral (water) in the American Southwest. Having a grass lawn is only mandatory in a few gated communities with out-of-touch HOAs. We’ve gotten used to the xeriscaped look…blends well with the brown stucco/adobe exteriors. When you don’t have much green, it becomes a (cheap) accent color (e.g. shrubs, evergreen trees) rather an expensive-to-maintain background color (e.g. lawns).
That would be fine in late summer but in growing season chances are you aren't noticing the increased mowing frequency. Most of it happens when you are probably working 9-5 after all.
It depends. If you own a single block dwelling and have a yard with trees, plants, lawns or a pool there are always things to do.
$500/year for the garden is very conservative, even when you're doing all the labour.
It would be more like $500/month were you to get a gardener in. If you need an arborist (for example cutting back tall trees close to power lines or encroaching on neighbours) it gets expensive very fast.
A pool also costs at least $500/year just in chemicals.
Houses are very different. I grew up in a guest house (so: three floors, a cellar, 14 flats/rooms) that has various layers from various ages. The foundations are hundreds of years old, most of the rest 50s, 60s, 70s, 90s.
If you're living in a new house you may have peace for a few decades, but at the cost of everything piling up the longer you wait. Exchanging corroded drain pipes someone thought was a good idea to bury in concrete is especially fun. At some time door hinges break, window mechanisms break. Water pipes clog, electrical is outdated (e.g. landlines are out, ethernet or fiber is in). The intercom breaks, wasp nests are under every second roof tile, there is a water intrusion in the cellar, a storm knocks down the fence, the washing machine breaks, the garage door motor dies, the asphalt on the runway cracks and needs a tar pour, the attic needs to be insulated, a portion of the roof needs to be retiled, the wooden parts of the facade need to be repainted, a drainage needs to be dig to avoid water piling up into a garage, a doorway has to be added to a repurposed storage space.
And mind, I was the son of the house, this is only some of the stuff I worked on before I moved out with 18.
There was constantly something to be done. What and how much is mostly a function of (1) the age and build quality of the house and (2) your own standards when it comes to maintenance.
I think it's a U shaped curve probably... lots of stuff breaks initially due to mistakes/defects, and then 10/20/30 years out. The sweet spot is moving into home renovated 5-10 years ago.
I've lived in a new construction condo as well as a 1970s home that had renovations in 1990s and 2010s.
New construction you deal with a lot of defects that show themselves in the first few years. You also contend with modern construction just being lower quality materials in a lot of cases unless you do a high end build for yourself. So the floors, cabinets, etc are going to wear out much faster.
My 50 year old house of course had a ton of deferred maintenance from previous owner that resulted in break-fix work on plumbing, heating, cooling, siding, roofing, etc.
I type this as I have 2 faucets, a fence, some driveway potholes and paver stones to mend, an irrigation head to replace and a new central air unit coming in next week. Dishwasher was replaced 2 months ago.
Not op, for for me: I have a 4" hole in my cedar siding that I have to craft a custom replacement board for due to a woodpecker. I have a leak in _two_ bathroom shower fixtures that drip into the basement. The first, I started fixing and realized the copper pipe needs to be re-routed. The second, I just turned off the water; I'll get to it later. I have two retaining walls with water routing issues. I need to figure out a mega-gutter or I need to otherwise route a lot of water coming off my roof. I have a broken window that needs replacement. I had to board it up for now because I can't get ANYONE to come out in the middle of Montana. I will be learning how to replace a window in log siding sometime this summer. My water heaters are on the fritz and might be to blame for tripling my propane usage this winter. I need to fix those. My pool pump needed servicing, so I tore that apart and fixed it. My chainsaw needed servicing, so I tore that apart and fixed that. My riding lawnmower hit a rock and broke the spindle so I had to tear that apart and replace that. I still need to get out and clean my gutters. And do trimming in the yard. Oh, and I had a couple of pine trees come down over winter, so when my saw is back up and running, I'll go cut up some of those. And an apple tree died; need to cut that up and plant a new tree. And I have some boat maintenance to do, my oil gauge stopped responding this season so I'll tear that apart maybe this weekend. I have an outbuilding that seems to be leaning. I need to hook up a plumb-bob and make some measurements and monitor. More yard work. More maintenance. I'd like to job most of it out and just do the fun stuff if I could actually get anyone to come out.
Not gp, but I bought a fixer-upper and it was at least weekends for the first two years, then slowed down quite a bit after that. Now it comes in fits and starts similar to you.
This is the answer - there are plenty of move-in ready, turn-key homes that require basically zero maintenance unless you want to remodel or change something, but those cost more (sometimes a lot more) than the ones that need more TLC or true fixer-uppers.
Eventually the maintenance comes back again: The turn-key homes have typically had most of the things that needed maintenance replaced, but they eventually come back, and they can be quite the headache. See the wonders of having a plumbing stack going past its useful life, land resettling leading to having to do regrades, or lift concrete slabs, or just general tree maintenace.
IMO the key to doing your own trees (or presumably having them done for less money) is having enough room around them that you can just drop them whole, rather than having to hire someone with a bucket truck and/or climbing spikes to disassemble them from the top down.
Even with fixer uppers the house is usually functional and fine. Just people think the bathroom is too ugly to poop in, so they have to spend five figures and rip out the walls, floor, ceiling, and everything else, to replace it with new walls, floor, ceiling, and everything else.
That might be why some people renovate, but for most its because they think the color is wrong and they don't like the fixtures. Queue squandering money to achieve the same functionality and all the material waste throwing out the perfectly good fixtures and such and buying newly built fixtures and such.
I bought a fixer upper a few years ago. It was a solid six month stretch of various projects of various sizes rushing to be done before my child was born. Since then it’s been very chill, though I did just spend about another six months renovating a bathroom down to the studs myself, but I took that upon myself for the thrill of it.
The frustrating thing is, that for not much more spent at the time of construction, we could have nearly maintenance-free homes for 80 years or more.
Like, why use wood in an climate like the American South, where there are multiple species of termites that like to eat wood?
I was a member at a maker space - the building has been around since the 40s or 50s and never damaged by a hurricane - why? The roof (with a rubber rolled roof on top) along with the rest of the building is made out of concrete.
It probably depends on where you are in the South and also cost sensitivity. If you are hugging the Gulf Coast then you do see a fair amount of cinder block in new builds, at least in wealthier parts.
As you move north, you enter either the South Carolina or New Madrid seismic hazard zones. Building codes require reinforcing new masonry construction to modern US seismic standards which adds significant expense. Older masonry construction that pre-dates the current seismic standards are typically grandfathered in but you might not want to be inside it during one of the infrequent strong earthquakes.
The US uses wood because it is abundant and cheap. But people also forget that most of the US is subject to strong earthquakes, so the alternative to wood is massive amounts of steel which is expensive. The original masonry construction in the US was mostly destroyed by earthquakes.
Where I live a new house is required to survive a M8.5 earthquake without material structural damage. If you avoid the use of wood in construction, the amount of steel required to meet that standard tends to be cost prohibitive. Steel construction also requires much more expensive labor in addition to the material costs.
I’ve always wondered why the South uses black asphalt shingles. Aside from being the worst possible color, they like neither the hot summers, the hailstorms, nor the hurricanes.
The level of stupidity exceeds California homes using sun-baked wood shingles that can be torched off from the suggestion of a single spark.
Indeed. This is why I'm a preferential life-long renter, although I think the primary reason is that I can't stand living anywhere for more than 2-5 years. So much friction to move, unwinding this risky position very expensively, with loads of transaction fees stacked--I can't understand the appeal. Even owning a condo was enough for me to realise I don't want to own my own bare metal, and that I look at housing as a cloud service of sorts, where much of what I pay for is just for all operational questions to be someone else's problem and to relieve myself of the burden of owning and liquidating what I would otherwise have to CAPEX.
For me, it's hard to put a price on the reclamation of _time_ spent otherwise thinking about those issues, to say nothing of the money. I just don't have time to think about even 1/60th of what's involved in getting vendor quotes for roof reshingling or painting or whatever, and even if I do have the time, I'd rather pull my fingernails out than spend it that way.
I sure do miss that mortgage interest deduction, though. I had no desire to accrue equity in the property--and indeed, if I had more equity, I would have lost even more money than I did in the 2008 crash--but I loved my super high-interest loan. It meant that my most of my housing payment was tax-deductible, and that's fantastic. My only regret, besides buying itself, is that I didn't take out an interest-only mortgage.
However, this isn't a Great Recession sob story. The condo would be way too much work and cognitive bandwidth theft even in the best of times, and that's like a tenth of the structural, landscaping, etc. issues one has to think about with an SFH. No thanks, man. I have other stuff to do.
> I loved my super high-interest loan. It meant that my most of my housing payment was tax-deductible, and that's fantastic.
Absolutely insane.
I guarantee that the tax deduction did not offset the extra interest you paid and that overall, it's a net loss for you.
The deduction reduces your taxable income, it does not reduce your tax directly. If you paid $30,000 in interest, it might reduce your tax by ~$10,000, so you're still down $20,000. Meanwhile, if you had half the interest rate, you might pay $15,000 in interest, reducing your tax by ~$5,000, so you're only down by $10,000.
And that doesn't even get into how the standard deduction works, which you can't take if you itemize so you can take the mortgage interest deduction.
I don't think there's a single scenario where choosing to spend more money than you otherwise would just for tax benefits results in a net positive.
It's absolutely a net loss, but the $55k deficiency when I walked away was worse. However, I realise that this was an artifact of the recession.
Less flippantly: I look at it as a question of government distorting the housing market with tax policy, and whether to have a deductible housing payment or not. Any conceivable appreciation is perhaps a bonus, but I truly don't care.
Re: standard deduction -- it wasn't then what it is today, post-Trump tax cuts.
Moving is no fun at all (and also costs money! deposits, movers and the rest of it), but the only thing worse is staying in one place. I just can't do it.
I mean, of course I tell myself this is the last time we're ever moving, and that this is the forever spot. However, experience suggests this is never, ever the case, and there's no actual precedent for that.
At least with me (married filing jointly), when Trump raised the standard deduction so high, the mortgage interest deduction doesn't come into play. It hasn't seemed to change my total tax liability, it just made my tax return easier to do. I haven't had to itemize for years now.
It is true that the interest deduction is not nearly as valuable as it was in my ownership days (late 2000s/early 2010s). My total annual interest of those days wouldn't even meet the individual standard deduction now, and that was a 6.65%/8.25% 80/20 loan (30-year fixed) with essentially 99% financing, back when that was a thing.
However, my assumption, given the cumulative inflation since then, is that my payments would be twice as large today and easily clear the individual deduction, as long as it wasn't one of those lower-interest loans people like. I hate those.
Agree completely about the time thing. Indeed, every time I’ve fallen into the trap of somehow believing I’ve moved “past” the time sink it inevitably has bitten me down the road when something breaks or I learn about some maintenance task I should have been doing but didn’t even know existed.
More than anything, I’ve come to admire those who learn how to do this stuff consistently because it is hard.
Haha for example, to the homeowners out there, you should change your water heater anode rod ASAP if you have not. Good luck getting the rod out, because the caps on the water heater get corroded shut. And did I mention you need to drain the hot water heater to do so. You ever tried draining a hot water heater when that task has not been accounted for in the design? You need a way to drain it.
>>Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
Same could be said about Real estate investments.
I know people who look up real estate investors as an inspiration as something they want to do themselves. One day trip scouting for properties, is enough to make them quit when they realise most of it is lots of irritating driving, due diligence, legal work, loans etc.
Hard things have little competition for a reason, process is a high attrition journey.
+1, my SO was so hard to "have our place", that we essentially dedicated two years of our lives to it (from finding the place, negotiating, legal stuff, renovations, etc).
It gave us two extremely stressful years, you're just not prepared for it.
And yes, we have way more things to think now than we used to.
It's going to financially pay off when I'll be close to 60 (I'm 38).
I'm not saying I wouldn't do it again, I like my house, but sure I'd be much wealthier (hell, I sold my investments in 2021 to buy it) and care free.
> Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
Kinda depends on the prices. Where I live you can be lucky to find anything resembling a living house for under 1m EUR. First you'd have to be able to do a calculation and say 'I can afford that', only then it makes sense to ask the lifestyle question.
FWIW, my parents had to spend the first 1-2 years renovating a lot in their house (in the 90s) but after that it wasn't really that much of ongoing stuff. Small garden helps a lot though.
100%. We bought a house because we wanted to be able to adjust our home to our family and lifestyle and we both like futzing around with homeowner stuff like repairing things and having a big garden to grow stuff right outside our door. I don't envy the people who get into homeownership and learn that they actually hate being their own general contractor (or don't have the money to pay someone else to be their general contractor because they hate being one).
I've rented a studio all the way to a 5 bedroom house. The difference in maintenance/upkeep for me has mostly been the yard. There's also the fact that cities typically have more demands on landlords.. meaning renters foot the bill/time on more maintenance items more in some areas. I think that's often overlooked when weighing the costs.
I sadly don't get much benefit out of renting beyond freedom of movement and higher cash on hand in my current place. Sometimes I've lost my freedom to stay though.
I have a, perhaps irrational, fear of getting stuck with a house.
I owned two single family houses both built in 2002. I am not handy at all and only will do remodeling when im going to sell a house. I was fortunate with both houses needing very little maintenance over the 7 years i lived in them. If i did need a maintanence guy my realtor has a good number of great reliable contractors in her back pocket. Realtors who have been selling houses in your area for MANY years usually have a great rolodex of solid, reliable contractors at their disposal vs. going online and rolling the dice.
There are also home warranties or tech solutions/concierges like tidy.com.
The issue historically is that these concierge things are expensive (should be solved by tech/ai) and the warranties create their own class of problems (claim frustrations etc).
But home ownership is expensive, no way around it. But the work in coordinating etc doesn’t fundamentally need to be.
When I bought my house the realtor gave me a free home warranty for a year (a $600 value vs the tens of thousands in commission they got paid). The old washing machine broke during that year and the home warranty did replace it, so on paper I got good value out of the policy.
However, I think it was on the phone with the company waiting on hold for about four hours total to process the claim. That was without any dispute or confusion, it’s just how long the process took. The person on the other end of the line would ask me one question, then put me on hold for another 15 minutes before asking the next question. I got the impression they are actually handling multiple customers at once and switching between us. I can only imagine this system is designed to deter folks from making claims. I was afraid to delay the call any longer by inquiring about whether there were multiple replacement models I could pick between. I received a $600 model from a manufacturer I wouldn’t have chosen.
If I’d paid $600 for that home warranty, I would not be a satisfied customer. I certainly wouldn’t recommend home warranties as a time-saver. It would be much easier to directly purchase products and services from people with some incentive to obtain my business.
Sort of. If it's not something that's damaging the building, landlords tend to not be in a huge hurry to fix things. So it's your problem until he gets around to fixing it. I've had good landlords and I've had landlords that took two weeks to fix the sink.
I've had worse, and experienced the full range from literal slumlord--I say that advisedly and not frivolously--to excellent landlord. One does have to choose one's landlords somewhat carefully. However, on the higher end of housing, I've had very good experiences with this, in the median.
It has been my experience with nearly all of them that you need to limit their exposure to big, capital items, and might need to fix smaller items yourself, at own expense. To run the latter through the landlord is just more trouble than it's worth.
That's okay with me. Very small price to pay for the convenience of not having to own the thing, and moving out essentially whenever I please (no, a 12 mo lease isn't "whenever you please", but compared to a mortgage, it is).
Living in a college town, there's a lot of this "prelease for $((YEAR + 1)) in August of $YEAR" crap going on, which really, really grinds my gears, since it undermines the most cherished aspect of why I rent -- the freedom to move, move often, move quickly.
Of course that’s a benefit of renting. How does that relate to the OP _homeowner_ saying one downside of ownership is they don’t have a single number to call for any maintenance issues?
I guess on the face of it, it's not related. I didn't read his comment as literally lamenting the lack of a number, or even someone to orchestrate, but rather to imply that there's nobody on the hook for it in all facets. With a landlord, you just call the number and magic happens and it's free to you (in theory, not always in practice).
I bought a fully renovated house as my first house. Unfortunately the builder was a moron. I spent 10 years with near constant repairs. Every house on my block has the same story: different builders, same shoddy quality. I was lucky to find a buyer that paid the asking price. I’m now happily renting again. I’ve always had great luck with rentals fixing things immediately.
... and thats why I prefer very much big apartment. There is concierge who takes care of all the outside, and we handle just the inside. Which in past 3 years meant 1 plumber and 2x heating specialist (but that was to give digital controls for floor heating for each room). My and my wife time is way more expensive than his.
House? All the land with endless lawn mowing and vegetation maintenance, the fences, all the connections, outside of the house, roof, garages. Its even more - most houses have boilers, many have heat pumps, solars etc. Plus all the internal stuff. Generally the biggest issue is usually some form of water damage over time.
No, thank you, we have 2 small kids and have more passion activities mostly in the mountains than we can handle. I could never make maintaining property into passion, its hobby at best but hardly something that would make me feel alive like say rock climbing or ski touring does. Being slave to the property sounds like a bad life choice if avoidable. If that means kids have to play outside of our property during 6 months of usable summer time instead of our backyard thats fine price to pay. And anyway you have neighbors in both cases. There is the part of having to agree as a collective, but most people are reasonable and you only need >50% of the votes.
Where I live (major city) because of zoning there are few apartment buildings and basically 100% are only for rent, not individually owned units. So if you want to own where you live it must be a townhome or detached house.
Yard work, gutter cleaning, power washing exterior, cleaning windows, bi-annual HVAC service, exterior paint (especially if the house has any wood) and trim upkeep.
And as the house ages, you get things like repainting interior rooms, more frequent plumbing issues, major HVAC repairs, roof replacement, repaving driveway, electrical upgrades, remodeling, etc.
We downsized to a townhome to avoid some of that (half the walls are shared, so no exterior upkeep for those; smaller yard; fewer rooms).
I have 2/3rd of an acre, but most of it is a 45 degree hill, so it's more like a full acre equivalent of flat ground (except drastically more of a pain). Pulling weeds up several hundred feet of steep hillside that grow back constantly is a punishment worthy of Sisyphus.
It hadn't been done for about 5 years when we moved in, so one of the neighbors spent 200 hours cleaning it up for us. Not joking, 200 hours of labor. Scotch Broom is a literal nightmare.
True. But on a large and very steep hillside - "2/3rd of an acre, but most of it is a 45 degree hill" - it can be extremely difficult to replace the plants holding onto the soil, without experiencing horrible erosion during the transition.
Yep. Depending on the property layout, and how close that slope is to the house, it might be something to contract out and have hardscaping and drainage done.
My last house didn't have anywhere near as much land, but there was a fairly steep hill on the back of the house. We ended up having part of the slope dug out and a "seat-height" retaining wall installed, with drainage installed as part of the build, and lots of low-maintenance plantings. Reduced the work from weekly mowing on a slope to occasional weeding and trimming. But, it wasn't cheap to do properly.
Weeds are pioneers, helping the soil, when nothing else can grow (or is allowed to). First of all why do you need to get rid of those weeds? Second of all, if you improve the soil and go through successive plantings of larger things, the weeds will be outcompeted.
You could just not do any of that stuff. Most people don't power wash their exterior or clean their windows. They don't call in hvac service, maybe just change the furnace or ac filter and probably plenty don't even know to do that. Exterior paint has become pretty rare in places that see weather but even then you can let it go to hell. Plenty do. Maybe some trim board will rot. Ehh. Priced in probably already when you bought it with that. Driveway you can also let go to hell, plenty of people use actual gravel or dirt. Roof replacement, plenty of people let that go too long. Repainting interiors, again something you don't have to ever do.
Is it good to do these maintenance items? Sure. But also, the house isn't going to come down if they aren't done. You go around your city right now you will find very few homes are actually upkept to this level. Most see the bare minimum to avoid the city fining you for the grass being too long, and many are sold in whatever state they are in.
To add to the list: Replacing bad wood, pest service, aging appliances, fence maintenance, septic emptying (depending on your location), flooring wear and replacement, grouting and caulking, pest control, exterior cleaning, etc.
It can occasionally feel like an endless stream of tasks.
It never ceases to surprise me how North American homes are just a source of time wasting for the owners. I grew up in Italy and we never had to do any of that (except repainting the rooms once every 20 years with my father).
How you you occupy yourself without spending four hours every other day mowing the lawn (gas, ride-on) and then blowing the clippings and dust back and forth with your leafblower (gas, backpack) and then spreading fertilizer and chemicals to make sure you can continue mowing the lawn so frequently? My neighbor would lose his mind!
There is an ever-expanding list of maintenance tasks depending on the age of the house and its systems, all with different periodicities. A roof will typically not need to be replaced very often (let's say once every 20 years), but cleaning gutters at least annually is a must because overflowing gutters can lead to foundation issues, rot, etc. Depending on the size of the yard and what vegetation it has, yardwork can be at least a couple of hours a week in the warmer months. Making sure drains are clear is good practice to avoid catastrophic failure. And there's always random things like a fence board that needs to get replaced, chipped door that could use repainting, trim that needs replacing, etc. Newer houses will have (hopefully) fewer of these menial tasks, but as houses age things inevitably need attention due to the fact that it has to weather the elements and daily use all the time.
How much an individual homeowner cares about the minor cosmetic things vary, but skipping out on regularly checking the major stuff can lead to incredibly expensive problems like flooded basements, structural issues, major leaks, etc.
The IRS allows you to depreciate rental real estate on set terms and ages, and they’re not really giving you much of anything. Houses have a complete and complex list of maintenance items.
If they didn’t, living in a rental that the landlord doesn’t spend anything on maintaining would be fine.
Condo is suppose to be that nice hybrid but they became enshittified long ago and have routinely proven to be bad deals for the average buyer in too many circumstances.
The US doesn’t understand how to make the housing market functional. I’d love to have a condo where a great many things are handled by the association but the math never maths, as they say, and a great deal of the issues is because condo associations aren’t well regulated and they often don’t account things correctly.
I’ve rented in a rental, rented in a condo, owned in a condo and owned a sfh.
Condos are in a lot of ways worse for ownership. You have communal costs you can’t control, risk of irresponsible neighbors (leaks), and limitations on who/what/when/how of repair or renovation you want to do within your own unit. All of which introduces coordination overhead, cost and time.
> The US doesn’t understand how to make the housing market functional.
I'd say the US understands how to make the housing market functional, but there are more-powerful interests pushing the market in other directions - financialization, extraction, NIMBYism, social exclusion, ...
But at varying rates determined by use, design and location. I recommend desert living if you want low maintenance, or even a graceful manageable decline. Maybe not true adobe that requires regular remudding, but frame-stucco or stabilized adobe. Becomes more charming with age. Taos Pueblo has been around for 1000 years…
The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or owner move ins or any of that other stuff that renters deal with.
And if you have kids, they get a sense of home and place.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
That is not the right way to see it.
If you have the cash to buy upfront, then yes, real estate is not that good an investment, unless you have a loaded portfolio already and want to diversify a bit, get some high inflation hedge, etc.
The real value of buying a home is leverage. That is, most people cannot go to a bank and borrow $500k. The bank will just not make a blank loan like that without any idea of what you're going to do with it.
Buying a home though is well understood and borrowing is made relatively easy.
For most people, buying a home is the only way they have to actually get significant leverage from borrowing.
Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion.
It's probably worth making a closer comparison though:
* Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments, another 400k in interest by the time you're done. Your home probably appreciates by that much in most markets, which gives you a million dollar asset at the end. In some good markets, it may appreciate by 3-4 times, which would mean you have a 1.5-2 million dollar asset.
* Pure Financial Investment: put $50k into a fund, add sustained regular $2500/mo contributions. Let's imagine that the fund averages a conservative 5% annual return and we do this for 30 years. The outcome should be... a bit above 2 million dollars.
All investment involves risk and variable outcomes, but the BHL plan probably has a more varied outcome. Parity may be as common as substantial profit.
The PFI plan, on the other hand, performs really well even considering conservative 5% returns: over 2 million dollars (minus 400k you would have probably paid in rent). Bump it to 8% returns and we're looking at 3 million, a performance even many good real estate markets couldn't match.
Its major problem is that you need to be disciplined about putting the chunky contributions in, which means you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.
Leverage lets housing costs go to equity and interest payments, which is key leverage for people who don't have disposable investment income. But less key for people who do.
A house is an inflation hedge. Any calculation about investing the difference has to subtract the rent you are paying and rent goes up every year. There is no where where you can pay a rent anywhere close to what I'm paying for my mortgage in my area and I'm only 5 years into this. Of course I lucked out by locking in that sweet sub-3% rate, but still, I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.
A house in a long term play. I didn't buy until I know where I wanted to anchor. That's the deal. I didn't want to be in a situation where late age destitution came because I couldn't afford where I wanted to live anymore. I got to see that play out with older relatives who did go the rent only route. Course I have to pay property taxes, but as it stands it's less than $200/mo and I don't imagine it'll rise above that taking inflation into account. That is something I can afford in retirement even on social security.
There is maintenance, but living in a neighborhood full of elders, a lot of it is truly optional. And honestly I think the only maintenance I've paid thus fair is the yard only because I don't want to do it myself. For me financially this is a hell of a deal with the only trade off that I must stay here. And... I'm settled enough that I'm willing to do that. I moved all over in my early career to find where I wanted to be.
> I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.
You are not alone. The thing is this is such a common argument that there are a zillion rent vs buy calculators [1].
That said, yeah sub 3% the math often does work out in terms of buy (assuming you don't sell before 7 years which the average person _does_ sell before). But sub3% and holding for 30 years is actually rare.
It basically comes down to that the down payment gives renters such a headstart in gains that the homeowner takes forever to overcome it. But keep in mind they're also comparing a similar rental house to the bought house. So If you'd rent a smaller 1 bedroom apartment but only going to buy a 4 bedroom house then you're really behind in the math.
The problem I have with buy vs rent calculators is that the speculative questions often end up dominating the decision. How much will rent go up in the place you rent? Nobody knows. How much will the value of the property appreciate during the period you own it. Again, this is unknowable. So you put in a range of guesses for these, and you can get it to come out as a good or bad investment depending on what you guess.
My guesses were ludicrously wrong when I did these back in 2018, relative to what has actually happened in both the rental market where I live, and the value of the house I bought. I concluded that the reason to buy was only about the non-financial aspect, and that we'd probably lose a little money all told. But it has turned out to be a six figure win in practice. Rent has gone way up, we were able to refinance to one of these very cheap loans during covid, and the property value spiked around the same time. I never would have guessed any of that. And any of it could have gone the opposite way.
So the calculators were honestly pretty useless. It's all too unknowable.
Stop - have you also accounted for 750K loan amount in mortgage interest tax deduction, and the SALT cap of 40k?
Are we looking at markets where we had massive appreciation in real estate values in the last 5 years? Because while you might say they were outsized and abnormal, the stock stock market was, too. The years of ZIRP made everything nuts.
The one thing missing from that calculation... the rent goes up over the 30 year period while the mortgage is fixed (subject to changes in tax rate and insurance as value hopefully increases).
9 years into my current home and my 20 year mortgage is substantially less than renting a similar house in the same subdivision. And because it's 20 year, the interest rate is lower, and when I retire, I'll only have to cover tax and insurance at a fraction of the future rent.
And people aren't including the interest deduction on income - up to 750K loan amount worth. This is a form of subsidy that renters are handing over to mortgaged owners.
It forces you to make some assumptions on market returns and such, but it gives a pretty clear picture. The biggest variable is how long you expect to live in the same place (longer favors buy) and the next biggest is the ratio of average rent to average housing payment. The inflection point being that if you live in one place long enough to pay off the mortgage, then it obviously starts to be much more advantageous to buy, but that requires you predicting your life 30 years in the future.
> but that requires you predicting your life 30 years in the future.
This is true, but the vast majority of people - especially in the US - don't move around the country or even state every few years. One of the biggest, perhaps the biggest, pro of renting is that you're not tied down to one place for very long.
It's pretty rare that someone buys a house then is suddenly forced to move hours away.
Moving around a lot incurs its own costs. Time, transportation, movers, deposits (which you're unlikely to get fully returned), new furniture... I think it's an additional "hidden" cost to renting that doesn't get talked about much.
The cost of moving from owned home to owned home is far higher. Brokers, lawyers and all the associated closing costs can be huge. And you still have to pay movers and worry about new furniture.
Yes, but you decide when to move from your owned home. My point is landlords can and do cause moving “churn” when you rent above and beyond when you’d move voluntarily.
It is possible to find weird inversions where it never makes sense to buy - prices are too high and rents are too low. CA has these places, where property tax arbitrage by renters can be less than the new property tax would be if sold.
You forgot to include the actual living costs if you invest. You're not gonna be able to contribute $2,500 a month. You would be able to contribute not that much , around here rents are $2,500 a month.
That point is in the analysis after the bullet points (in phrases like "minus 400k you would have probably paid in rent" and "you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.").
I considered putting it up in the bullet points. Apparently deciding against that lost my expressions of this point to some readers, including yourself.
But yes, this is why the analysis after the bullet point mentions the profile of people who don't have $2500 disposable income. The leverage matters more to people in this situation.
Having seen this conversation play out more than a few times and even turn a tad fighty, I think this is the fault line:
* people who do this kind of analysis frequently and generally have high disposable income often see that they can leverage compound interest rather than pay it, so the Pure Financial Investment plan seems like a slam dunk to them, and for their profile they're probably right.
* people who generally don't have high disposable income see that they can use leverage to make their rent payment do double duty, which seems like a huge win for them, and for their profile they're probably right.
What I did leave out is how a mortgage can bound your living costs. Another commenter correctly pointed out rents can expand dramatically. Where incomes track rents, I don't think this makes a dramatic difference, and that's why I didn't include it, but it's true this isn't guaranteed, and mortgage can function pretty well as a hedge.
Your calculation is bogus, you are 1) assuming infinite money 2) assuming infinite time.
1) When you say "add sustained regular $2500/mo contributions", you forget that compared to buying your place, you also have to pay rent, most likely at the same amount you would pay back your mortgage assuming same quality of life. So either you have a free $2,500 to spare (in which case you could also have invested that amount in the buying case, or borrowed more), or you have $0 to invest.
2) You cannot just take the expected value of two different returns distribution and assume you would earn it in both cases. That would assume you have infinite time to wait for the average rate of returns to converge. If your life depends on said returns, you cannot just say "oh nevermind I'll wait another 15 years to withdraw". In your example, stock market returns are immensely more volatile than real estate.
The house gives you a place to live, so the PFI plan is either a huge miscalculation (not a great place to start when you're making a numerical argument) or intentionally disingenuous. Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes. If you're getting a $2500/mo mortgage, what's rent for a similar house? Could be $2k/mo, could be $3500/mo. And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years. After the initial post-purchase increase, taxes are usually capped to some degree as well. For most people rent is capped for at most 1 year. So every year you rent you will have less money to invest, and eventually you'll have to start taking money out of that account because your rent has surpassed what your mortgage payment would have been 5, 10, 15, 25 years ago.
When you run the numbers honestly it's really, really hard to get similar gains renting as you can buying, especially 30 years in the future.
Renting gives you a giant pile of additional money you can save and invest so that after 30 years you could buy a house in cash if you wanted to. The person with the house does not have this cash, they have a house instead.
After 30 years you either have a house or enough cash to buy that house. In many cases, the rate of return on the cash is sufficiently greater that it is significantly more than the value of that house.
Rent is much cheaper than the total monthly purchase costs in many locales. Literally thousands of dollars per month of net cash per month to investments in the renting scenario. And that cash appreciates at equity rates rather than debt rates. This is on top of being able to invest the down payment instead of spending it on a house.
I have decades of data on this in a few locales (including Bay Area and Seattle) based on my own experience and despite buying and (still) owning homes several times. It never pays out better than renting and investing. The math doesn't math. I still buy places occasionally but I am honest about this reality.
For the kinds of places I rent the finance math is so heavily tilted toward renting that it is a no-brainer. I'm not alone in this; I know many people of means that choose to rent even though they could buy any house they wanted.
Run the numbers - mortgage with interest deduction, SALT deduction (property taxes apply), appreciation, add the principal as paying yourself back. Compare it to renting comparable home, with the rent going up with inflation (which in some places is being generous). After a few years, you'd be surprised how the math looks.
A careful re-reading of my comment will reveal that I did mention rent as a factor in at least two places: one as an opportunity cost to be reckoned with for people following the PFI plan (with which my example still comes out looking good), one as a cost of living substantial enough for many working people that they do not have significant disposable income, which makes leveraging their largest living cost appealing.
> Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes.
Using a 5% interest rate was one of several simplifying assumptions that I chose to be generous to the Buy Housing on a Loan plan.
You are correct that interest rates are presently and historically higher than that, and that mortgage insurance, homeowners insurance, property taxes, and some maintenance costs that under the BHL plan can add up to significant housing costs that aren't going to equity and therefore aren't well-leveraged. In other words, the BHL plan actually comes off worse than I made it look.
(If there's a counter side of that, it's that landlords can and will pass on those costs so they're reflected in rents... but sticklers will notice that landlords who are done with amortized costs or who financed at lower rates can choose not to do that and may have incentives to depending on the market.)
That's in absolute terms. There's a relative point too: the higher the interest rates, the more the field tilts towards the PFI. It magnifies debt/leverage, making that path more expensive, and it magnifies return from invested income, making that path more rewarding if you can swing it.
> And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years.
I did leave out the bounding effect that a mortgage can have, and that's arguably an important missing point.
Wy would someone do that? My observation is that incomes also tend to grow in rough parity to rents in many markets -- in fact, local income growth is probably the primary variable local rents are dependent on (at least in a functioning market). This means during prime earning years decades from retirement, rent changes might be an acceptable simplification. But you're probably right that the closer you get to retirement, the more important bounding costs is. And there might even be other situations where the tradeoff starts to make sense even for earners with significant disposable incomes.
Eagh, the leverage really isn't that cheap, and you can think of renting as giving you cheap leverage too (it's just your borrowing the house instead of the money).
The leverage only matters in an appreciation market (which we’ve been spoiled with in the USA since boomertimes). If you distill the math on assumed zero appreciation (or zero “real” appreciation) it becomes not so terribly pretty.
It’s really a form of various hedges wrapped up with a bow, that for many people is desirable (and since we HAVE had appreciation it doesn’t “turn out bad” most of the time anyway).
Anyone who says “renting/buying” is the only way to go is missing something.
Renting also has hedges embedded, and every hedge can be a risk position.
In particular the interest rate options in foxed mortgages are pretty expensive and it only hedges the cost of a particular house not housing in general.
Housing cost is correlated with local incomes so in some ways it's doubling down. In particular recessions are deflationary in the immediate aftermath.
Uhhhh where are you getting that $2500 a month to invest? That’s your landlord’s money, dawg. And they’re gonna expect at LEAST another $100 year over year if you don’t want to move.
Leverage is great when prices are increasing, but not when prices are moving in the opposite direction. The recent 40-year trend of decreasing interest rates lulled a lot of people into the belief that real estate leverage is an unalloyed good.
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k.
Well yeah, in the last 20 to 30 years in most countries the story has been the same. My parents bought a house in Brazil in the early 90's for 30k and we're now selling it for 400k. My relatives in Australia bought a house in Adelaide for 400k around 5 years ago. Prices exploded there and it's now around 700k. They got 300k dollars in a few years while actually earning less than that in salaries over the same period.
On the other hand, me, in Europe, managed to lose money on a house I bought 10 years ago because I overpaid (at the time it was really hard to buy as competition was huge) and after COVID, prices in my region fell 20% and never recovered... Also, I invested too much on a new building in the property which people in this country don't actually value a lot, so the investment did not pay off.
But before that I had made 60k on an apartment in just 2 years. So, while I know too well that the housing market can be unpredictable, I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.
> I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.
I think they have. As mentioned above, the past 40 year trend of declining interest rates appears to be at an end. It was the most significant factor in rising prices in my opinion.
You also have to factor out inflation over those periods of time, as often it turns out the return is relatively anemic, but the time periods are long.
>> Leverage is great when prices are increasing, but not when prices are moving in the opposite direction.
This.
I worked for a medium sized company in the early aughts. It was a family owned business. The eldest brother was the owner and we often had lunch and he would tell me that once I make x amount, then I should buy this kind of real estate. When you get to this xx amount, then buy this kind of real estate. Fuck the stock market, only real estate goes up in value every year like clockwork. At the time he had several rental properties and three or four houses located all over the country.
That was until 2008.
Its funny, I ran into him at an architecture conference a few years back and one of the first things he said to me was, "Remember that real estate advice I was giving you? You can completely ignore that now!" and we both had a good laugh about how drastically the market had changed since 08'.
Sounds like your friend did something wrong with his investments. I had rentals before 2008, and bought more during the crash in South Florida for pennies on the dollar. It was a great time to buy.
In some states (California being one) the original mortgage on a house purchase is non-recourse. This means that the bank cannot come after your personal assets in the event of default. Yes your credit gets dinged but the leverage of a home loan is fundamentally different than a margin loan in the stock market.
This is only relevant when rates are low. Rates are currently higher than the growth you can expect in housing prices.
I have done repeated financial models of this over the last 15 years and it has never made sense to buy a house for me.
When rates were low, if I had bought a house and then stayed in it a long enough time to counteract transaction costs, it could have been ok, but in expectation, basically everyone buying a house would have been better off investing the money from their downpayment & repayments into the stock market.
The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.
Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.
HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.
As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.
> HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.
You don’t need a potentially abusive and/or rent-seeking HOA for this. My locality controls for all of these potential issues through local ordinances.
Sure, but you don't need to buy in an abusive HOA community.
I live in a "town" (Reston, VA) that has a notoriously strict HOA. But, it mostly applies to buying/selling and home additions. And it's very consistent. Each subdivision within Reston also has its own HOA that's run by the owners and in charge of regular community upkeep. It works out, as long as you perform due diligence up front and know what you're buying. I don't know anybody who would claim it was abusive or rent-seeking - just mildly annoying sometimes.
As the sibling comment said, you start by reading the HOA covenants. If there are rules in place that you can’t abide by you simply don’t buy the house.
All the stories of people who bought in HOA areas and then got fined for having a work truck… I have little sympathy for them because that would’ve been in the HOA docs which were provided during contract negotiation.
The next step would be looking around the neighborhood to ensure that the rules are actually being fairly enforced. If the covenant say no work trucks, but there are work trucks parked at every third home then that’s indicative of a problem may or may not be an issue to you depending on your line of work, but it’s something to keep in line.
There are other things you can check as well. For example, ask for the HOA finances. Are they doing regular capital projects and do the budget seem reasonable? Do they have enough money in the bank for unforeseen capital expenses? Again not always a dealbreaker, but those are things you need to know and people frequently don’t bother asking about.
You get a copy of the HOA bylaws before you close/finish buying. Read those bylaws to find out what rules exist. Some, like no having junker cars in your front yard, are going to be agreeable. Others, like the HOA gets to judge and prohibit certain flags, or the color of the paint on your house, are going to be vaguely worded, giving room for the HOA to be unreasonable. Additional bylaws can be introduced later, but usually reading the bylaws will you give your an idea of what you might be getting into.
Exterior paint color is a good example. In my little cluster of townhomes, there are about six colors that we are allowed to pick from. And no two homes next to each other can be the same color. My house is currently a light green and in theory, I could paint it to be a blue or a tan, but not a grey because of one of my neighbors. I don’t find it to be particularly vague or onerous, but if I really wanted a pink house, I would’ve seen that in the HOA documentation upfront and not bought here.
Though it could also be a case with a HOA, a government employee is much more likely to not give any fucks about local ordinances than the board of HOA, composed of people who are directly affected by violations.
This has more to do with how the neighborhood is going (literally “to the dogs”) than it does with renting - you’d be surprised at the houses that look owner occupied but are actually rentals.
Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.
There are tax advantages that favor owning (in the US), for a primary resident and not an arbitrageur - mortgage interest and capital gains when you sell are not taxed, while capital gains in a non-retirement account are.
You can gain by appreciation and leverage, of course - but you can just as easily not, you don't know if your city is going to be the next high-flying Austin or Boulder, or run-down Detroit. My own house has been flat in estimated value for four years in an area that I thought would continue to rise.
There's significant personal financial benefits to renting, too, in that many local areas are dominated by one firm or industry as a major employer, so your employment prospects can be highly correlated with the local housing market. You do not want your investments to be correlated with your employment if at all reasonable. Detroit in particular was hard hit by this in the '08 financial crisis, iirc - the automotive industry had huge layoffs and a simultaneous residential real estate market collapse, and many newly laid-off workers were underwater on their home and practically unable to sell to move for better job prospects.
This is something that is hard for people to factor in when decision making. Optimism will blind us from considering such a tragedy since not only was there buy-in on the home, there was buy-in on the future trajectory of the company you decided to work for.
I’m a landlord. I’m losing money because the Seattle market went to shit and nobody will buy this place.
I bought for $850k in 2017. Selling now asking $899k and no-one’s buying. Think of my ARR with inflation and opportunity cost here. I sold Facebook shares to get this.
I have made zero return from rents overall.
I’d likely have earned $1M if I hadn’t sold those shares.
A landlord is unlikely to have the same cost basis as someone buying on a new mortgage. I know many landlords that own their rentals outright. The ability to make a profit renting for less than you'd pay in interest charges alone changes the financial calculation.
That said, landlords don't always have a choice to not lose money. These are investments, there is inherent risk.
A lot of small mom-and-pop landlords are certainly losing money. Especially when they buy properties as their own residence but later converted to a rental. The majority of the Bay Area housing market has basically zero properties that would make a landlord profitable; you only need to compare the market value of a house against the market rent.
And this is really no different from the majority of stock pickers or day traders. They just lose money.
I get what you’re saying, but the housing market is actually a really subtle issue in my opinion.
Just one example, owning a home protects you against price shocks. As others have pointed out, this can sometimes be a bad thing, because when prices decrease you are also leveraged.
But it’s pretty important to a lot of middle class people that they are protected against forced relocation due to 5x housing price increases.
Of course, there’s other reasons to not own a home.
My point is that localized housing markets have all sorts of factors that are perfectly explainable by economic theory but aren’t just “Econ 101, run the supply and demand” curve.
Our household income is 300k, and I took a big risk purchasing a home in Socal where mortgage is 50% of our take home income. In a space of 1 year or so, we went from saving two out of four paychecks each month, to sinking two into mortgage each month.
For me, we have one kid and we plan to stay put for at least 10 years. It's a good school district. The quality of life is excellent considering the weather, outdoors, cultural diversity, things to do, and proximity to international airport. We have friends and family here.
But to me what mattered most is that I am 40, our income is going to plateau. Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. On the other hand, I can refinance now and bring my mortgage down to what I was paying for rent previously, and in 10-15 years be mortgage free at a place with all the benefits I mentioned above.
Maintaining your own home is a great hobby for guys 40 years old and older. The house may age, but your engagement and knowledge of your house steadily grows. Even contracting out the work has its interesting elements. Keeps you active as you age, both mentally and physically.
The key for older homeowners is finding your querencia, the place of your heart. If where you live is your querencia, then countless options open up for you. Simply living in your home and community becomes a joy. Your community becomes an extension of your home and your heart and you become a vital part of that community. In your golden years, that community provides deep meaning and grounding when your work life quickly fades. Building that connection takes time and energy…plopping yourself somewhere else in your 60s, you may not find it. Building it now and in your 50s guarantees it’s there when you want it.
> Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy.
You don't know if you will get priced out. You don't know how housing prices will evolve in your area. They could as well go flat or fall. That uncertainty about local affordability can suffice as an argument for buying. Just don't confuse it with certainty about your future ability to afford the local area.
Totally agree with all of this. When I was younger I'd heard that owning a home was financially a no-brainer so many times I took it as fact. Boy was I in for a surprise when the reality of actually owning a home kicked in. It's not just the less obvious overall costs that add up, it's also the variance. At any point you can be hit with a sudden expenditure of thousands or tens of thousands of dollars for a major repair.
Owning does give you a lot more control over your life in certain ways, which some will find a lot of value in. If you're someone who likes doing home improvements then buying a house makes a lot of sense.
Whether or not you plan to stay in the area for a while is probably the biggest factor. Buying a house makes it a lot harder to move in the future, but it also means you can't be forced to move. I had a horrible rental experience where I suddenly found out I had to move on short notice. It happened right after starting a stressful new job. Combining those two stressors made for some rough months.
I know a lot of other folks with similar stories of having to scramble out of a property on short notice. Maybe the rent gets jacked up to an unaffordable level, or maybe the landlord who said they were renewing the lease suddenly changes their mind.
I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.
And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school
Gets better, prices increase, and you have to move and your kids have to move school.
Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.
Depends where you live. Any sensible municipality will tax land at it's value, so your costs should rise according to value. Of course most municipalities are failures when it comes to taxation, so probably it's a better deal to own land in those places.
Depends where you live. CA has prop 13 but other places you are reassessed regularly and plenty of homeowners are surprised to get priced out of their homes.
One term for this is "price-to-rent ratio" which is as simple as it sounds.
The ratio has a wide range from city to city.
Full financial analysis gets complicated quickly because you have to consider mortgage rates, inflation, opportunity cost of the invested money, and how long you're keeping the house. It's possible to pick the more financially optimal decision using today's numbers and then have your perfect plan clobbered by a collapsing housing market, extreme swings in interest rates, or being forced to move early.
I think I disagree on this front, but that’s probably because I ended up buying a home due to a mix of FOMO, bad landlords and rent not being too far from mortgage.
Plus from a psychological perspective it’s hard to say don’t do it for financial reasons when anyone who bought a home in the last 10 years (forget 20+) has seen insane appreciation. I’m jealous of everyone who got practically free money (2-3% mortgages) on an asset that has increased at least 50%. Life probably doesn’t get better than that and makes me wish for such nice things.
At least my “rent” is “set” for the next 29 years (I just bought last year) so hopefully at some point my mortgage would be something to be envious of.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
You won't - you got to account for real inflation which is about 7% in US and taxes.
Note that in both cases investing (simple investing like S&P500) vs owning a house you loose. It's just that overall loses will generally be lesser if you purchase and then sell a house. I will need you to to show me figures on yearly basis if you want to tell me otherwise.
Yep, it sucks to be at a landlord's mercy to determine how nice the place you live remains over time. Things will wear out. If you own the place, yes, it's expensive to fix that stuff up. But if you don't own the place, you may very well just be stuck with it.
From time to time I drive by the place I rented for quite a few years almost a decade ago now. All the visible stuff that needed maintenance when I lived there is still just as it was when I moved out. Maybe they've fixed up the (worse) interior issues, but probably not.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
Everywhere here rent has rapidly outpaced the mortgage payments and the down payment also pushed down my monthly payments significantly so it's not like nothing comes out of that.
To top it off my home is far more spacious.
Maybe it could work out if you went for the cheapest rent and invested the difference and happened to be that rare case that avoids a market crash.
But then you'd also be living in a small appartment for at least 2 decades.
There are plenty of psychological drawbacks as well. Consider for example that the fence between your house and your neighbor has become dilapidated. But your neighbor thinks it is fine and will not pay for a replacement. What do you do? Replace the fence without cost sharing? Argue with your neighbor on the condition of the fence? Or even after your neighbor has agreed, the act of selecting a mutually acceptable contractor to carry out the work? A lot of this feels like being a project manager, and if your day job is a project manager or even a senior engineer who sometimes wears the hat of a project manager, this could feel like a second part-time job.
Well no. If you have home insurance, your insurance provider can deny you coverage based on the dilapidated appearance of the house. If you have renter’s insurance, it only covers your own belongings and won’t be affected. And as a renter you can use it as a tool to negotiate for a lower rent; good luck negotiating a lower mortgage payment or property tax.
Furthermore if neighbor relations deteriorate you can always move; as a homeowner you are still stuck with an expensive asset with large transaction costs after you move.
This isn't really true in many HCOL areas, a mortgage payment + amortization can be cheaper than renting an equivalent property. On top of that the amortization of your loan doesn't incur capital gains tax.
Even if your property doesn't appreciate more than inflation you can still profit massively from owning just through the loan amortization. Only being forced to sell during a market crash could realistically cause a big downside, but the upside is substantial compared to the risk.
It is also the safest leverage investment most people can do and the cheapest way to diversify away from stock market.
In fact paying off your mortgage is usually better risk/profit calculation than buying bonds as mortgage interest is usually higher than bond interests[1]. If you hold any significant amount on bonds you are better off using that money for a downpayment.
Everyone here is doing the cold hard math on 100% stocks when every financial advisor says you should diversify to reduce risks. Of course if you go 100% stocks and assume average returns will keep going forever (and not, you know, go full 90s Japan) the math will say stocks. But if you add any sort of risk lowering diversification a mortgage is usually the best one you can get.
[1]: I live in Sweden where almost everyone has floating interest rates for mortgages, I know US people can lock in their interest at low or high rates for decades which can skew the calculations
In Sweden 30% of interest payments on mortgages is tax deductible.
When I sold my old flat and even though it only appreciated like 10% over 4 years (about the same as inflation) I still got a lot of money when I got the loan settled. 4 years of amortization at 2% per year is 8% of the original value of the apartment, tax free. And my mortgage+HOA fee was actually lower than my rent was before even before the interest tax deduction.
So after sales fees (also tax deductible), moving costs, capital gains, etc I think I saved around 15% after-tax of the total value of the apartment compared to renting over a span of 4 years. Given my downpayment was 15% I roughly doubled my downpayment money in 4 years.
That is a return of ~22.5% compounding per year _after tax_, which is much better than the average stock market returns. Of course I got there is some luck involved (my apartment didn't go down in value, I didn't need to do any renovations, etc), but I could potentially have profited even more if it had appreciated more. And that is on top of the real estate risk diversification benefits compared to stocks.
In the US, 100% of mortgage interest (for the first 750k of loan) and property tax (up to 40k combined w/ other state/local taxes) is deductible. Property ownership gets such favorable tax treatment that it’s kind of ridiculous.
I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait until you're 60 years old to spend it!
> I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k.
Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.
You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning.
It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.
The borrowed money isn't free from interest. There's no numerical sense in borrowing money at 5%+ interest to fund an investment appreciating at 3%. Some schemes might advantage it further (such as leveraging your mortgage with your retirement funds) but then we might as well also discuss further disadvantages compared to renting, such as upkeep and property taxes.
Back around 2020 when mortgage rates very briefly dipped below 3%, there could have been an argument. But such is no longer the case and not likely to return soon.
> It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.
Just to drive the point home: It would be $100k in stocks appreciating at 9% and monthly rent subtracted, or $1m in housing appreciating at 3% and a $900k debt growing at 5%+ interest.
I agree with your points. You have to take risks in either case, but some risks are easier to do the math on. And yes, fewer home investment opportunities exist as the interest rates go higher. There may be opportunities for higher gain with stocks, but there are also greater risks for loss. At least if you lose some value in a home, it's practical -- you still have a roof over your head or make money by renting it.
The problem with leveraged investments is that they can put you deep underwater.
Many people in Seattle that bought $1M leveraged with $100k now own a $800k asset. They've lost twice as much as they invested. They would have been much better off investing that in stocks without leverage.
Multiple people in this thread have mentioned the Seattle real estate market going to shit (for sellers) - is that related to tech layoffs or is something else going on? San Francisco's market is just as crazy as ever.
Seattle real estate has been trending downward for a couple years now. It isn't a single factor but the confluence of several. Initially it was only in some market segments but seems to have spread to most of them now.
The inventory of housing currently on the market is anomalously high and there are relatively few buyers. I know a few people that will be lucky to sell for as much as they paid a decade ago. People who bought during the COVID bubble are underwater.
This feels more like the beginning of a macro trend than a temporary blip.
Yeah, but rent doesn’t seem to go down that much though. Opportunity cost of moving is real, security deposits are sizable. I wanted to rent for as long as possible but there’s no rent cap and the apartments keep jacking up the rent.
At least now they have some sense to cap the rental raise percent but I’ve had to deal with 15-20% increases before, and not to mention the cost of parking in an apartment.
I probably made a mistake buying but I couldn’t take the bullshit from landlords and all the headaches that come with people wanting more money.
I think some of it is due to the lay off, some of it due to the supply situation not being as bad as SF (though construction has slowed recently), and a lot of it due to interest rates making "effective prices" much higher.
The landlord isn't losing money. Totally different cost basis. The landlord rarely has a carrying cost that is equivalent to the renter buying the same property with a mortgage. It is frequently half that or less.
I've sold a home I lived in to rent something equivalent because the rental rate was a fraction of my carrying costs. Saving the difference in costs added more to my net worth than the appreciation on the property.
My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.
Well, not historically because for a lot of the last few decades, house prices have gone up dramatically more than average investments. But it does seem like that is coming to and end and of course you can't make decisions based on the future.
Even so, there's still a benefit to owning which is that you aren't paying the agency fees, elevated maintenance fees, and landlord profit, which are all non-zero.
In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)
As someone who moved 6 times in 8 years (admittedly, some of those were for work), and every time, I relied on moving things myself/with friends, I was just tired any more!
For the last move, I hired movers since I was already married by then and our stuff tripled (yes, mine was a very small portion).
The fact that I don't have to move for a while now gives me a lot of peace!
Yeah this. But some additional flavor to emphasize the 'don't do it for financial reasons' aspect.
In the late 90's I, like a number of my married friends, 'owned' a house in the Bay Area. Dot coms were going crazy, the economy was insane, and people who got big equity payouts were buying places with their stock. At the height of all that, my Sun stock holdings were enough to pay off the remainder of my mortgage but I got the "opportunity cost" talk from my financial advisor about how tech stocks were returning 15 to 20% and more, so what I should really do, is refinance, and put my equity into tech stock! I didn't do that but at least two people I knew did. And when the crash came, the friends that had refinanced ended up selling their houses an moving out of the area, and I was left with the dread associated of being an "older" engineer when tech jobs were on the way out. But I still had a mortgage and kids to support. Had I paid the house off I would be in a position to take a job with much lower pay than my last job and still stay in my house (with just the tax,insurance,utilities and maintenance costs). The psychological cost of 'uncertainty' is especially burdensome on me (which, I suppose, is why I make a good operations person).
I told my wife that if I ever had a chance to pay off the mortgage again (prior to paying it off the old fashioned way of making payments for 30 years :-)) I would. In California, you are required by law to be able to make a payment larger than you requested payment and any excess goes toward the principal. So we started making bigger payments, and between that and some bonuses and stock recovery we managed to pay it off. I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.
Now that story works because I knew that I wanted to stay in the Bay Area, there were jobs that I would be interested in (even if they didn't pay what I would prefer) and that was important to me. A relative who was more management in retail (started at Sears) found owning was a problem because it made relocation harder. As a result, even though they owned now and then, they lost money during the mortgage crisis (needed to move with their house underwater) and didn't get the advantage of just staying in one place.
My wife's parents simply rented out their place and moved to a new place and bought a new house there. They ended up collecting a few properties which were their retirement plan, being sold off over time to pay for expenses when they could no longer work. That was more 'investment like' in my mind. But it was also a lot of accounting work with property managers etc.
Buying a home works really well if you are married and you both have salaries (and initially no kids). The US tax system is set up to 'reward' that behavior with a better rate for married filing jointly and a mortgage deduction for owning a house. It cuts out a lot of uncertainty. But it also means moving is a bigger deal. In today's market, if you bought a house with an < 6% mortgage and are looking at buying with on >9% then they feel a bit locked in.
> I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.
Seems to me that she is the one hurting more because your choice undermined her commission lol
Not really, she does fine. She really does think I am over conservative in my risk tolerance. Sadly you don't get to re-run the experiment if you don't like the outcome (that being my risk intolerance speaking).
Yeah, no. Fuck renting. It may be ok for 5 maybe 10 years, while you're figuring yourself out, but after that it's just wasted money.
If you buy property it will be yours, forever. You will pass it down, you will be forever part of the community, and your children, and so on.
Both my parents come from big farmer families, and lots of poverty. When my grandparents managed to end serfdom in the late 50's and their rented farm became their it was a huge deal: that became the family home. Like our own castle of sorts.
But i guess it's a different culture, my country has the higher percentage of home owners in europe for a reason, whereas most of northern europe housing marked is dominated by speculation and renting agencies, among the worst sort of leeches that have ever lived.
Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass.
Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.
Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.
Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.
Instructions in the will: 1) sell the house via real estate agency and let them handle the optimal price with view on selling within 6 months (so no surface for arguments when one of heirs want to maximize gain even if it takes 10 years to sell); 2) split what comes back proportionally
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
You'd actually end up in a much better place historically, homes were never a particularly good investment in the US, but there are very few people who can pull it off and actually invest the difference and not just spend it.
Yes the benefit is psychological but I think there's more to it as well.
Firstly within investing, I am assuming that a person has safety net amount of money before properly investing. This is something that I have heard some people don't exactly do.
As such, what happens is that, they might lose a job and have to pay rent and might have to sell the stocks or any index fund/investments that they had within the market (which depends on if the market is doing good or bad too) and overall snatches opportunity for money to actually grow for years.
I recommend having a safety net but I must admit that there is still some psychological stress overall due to multitude of factors, as such, if possible, buying a house feels like it might be overall decent choice and the differences might not be so much.
that being said, I do think that it depends upon the land prices and many other things overall too.
Also, this is tangential but I used to be a boglehead, still am but with recent cases of Nasdaq[0] & I think S&P bending towards SpaceX and AI IPO's by literally bending rules, it does feel like the investment markets might be more shaky given other factors
(Not a financial advice at all) but I recommend looking towards dimensional index funds which do just a very bit more than index funds if the addition of floaty investments like SpaceX and other IPO's make you fear similar to me.
But the thing is that the downstream effects of it will still be visible, for example, just imagining if SpaceX gets added to IPO and then quickly added to Nasdaq/S&P and then it falls substantially for any reason. The thing is that the market itself would be spooked and other funds would be impacted too.
I have belied in the market efficiency hypothesis but a lot of it feels like private equity trying to raise evaluations to then push it to index funds (by in this case, asking nasdaq to bend the rules to force passive investors to buy and hold the bags basically impacting retirement accounts too and perhaps even govt bailouts but basically it becomes privatization of gains and socialization of losses and becoming too big to fail.
I must say that it feels a bit of blatant corruption in some instances like the one for SpaceX and this removes my confidence within markets.
I do recommend overall diversification for world stocks and also housing if affordable.
I wish to still invest in markets but with a bit more caution rather than blind optimism. Also no, active investing doesn't quite work either reading john bogle books and other resources and passive investing is still superior to active investing overall but just with more caution. That's all.
for what it's worth for VTI OAI, Anthropic, and SpaceX combined would comprise 0.3% of the index based on float. I was concerned about this at first but running the numbers it doesn't seem like a big issue risk-wise - I agree it's a worry trend to see changes to policy and don't want retail liquidity to cash out privileged investors. Some type of delay where the stock finds its market value before entering the fund is ideal.
Beyond the financials, the psychological impact of both being able to make greater-than-superficial changes, and having extremely predictable payments for years without worrying about substantial rent increases, is substantial.
I redid/improved the bathroom to exactly what I wanted. I renovated the kitchen. I added paneling to the walls. I added a few outlets to rooms that needed more. I wouldn't do these things in an apartment, because rent could go up any year and exploit me for liking my home. Property value has gone up by 50% in the years since I bought.
There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
And while I agree that it’s nice to customize things to your preferences, this has a downside in that it’s easy to get carried away and overspend. Might as well get the nicer finishes when you are remodeling, right? After all you’re paying so much for labor anyway. And you can’t have just your kitchen nice, now you need to upgrade the flooring in the whole house. And soon your small $30k improvement is $150k
> Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix
Most landlords I've dealt with are an absolute pain to deal with when something breaks. It's often not that easy, maybe in high-cost / luxury rentals. Arguing over what is normal wear-and-tear, while knowing you cannot afford decent legal advice, and you also can't pay for the "unexpected repair" is just as bad.
> And you can’t have just your kitchen nice, now you need to upgrade the flooring
Yes you can. There is no need to have everything perfect...
Edit:
> You never have an unexpected $20k repair show up.
If this was even close to coming even with the added cost on rent, no one would be a landlord. It's obviously a lot less than rental overhead. So people could just set that aside (or get insurance).
The good one(s) acted like their job was providing the service of housing. They had a budget and paid themselves a salary, and if there was money left in the repair budget at the end of the year they used it for improvements to the properties.
The bad ones treated it as an investment. My rent money went into their own pocket, and any expenses -- repairs, taxes, mortgage payments -- had to come out of their own pockets, and they did their best to not pay for any of them.
My wife and I have a few rental properties that I manage. They are investments, chosen based on return on investment and equity (ROI/ROE). Maintenance costs were factored into those calculations. We take care of repairs not because our job is "providing the service of housing", but because we are honest and would not sign a lease (or any contract) in bad faith. When the lease says the property includes appliances, then we ensure broken appliances are fixed or replaced promptly. If/when we can't make a reasonable ROE on a rental property, we don't cut corners to squeeze a bit more profit out of it, we sell it and invest the money elsewhere.
Sounds like two different ways of saying the same thing. Each is planning on certain expected return which will have allocated costs for maintenance accounted for as part of the agreement to provide the housing service (which is what the contract will describe in detail).
I've found that it's pretty much split between if I have a landlord that's just a guy with a few houses vs a property management company. When I lived in a complex (cheaper than my current rent by a mile because it was in NC), maintenance would be over in a matter of hours. When I've had a single guy, it's often days (unless it's a truly urgent issue).
I'm under a guy that just manages 20 or so doors now and he's a good dude, but I have to wait a longer time, generally, like when my heat wasn't working at the beginning of the winter and his plumber had the flu. Luckily it wasn't bad weather yet, but I definitely felt the potential for strain.
There's an uncanny valley between "I own three properties in a 1mi radius and live in one of the units and will swing by after work" and "the company has fulltime maintenance employees" where maintenance is the worst.
As a renter, you are stuck between a rock and a hard place.
Contacting your landlord to get something resolved is a nightmare. Majority of the the time they will refuse to cover it and refuse to send someone out.
Majority of the time they will also not let someone come fix it, without approval, because you aren't not allowed to make modifications to someones property.
We had a fan which died upstairs in a bedroom. The downstairs had an aircon although it was a living room. We requested the fan get replaced multiple times, 13 months late (two different rent increases later) the fan was still not replaced. A third price increase without the fan being replaced and we moved.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
I've never understood why people argue that the model of appealing to a landlord to perform house work is psychologically superior to doing that same work yourself. As a tenant, you have an inherently somewhat adversarial relationship with your landlord - they want to minimize costs, and they aren't the ones directly living with the household problem. You are living in their property and are bound to what they replace or repair, and how, and to some degree on what schedule.
Not being able to make my own decisions about what constitutes a household problem and what should be done about it is the single biggest annoyance of renting for me. It's the main reason I would like to live in an owned home; and this intangible facet of living is more important to me than any financial argument about the costs of renting vs owning.
Just something as simple as "that ceiling fan doesn't work so well, and squeaks once in a while when on high" can easily be remedied yourself when owning the house by just going buying and installing a new ceiling fan.
Regardless of how handy one is, with a landlord that's generally not allowed without permission, the landlord often won't install as nice of one as you might like, etc.
This goes for every fixture that's not part of the rental. Major appliances, flooring, even door knobs... Like if you suddenly want an electronic keypad on your deadbolt.
Of course, this flexibility has to be something you care about. Not everyone does, but for those of us that do...
If you live somewhere long enough and under a negligent enough landlord, you can just do a lot of those upgrades anyway and either take them with you when you leave or just chalk them up to practice for when you own a place.
I've lived in my current apartment for 9 years and I've never met the guy who owns it now (it was sold). I'm also not getting my deposit back, so that doesn't matter.
It's the big stuff that's annoying. Can't install A/C or an exhaust fan in the bathroom, for example, simply because I can't afford it. I'd totally feel comfortable upgrading the stove/fridge and tossing theirs or putting it in the basement. They're not going to find out until I move out anyway.
> They're not going to find out until I move out anyway.
Maybe. Probably, given what you've described. But you're still relying on an assumption and the behavior of someone else. It could be sold again tomorrow to an owner who has a real problem with those sorts of changes and it would be out of your control.
> I've never understood why people argue that the model of appealing to a landlord to perform house work is psychologically superior to doing that same work yourself.
Because I have less than 0 interest in doing that work myself. If I have to email 5 days in a row to get something fixed, that is a cost I’ll happily pay.
I want to spend 0 of my time on home maintenance of any kind. I’d rather be reading a book, watching tv, shopping online, going out to eat, sitting quietly, etc.
It’s not particularly complicated, we just see the world in different ways.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
"Rent is the most you'll pay for housing, but mortgage and property taxes is the least amount."
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
Not my experience, at all. All landlords I've had were lazy assholes who did the bare minimum, but never forgot to increase rent on the 1st of January, every single year.
Paying someone else for no other reason than to have the right to a roof is Middle Ages shit, that future generations will no doubt liken to serfdom.
To be fair, there's piles of sh*tty renters too, who abuse the system and ruin the experience for everyone. If you have ever been a landlord, especially in certain market areas, it pays to be that "lazy asshole", otherwise you'll lose your shirt (and more). Ask me how I know....
I bought a house shortly before unexpectedly relocating to SoCal. It didn't make any sense to sell, so we rented it out while we were there. The renters never seemed like a problem. Payments kept coming in as expected. They moved out and we took the place back over and found out they had converted one of the bedrooms to an indoor pet bathroom. Literally let their dogs shit and piss all over the floor. I always got annoyed trying to find a rental that would accept pets because our children have always done far more "wear and tear" on the house than our pets have. But after that mess we were left with it makes a lot more sense.
If you treat renting as a longer term hotel it’s fine. If you move to a city and want o know where to live you probably want somewhere short term for a year or two.
It’s when you are looking at long term living that there’s a problem.
My experience is that getting a landlord to fix things is a nightmare. They say "oh I'll send someone over" and then when there is a no-show you have no idea what happened and its days of back and forth to get somebody out to fix things.
I don't think I have ever once had a positive "hey this is broken let me call the landlord and they'll fix it quickly" experience.
This is a personality difference. People who notice their surroundings and seek to improve them. People who are content with the way they are. People who are more type-A, DIY, etc. People who don't know the difference btwn a phillips vs flathead,etc.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
Hah. Or you get letters from the water utility about a suspected leak, you call the PM the landlord contracts with and (great blame diffusion) they "refuse" to authorize a plumber to come look, in just the right way so you can't take it into your own hands for months, meanwhile you're getting calls, not just letters now, and your water bill is $800/month that you still have to pay, but because the home still has water flowing to it it's not considered a habitability "must remediate" issue. Dealt with that one for months.
Or "appliances as-is". Dishwasher breaks. "As is, remember?" You pull out the broken dishwasher, install your own and then have to fight for your deposit back in small claims because the landlord withheld it because in his eyes "the home came with a dishwasher when you started the lease, it needs a dishwasher at the end of the lease" and somehow "as-is" means, to him, "tenant shall repair and replace".
Or when a shitty (hah) weird hybrid septic system fails (home goes to septic, but then to city sewer) and the owners have to pay $15K to fix it, they start denying and stalling on everything after that point because "we just HAD to pay thousands of dollars FOR YOU".
But sure, "call landlord to fix". "Never have to worry about most problems".
I have lived/rented in many states and still rent. The overwhelming majority of landlords are cheap af. I had the ceiling collapse in an office due to clogged ac drain only to have it happen again because the land lord was too cheap to hire a professional contractor. The pro had the ac clog fixed in 15 minutes.
The current place has this stupid thing where the dishwasher is attached to a circuit that has ac on it so if you run both it flips. I have to flip the breaker everytime i use the dishwasher.
However, getting rid of the parking means the project will likely detract from the value of the home. But since we don't have a car, let alone two, it makes sense for us to do the project anyway. Despite the warning of our realtor when we purchased the home.
I've noticed a lot of folks are afraid to personalize their homes because of concern about the value when they eventually sell.
Once upon a time I had a car, a daily driver. I kept it clean, vacuum/wash/polish with crazy waxes and the works. Stressed out about people riding with dirty shoes, drinks, etc., and when I asked myself why, the usual self-justification was "ah it's for the resale value." Hearing relatives get charged various fees at lease returns just fed that attitude, even though I owned the car outright. One day it was time to replace the car, so I brought it to the dealer as tradein. They scanned the VIN, looked in their computer, and just quoted me a price without ever looking at the car, either cosmetics or mechanicals. That was the day I decided that I own the cars, not the other way around, and this attitude slowly expanded to real estate too ;). So now there is a clover field in our front yard and I ripped out the irrigation too. When we eventually sell this home in 2060 the buyers can take it or leave it
Of course, you should never sell the car to the dealer and should always make the effort to sell private party, which will often get you 50% or more greater than the dealers best offer.
50% is a stretch. 20% maybe, depending on the vehicle.
But here is another consideration. Sales tax. If I buy a car and trade one in, the sale price that I pay taxes on is the price of the vehicle I am buying minus the trade in.
For instance, if I buy a new car for $30,000 and trade in a vehicle and they give me $15k for it, I pay sales tax only on $15k. That saves me about $1k in my area in sales tax. If I could have sold the used car for over $16k, then I would technically be money ahead. But your time is also worth something. For it to be worth it to me, I would need to be able to get at least $17k for the used vehicle to make it worth the effort.
Yes there are all those arguments. But it's a lot more work for still a pitiful amount of money.
Then on top of that after COVID dealer gave me $5k tradein for an Ecoboost car with a leaking cylinder wall, check engine light, missing parts, etc. where KBB was less than that. I really don't get it.
> But it's a lot more work for still a pitiful amount of money
It’s really not a lot of work and if $2000+ for a few hours work is pitiful, I envy your financial position. List on Craigslist at bottom market prices (you’ll still come out way ahead of the dealer), aggressively filter out tire kickers, sell it within 3-4 showings.
The law is very favorable to people being allowed to sell their personal vehicle without jumping through additional regulatory hoops.
The sales tax deduction makes up most of the difference between private party and dealer resale. For a lot of people getting that last little bit of equity isn't worth the time, hassle and fraud risk
Yeah, I agree with this. We have one car and no kids and every time we talk about some remodel. For example, we're talking about remodeling our kitchen and getting rid of our wildly oversized (read "normal American") appliances in exchange for more storage, counter, and floor space but the first thing friends and family talk about is resale value.
Firstly, my home isn't principally an investment vehicle.
Secondly, I'm pretty sure I can find a buyer who can conceive of popping over to the grocery store around the corner a couple times a week rather than pretending like they're living off the grid and have to drive 100 miles to the nearest town to buy their monthly provisions for a family of 13. :)
I absolutely don't see these as benefits... Living in the Netherlands, apartments owners typically have to pay "VVE" (service fee for the ongoing upkeep of the building where your apartment is), while house owners typically pay out of their pocket for any repairs they have to do.
This was my first time living in a house as opposed to an apartment. It's been three years of bitter regret, and I'm very eager to sell the damn thing and leave the nightmare behind. In the last three years, I had to re-paint the roof, replace the garden fence and a bunch of related stuff in the garden, replace the water boiler. I had to climb on the roof of the house to rake the leaves at least twice a year (not expensive, just scary). I had to repaint areas of the house because the previous owner did a crappy job painting them.
But, most importantly, it's a piece of junk. It's a typical front brick wall with the rest of the house made of wood covered in dry wall. Its foundation is going to skew and sink because... that's the general condition of everything in the Netherlands: the ground water is too close to the surface, so the foundation is too shallow. I can't hang anything heavy on the wall because the wall can't support it. Every wall is crooked and bent and so is the ceiling, so, for example, it's not possible to put a curtain railing on the ceiling...
Everything is made of perishable materials which will last five to ten years tops, and then everything needs to be torn down and redone. Looking at how my neighbors are spending their lives on the hamster wheel of infinite repairs... I want absolutely none of this. Some people enjoy sinking their time and finances into this black hole, but I'd rather just buy hard drugs for the same price all the way until I die. It's just an arduous and unrewarding toil.
I agree with this, but there's also the psychological impact of being able to easily move when you get a new job or when your state government allows agriculture/industry to poison your water or whatever the case may be. You may also buy a property only to find out you have a certifiably insane neighbor and you can't easily move out because said neighbor has created a dispute that requires disclosure to prospective buyers and you are under water (as is the case for a friend of mine). While this is admittedly a niche case, there are millions of such things that can happen where you are suddenly under water (including a mortgage crisis) and flexibility becomes an advantage. I don't think there's a clear psychological winner between renting and buying.
This depends on what country you live in, but in the UK renting is (even after recent changes) quite precarious. The landlord can kick you out with a few months notice. They can require regular inspections. They can send workers around to "fix stuff" without you really agreeing to it. Even if you never renovate your bathroom, the security and privacy of owning your own place without landlords bothering you is worth every penny.
> Beyond the financials, the psychological impact of both being able to make greater-than-superficial changes, and having extremely predictable payments for years without worrying about substantial rent increases, is substantial.
As a renter in a place that protects renters from radical increases year over year, I'd argue the only compelling sense of stability would be trading the risk of being evicted for that of losing the house
> I redid/improved the bathroom to exactly what I wanted. I renovated the kitchen. I added panelling to the walls. I added a few outlets to rooms that needed more.
I think this is an interesting differentiation that would either be very compelling for a hobbyist or carpenter, or someone who works on cars, but it's also crazy to me if I frame homeownership this way. I don't think a condo would really provide the surface area for such customization *if* I were a person to be interested in doing it, nor would a townhouse or duplex. It seems that at least in my city, the premium to be able to do something as common as paint the exterior of your home, is like $2.5m CAD, or $1m more than a newish townhome, or $1.5m more than modest condo, or $10000/m more (just on the mortgage) than renting a sufficiently sized place.
That's partly because the kind of place I can rent is dramatically smaller than the minimum size of a place that has a modifiable exterior, and it's one of the most expensive cities. I guess it's sort of a framing that makes clear how dystopian the class divide is; I don't have any interest in painting my house, but if I did, I'll never be able to, and if I could (at the current rates), I'd have to be incredibly unimaginative to allocate that much to the house that could hypothetically be painted.
I guess people who value the concept of a home in that way more than anything else would simply move someone where they can buy one, but I value so many other things more than hacking away on the walls that it's an absolute no-brainer to continue renting where I want to live despite the ambient sense that I have no sense of permanence secured by land
“Extremely predictable payments” - I don’t own a home, so I don’t know about this - I have heard mostly horror stories about HOA. Can they hike maintenance fees arbitrarily? Also, what about insurance? Last I read, at least in FL, insurance cost is out of control, is that still true?
Don’t buy a home in an HOA and avoid living in a place with extreme high risk of property destruction. Neither are requirements of owning a home.
HOA complaints typically are about control not really cost, and the terms are disclosed before purchase so not unpredictable at all, you are allowed to see the full financials and can see the financial health of the organization before committing. Insurance costs are directly correlated to risk, the costs are only as out of control as the risks (which are well known in Florida). E.g. if insurance expects to have to replace a roof every 5 years on average, and to replace a house every 30 years, expect to pay for 1/5th of a roof and 1/30th of a house in your insurance bill, on top of all the other risks.
It really depends where you live. Around here every home built since ~1970 has an HOA. The cities have demanded them, because they can push some of the work like re-paving streets onto the HOA as part of the founding documents.
A HOA on a house never made sense to me. There are no amenities they provide worth what you pay. Condos in are different story. You're using shared resources in a limited space. Condos in a bustling urban core are great. A condo in the middle of the suburbs makes no sense.
Real estate tax is also somewhat unpredictable year to year (except that it rarely goes down), and can be a large part of your monthly payment. We got hit with a 21% increase in taxes this year because the town voted to rebuild the high school and the main road.
Luckily, at least, we don't have an HOA. Well, actually, we technically do, because we have a shared driveway with three houses on it, and legally here shared driveways are required to have an HOA. But all three of us despise HOAs, so it doesn't have any money, rules, meetings, or do anything. It's just on paper only. We have informal meetings to sort it out when the driveway needs maintenance. After just a couple meetings we figured out that meeting first, alcohol second is the correct order.
As others said, try to avoid HOAs if you can. But if you can't (in my area it's hard to do), our realtor gave us good advice when we were in the process of buying our current home. The HOA bylaws are a legally binding document as to what the association can and can't do, so if you're going to purchase a home in an HOA neighborhood, read the bylaws. That will give you confidence as to whether some of the situations you mention can occur.
HOAs can be very tricky, the money comes to maintain some shared amenities. Usually it is not too bad, but in case of condos HOAs maintain much more and sometimes the board makes very questionable decisions and can end up short on cash when big things are required, and that can hike the payments a lot.
As for the insurance, the best advice is just to avoid high-risk areas like flooding zones.
HOAs can be a big variable cost, yes, especially in the case of underfunded condos associations with a lot of delayed maintenance. Insurance can vary a lot, but is usually a much smaller amount than your mortgage payment (though I only have experience with the PNW).
But yeah, for a single family home in a not-too-flood-prone area it'll be very predictable.
American homes are weird that roof costs are something that occurs.
Last house I owned in the U.K. was 60 years old, original roof. Was advised it might need $10k of work if I wanted to out 10kWp of solar on it to the weight of the tiles.
$180 a year into a “roof fund” doesn’t seem extreme to me.
If you don't have cash savings as a homeowner, you can leverage a home equity loan or line of credit to cover those emergency bills. In times of extreme low interest rates, it may even be beneficial to do that vs. paying with cash.
If your household is a typical HN high earner, and you are early in your mortgage's amortization schedule, the tax money you save by deducting interest can fund a $10k emergency repair fund too. Maybe even in less than a year.
On the other hand, renting comes with hidden (and some not so hidden) costs too.
The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowing that you might need to go through the hell of apartment hunting and moving annually is awful.
It’s been much nicer to have a mortgage with more or less locked in monthly payment, even with the maintenance costs that come with the territory. It’s more predictable and frees up mental bandwidth for other things.
I would argue against this. I'm not sure owning is that much better. At the very least it's just as bad as renting if you bought in the past few years... I bought my home in 2023 and since then my monthly HOA payments doubled, my insurance premiums (nearly) tripled and my property taxes have gone up about $1000. Homeownership went from 35% to 45% of my monthly income. If you bought in the past few years, owning has absolutely been nothing short of a liability.
Buying into an HOA means you're effectively renting a portion of your living arrangements. And if the dues doubled in just three years then you bought into a mismanaged HOA, which makes it worse. There's not much you can do about insurance premiums (assuming you've shopped around for better rates) and property taxes, but definitely check the financial situation of the HOA before you buy, or avoid them entirely.
> And if the dues doubled in just three years then you bought into a mismanaged HOA, which makes it worse.
Not necessarily true. Our HOA fees doubled precisely because of drastic insurance premium hikes. There wasn't much that could be done by them to avoid that, and in fact they worked hard to reduce some of those premiums the following year, which resulted in a lower monthly fee for everyone.
I own single family homes in a few different states. None of them are seeing the HOA + Insurance + Tax increases you are describing in the last 2 years.
I'm guessing you bought in a place that is seeing a rapid increase in property values, which I saw in 2020-2022 by owning in a zoom town. That would explain why insurance and taxes are increasing.
It's probably Florida or some other gulf state with weather risk. Could be California with wildfire risk but then they wouldn't have tax increases. In both of these states insurance is going crazy without the property value cause you mention. If it's a condo then insurance can single handedly explain HOA rates (since they buy insurance too) as well as HO insurance rates.
Florida's median property tax is about $2,500, so it's unlikely to go up $1000/yr. Places with high property values within the state of Florida like Miami Beach are mostly seeing decreasing or flat home values in the last couple of years.
I don't want to speculate too much on this poster's property, and I'm not super familiar with gulf real estate. I just wanted to highlight that I have a very different experience even though the post made it sound like their experience was the overwhelming popular one.
Comes down to area and luck. I bought in 2021 and while there have been increases, they’ve been modest. Certainly much less than I would’ve had to deal with had I continued to rent.
For context, property values have gone up 40-50% since 2021. Additional expenses are much easier to digest when you're not already paying an arm and a leg for a house at much higher mortgage rates.
If the market can bear it, those increased costs typically get passed down to renters too. Landlords are usually averse to covering expenses that don't go towards equity. If they can get away with it, they want to charge rent greater than mortgage interest + insurance + maintenance + taxes.
The HOA is something I could fight, but mine is currently cheap. The taxes, however, are infuriating. I’m getting taxed on unrealized gains after having paid taxes when buying the home. There is nothing I can do about the taxes, and if I do not pay my home will be taken. Essentially, I cannot own my home in any meaningful sense.
The road, water, sewer, and various other public services that make your house valuable are not free.
I would familiarize yourself with your city’s municipal budget before complaining about paying taxes. You’re likely being subsidized by urban dwellers if you live outside the city center.
I pay water, sewer, gas, and power to those utilities directly. The taxes to my county don’t pay for roads as that’s handled by the state DOT. The bulk goes to county police, fire, and schools. Yet, these haven’t seen increased costs, the people in those jobs haven’t received pay raises (which, my God, why not?) and overall, I can’t see why my taxes then got raised.
Buying a house with or without a mortgage is definitely a hedge against inflation. I have a couple of siblings in their 60s who are renting and the rents are going up much faster than their social security. Now in both of their cases the rent is about $300/mo higher than their social security. Adding in food, utilities and other expenses they're blowing through their meager savings.
I'm the UK at least, it's also common for the renter to pay council tax, which is analogous to property taxes in other countries.
I imagine this is also likely passed through in the cost of rent in other places.
That said, it's totally possible to have a legal and fiscal framework that makes renting affordable and safe.
The government, particularly in Western countries with insane pressure on the rental market, needs to act as a homebuilder and landlord of the last resort. It keeps supply up, prices and risk down.
We've had a couple of generations locked into the housing market as an investment, and it's causing demand crunches which have artificially inflated prices and are choking and dividing our societies.
I'd happily spend my life in a rental if it was affordable and safe, and part of a considerably more fair society.
I prefer corporate rentals precisely because there is less idiosyncratic risk. They boringly have a strong incentive to keep you renting the same place as long as possible.
The cost of owning absolutely does increase over time. The mortgage payment is just one part of the fully burdened cost. Furthermore, there is a real risk of an unexpected $20k expense that you have to pay for. Owning is less predictable than renting because the liability and risk surface area is much larger.
You can buy home repair insurance if you want to transform unexpected repair expenses into predictable monthly payments. It's a bad idea for exactly the same reasons renting is worse:
Someone else has to approve repairs and contract the labor.
My experience with corporate landlords is that they're incentivized to maximize income, which is emphatically not the same as keeping you renting the place as long as possible. Realpage for example optimizes for higher income at the cost of turnover and lower occupancy.
The sweet spot is a landlord who used to live in the house and still considers it “theirs” and trusts you as a steward, so they repair quickly (or even trust you to get the repairs done and send them the bill) and don’t want to deal with vacancies.
> You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things.
Absolutely. I had three landlords in a row promise all manner of things. "We're never coming back, moving to the country" (followed by "my wife hates it, we're moving back"). "We're looking to do other investments, we'd happily sign a 5 year lease with you if we could" (WA law limits residential lease lengths. Just as well for them because they decided "the property market is so hot it'd be irresponsible of us not to sell").
Being forced to move in the middle of the school year because the owner want to sell the house kind of sucks, though 5 years of a month-to-month was a bad idea. More landlords are asswipes than not, being able to control your own destiny has advantages. After all, you are paying all of the costs plus a premium for the rental, and you don't even get the paint or floor covering you want, let alone nice things.
that's the nice thing about renting in germany. there this would not work, the owner can sell the house but they can't kick out the tenant. so whoever is buying is taking over the tenant. and while you can ask a tenant to move out if you need the house for yourself, that too has to consider the needs of the tenant. if they have kids in school it is almost impossible to remove them unless you go out of your way to help them find a new place and they are not forced to switch schools.
That’s a very nice theory. Decent real estate first buyer will not even consider rented property. But there are enough unscrupulous shady people who will buy the property at a great discount and get the tenants out. You will be right according the law, but still mistreated. Will you enjoy abuse waiting 3 years for a court? Probably not. It’s not their first rodeo.
most rented property in germany is owned by large firms who make renting out homes their business. for them, that is not an issue. most homes that people buy for themselves are not even available on the rental market. as you say, people who want to buy a home for themselves will not consider rented property. i believe that is true in germany too. if it happens then it is a rare edgecase, and they will be able to find out in advance if the tenant is willing/able to move out.
When you inherit property, it comes however it comes. I've been displaced twice by heirs. A lot of rental houses in the Bay Area are second/empty nests.
Is the landlord obligated to renew the lease at the end in perpetuity? Or does the landlord just need to wait for the lease to expire and then choose to not renew?
in germany by law every lease for private homes is always in perpetuity. the concept of renewal does not even exist. it is always month to month until the tenant decides to move out. you can't not renew a lease. you can raise the rent, but only in small steps. exceptions are if the tenant fails to pay for a few months, damages the property or misbehaves in other ways.
That sounds like a really awful law, TBH. I would never rent to someone if it meant that I was powerless to decide to end the relationship. I'm all for protecting tenants to some extent, but that law strikes me as abusive of the landowner.
i don't agree that it is abuse of the landowner, but you also have to consider that in germany private landowners renting out are extremely rare. always have been.
maintaining rental properties was always a business.
as an individual home owner i would also not want to rent out either unless there are exceptional circumstances. but german cities do not have suburbs like in the US, and any popular area will build up multi tenant apartment blocks. people owning their own house are out in the countryside where noone wants to rent anyways. and any multitenant building is by definition a business. and that's the majority of all rental properties in germany.
you have to keep in mind that germany has the highest ratio of people renting vs owning. renting has become our culture. with so many people renting, laws have to be strict, otherwise we would have chaos. austria is similar. my mother in vienna lives in an apartment that has been rented by someone in our family since 150 years ago.
> any multitenant building is by definition a business
Not inherently so, at least in the US. Lots of multi-family structures in the US have multiple independent owners of their own spaces. Townhouses, condos, and the like are often a collection of individually owned spaces with their own deeds and property rights. There is usually a shared organization, such as an HOA, that is in charge of the management of the joint property. This isn't really a "business" though, it doesn't look to make a profit and is chaired by residents.
As an American it just seems strange to me to have people paying a corporation for the same home for 150 years and still have no real ownership stake in it. Like, over 150 years, wouldn't your family have paid many, many times the actual value of the property?
An important qualification: if you rented as a kid, and now your kids are old enough to rent, your maybe-not-horrible experience is dated and probably no longer applicable. Apartments have largely gone corporate, and I assume also been taken over by private equity. Even cell-phone companies could learn a thing or two from their tactics.
I have had very good experiences with corporate apartments. They tend to have their shit together. Compared to renting from some random old guy that wants to “fix things himself”
Also, if you're a marginal renter, e.g. can't make 3x the rent from a W2 and don't have a co-signer, credit issues, etc. then the randos are more likely to work with you.
My sister was a sex worker for a while when she was younger, and trying to do things like rent was difficult because her income fluctuated a lot (always enough to cover rent, but she'd save during good months for poor ones) and she was technically self-employed. Or if you're on any form of disability, or if you had a medical issue that trashed your credit, etc. People getting out of prison, and so on.
If you stray from the happy path, woe unto you when dealing with large companies.
I'm only in my place because when I moved in, it was owned by a friend of my aunt's.
At the time, I was legally limited in the amount of money I could make because I was relying on Medicaid and subject to income limits. I have MS and not having access to MS drugs is very, very bad and risks permanent consequences. The drugs also are ridiculously expensive (I think my monthly medication is about $30k/dose).
I had money, it was just all earned under the table on the grey market. Not a situation a corporate landlord is going to deal with, but I never missed a rent payment and I'm a very good tenant (clean, report issues promptly, read and adhere to the lease, etc).
I'm no longer subject to those income limits and I have a W2 job now and could qualify for an apartment based on that, but for a long time that wasn't true. On the margins, you end up having to look for the small time landlords, employers, etc. because if you're decent and you can talk to them, you can get a shot.
That's interesting. I suppose you can't run that kind of thing in an S-corp and pay yourself the regular salary. It's what I do. You have a W-2 and everything. But I'm doing the other kind of SW: software.
I had that experience with the last house we rented before we bought.
We were quiet, predictable, don't-rock-the-boat tenants, and the rando owner mentioned that they valued that enough that raising rents wasn't worth the potential risk of new tenants who might cause them more hassle.
I live in an apartment owned by a larger company, the rent raises really slowly in my experience, Like 3% per year. I have been at my unit for 15 years now, never had any problem or regret anything about it.
If I could design society, we’d all live in RVs or other trailer type things, own the structure and rent/buy land as appropriate. But I’m aware this is an unusual opinion.
It just seems nice to be able to customize the structure without being tied to a particular location.
This is not universally true, my lease is indefinite and we have stayed here through ownership changes. My neighbor has rented the same apartment for close to 50 years.
Vote for a better government who cares about you and provides you with proper rights.
It depends on the landlord and type of place. A long-term lease comes with additional considerations for the landlord, mostly in terms of a long-term lease often requiring slightly different legals and a loss of optionality.
While I've had landlords that were not prepared for a long-term lease, I've never had an issue getting one anywhere I've rented. I've also had this work against me i.e. rents actually decreased halfway through the contract.
Because as soon as you sign that longer lease, the landlord will only ever do the absolute minimum repairs because you're stuck in that lease. We have been reporting our leaking roof for years...
They tend to just keep increasing it until you leave then just dial it back a little and get someone else in. Far worse than individual landlord that if you're a good easy tenant is gonna prefer you to an unknown, corporate don't care about that.
There's not much else a new owner is going to do with an apartment complex other than continue to rent out the units, other than possibly tear it down and rebuild if it's very old.
You lease remains in force even with a change in ownership. So in most cases there will be no immediate impact to tenants.
Ben Felix, a Canadian portfolio manager that does personal finance videos and podcast, has been arguing for years that rent versus buy is often a wash financially, and that you should make the decision for non-financial resasons.
The 2019 video goes over a handy "5% rule of thumb": start with the purchase price of home, take 5% of that: if your rent is less than that, better numbers-wise to continue renting (and investing the difference); if your rent is more, probably better numbers-wise to buy/own.
The company he works for created a tool to examine the numbers:
In a perfectly efficient market that's what one would expect. It's pretty likely that the housing market has plenty of inefficiencies but it probably varies by region and people would need to compare rent and sale prices in their area.
If you can buy low and sell high it’s worth it. Especially if you’re positioned to buy when you can lock in low mortgage rates. Above 6% you might be better off putting your down payment into the stock market and renting.
It’s also more likely that you’ll feel good about spending money to improve the home if you think you can get the money back when you sell. (And then you get to live in a more pleasant place for years)
> Especially if you’re positioned to buy when you can lock in low mortgage rates. Above 6% you might be better off putting your down payment into the stock market and renting.
"Locking in" a rate for multiple decades is mostly (only?) an American thing:
Also true in the US, the term of art here is "refinancing". Just about every homeowner I knew during Covid refinanced and now has a rock-bottom interest rate on their mortgage.
The downside of doing that is you end up "locked in" to the property too. They now have a strong disincentive to sell, because they'll lose that sweet sweet interest rate and relatively low payment. I'm unsure what the broader effect is on the market.
Squeezing out the expected amount of money, making it even more exhausting.
Guessing what your yearly house-owning costs will be, and what the market will be when you sell, is in the realm of crystal ball scrying. Sure, you might be able to guess "reasonable" estimates, but individual instances aren't necessarily near the mean value.
Unless you think landlords are running a charity, some part of your mortgage is going to them as profit (over a large enough sample of renters anyways), and some percentage of your rent is covering 'bad tenants' (which you're not, right?).
Their entire improvement section is also something renters tend to not think about. It's a weird situation when renting that you aren't incentivized in any way to make improvements to where you live. You might not even be allowed to.
With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add. Though you also get the luxury of being able to ignore the value add if you just really want to paint that room neon pink for some reason.
> Unless you think landlords are running a charity, some part of your mortgage is going to them as profit (over a large enough sample of renters anyways), and some percentage of your rent is covering 'bad tenants' (which you're not, right?).
You can make the same argument about a bank not being a charity and making a profit from selling you a mortgage (both are true but are not helpful indicators about rent vs buying). Similarly the interest you pay is insuring the bank against bad debtors, which you presumably will not be.
> With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add.
You can improve your living situation in a number of ways when renting. If you want a new kitchen or bathroom, rent somewhere new with those things. Renting also affords you the freedom to leave when things go from good to bad (crime, noise, building ammenities, etc.).
> interest you pay is insuring the bank against bad debtors
I thought that was the govt:
> Loans securitized by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac continue to dominate the market, comprising around 52 percent of all balances at roughly $6.5 trillion. Government-backed loans, such as those insured by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), account for 19 percent or $2.5 trillion. FHA loans are designed for first-time and lower-income buyers and make up 12 percent of balances, while VA loans that are available to U.S. military veterans comprise 8 percent.
Absolutely true if you're renting a home, but I feel like people never address that most people are renting apartments. These have substantially lower operating costs.
Home buying/rental is a totally fair comparison, but I know several people whose main justification for buying a home, rather than continuing living in an apartment, was that they wanted to, "stop throwing their money away". Totally ignoring how home ownership is actually more costly than renting a suitable apartment.
Of course, I fully recognize their are a lot of advantages to home ownership. Some of which you already called out. However, I doubt those advantages are actually sufficient to justify a small, but significant, portion of home purchases.
I think, in many places, landlords aim to break even with rent covering house expenses and interest on borrowing. The profit comes from capital gains. This works especially "well" when you keep buying places because with rent covering the interest you need very little capital so you can keep buying creating a demand that raises house prices that gives you your profit.
This works great until people are priced out of the market dropping house prices a bit and then you've just got a lot of debt and houses worth less, you go bankrupt and someone _really_ wealthy pick up all your houses at a discount.
You can at least hope that the really wealthy guy didn't get that way selling a "get rich in the property market" book.
> Unless you think landlords are running a charity, some part of your mortgage is going to them as profit
This isn't true due to market dynamics.
If a homeowners mortgage is say 4k/month and they list the property at 4.5k/month and receive no renters they can only do this for so long before they are forced to down the price.
Of course, what actually happens is that they list it for 5k/month because other properties are renting for that amount and that's the market price. But if supply increases in the area or demand decreases then prices will go down possibly below the owner's mortgage cost because uh getting 3.5k/month is better than 0k/month.
Maybe OP is saying when you buy from a landlord, they still get their profit (you pay them the NPV of the expected future rents - it's neutral from their perspective).
In cases like your example, what forces landlords to lower the rent? Usually only a) cost of credit, as you said b) opportunity cost, and c) government intervention [land tax, property tax].
a) not all landowners have mortgages! many own outright. they make pure profit
b) the game theory of this case is frequently misunderstood, landowners are a monopoly and are strongly incentivized to act as a cartel. same principle as walmart destroying old stock.
Landownership is one of the most lucrative and profitable enterprises in (American) history, so you might want to question the logic which has convinced you that market dynamics is so effective in taking its profits.
> a) not all landowners have mortgages! many own outright. they make pure profit
I mean they don't. They have expenses like taxes and maintenance regardless of the properties vacancy. Nominally this is more profit than somebody with additional expenses (mortgage) but not always more than somebody who has additional income from say stock returns (the whole buy-vs-rent argument).
While your entire post has been directly about homeowners, (a) is also a crucial point about investment rentals. Other commenters have pointed that many commercial loans allow you to tack onto the end of the loan periods of vacancy. So during a bull market you can refinance and draw out your initial investment so that only the bank's money is backing the mortgage and then during a bear market when you have vacancies you just tack onto the end of the loan.
> b) the game theory of this case is frequently misunderstood
It's not misunderstood. It's exactly market dynamics. You don't list your property for rent at 3.5k when you have a 4k mortgage; you live in it yourself!
The reason people get 4k/month mortgages to rent out a property for 5k/month is exactly because the current market demand is 5k/month. They didn't buy a house first and then decide to price it at 5k/month because it's higher than their mortgage; they saw the market demand first and then bought the house.
> Landownership is one of the most lucrative and profitable enterprises in (American) history, so you might want to question the logic which has convinced you that market dynamics is so effective in taking its profits.
If you have an item of limited supply and demand increases since you obtained that item then you're going to have an (on paper) profit according to market dynamics.
I'm not really sure what you're trying to add, so here's a few questions and examples of my points. Have you read much economics?
a) Firstly, I said landowners, not home buyers. Are you claiming that nobody owns land without a mortgage? Most land value is in residential real estate these days, but not all of it. Much of that value is owned outright - either by homeowners or investors. This varies regionally but could be about 25-50% of the land. What do you think happens when a mortgage is paid off? What about a mortgage on an investment property? What about all the boomers who paid of their loans 20 years ago? While I did list taxes in my original comment, landowners do not necessarily need to pay significant maintenance, for example in the case of undeveloped land, or the case where the value of the house is very low relative to the value of the land.
b) Yes, market dynamics are frequently misunderstood. Do you deny that it is misunderstood, or are you implying it is misunderstood by me? As a case in point, your own example is actually simplified to the point of being wrong - investors frequently buy land with a loan such that the mortgage payment is greater than the (rental, business, etc) return. They do this on the expectation that future yields will make up for the losses. In most jurisdictions this strategy is actually incentivized by the tax system - money lost on the interest payments can be offset against taxable income from your other assets. Are you claiming this doesn't happen? Likewise, in my city, many commercial properties are unleased, but the asking rent is not reduced to the point that they get tenants. This is a 'feature, not a bug' of market dynamics - a fact which is frequently misunderstood by laypeople.
c) Again, what are you adding here? You are saying that the profits are not realised? This is simply untrue - property investors do realise their profits, typically via rent. Are you saying landownership is not profitable or it is not more profitable than other enterprises?
> With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add.
Just beware that it's usually much less than you put in though. We bought our house for £25k more than the next door neighbours even though they're cookie cutter houses sold within 4 months of each other. Our house was thoroughly modernised, new kitchen, all old windows replaced with double glazed windows, garage converted into home office and a bunch of other stuff. We definitely can't do all this work for £25k.
My understanding is that it does raise the value of the house, but less than you put in. I do find it strange, because personally I'd hate living in a building site or dealing with contractors, so if someone already did an extension/loft conversion that I would've wanted to do, I'd pay a premium. Apparently people want it done 'their way', which I can appreciate, up to a point.
You also basically have to assume any and all repairs and upgrades were done crappy, the absolute opposite of what you’d want, and probably didn’t fix anything, either.
Which means that good deals are out there, if you’re willing to search and adapt
You are also not a charity and need to pay _yourself_ profits on the home you own yourself. Otherwise you're no different from a landlord offering below-market rent.
I am a DIY-er by nature with construction experience, I enjoy it, so when we wanted a bit more outdoor space, we moved from a suburban cul-de-sac to a slightly more rural property on some acreage, and chose an aged luxury home, feeling comfortable generally in my ability to be able to rehab it over time. After all, we're not in any sort of rush, and wanted the kids to experience putting work into the place where they live.
I misjudged the scale. Going from .5 acre to 10 I feel like the amount of time I spent on home and property maintenance before could all be allocated to just one bucket titled "nature." Mowing, whether it's lawn, meadows, trails, tree line, all on different schedules. Trees die, they fall, hang up. The volume of brush, invasive species, pulling it, burning it. When we bought it, I made a mental note: "we'll have to replace the driveway." That driveway is asphalt, and 1000 feet long. The quotes for that alone are in price territory of a luxury vehicle. Irrigation, 12 zones, repairing, winterizing. Septic is another ticking clock. When that goes, you're in for 5 digits. Don't have a suitable secondary location? Engineered system, multiply everything by like 3.
So remove that time from my schedule, that's what I have left for home improvement work.
We're deep into it and really enjoy aspects of it. But if I could talk to my pre-purchase self, I would advise that the scale difference is huge, and consider the amount of time that goes into baseline maintenance when deciding how much of a "fixer upper" to take on, especially when acreage is involved.
I think this really depends on your expectations. Let the driveway go to gravel. Only mow near near the house. Hardscape instead of 12 irrigation zones.
If you expect the whole place to be manicured like a city lot, yeah, that's a huge amount of work.
We maintain the areas around our house. The rest is just oak woodlands. Looks like nature because it is nature.
Unless you live in an HOA, theres no real value/use in maintaining your full lot. Just let it grow, or have landscapers come in a few times a year and keep things trimmed. Forget irrigation.
Absolutely do not let cleared land brush/forest over because you (or the next guy) will need to incur expensive environmental permits to clear it and your land value will reflect that.
Likewise never reduce your paved or roof covered square footage. Even if you don't want that parking space or patio or falling down barn the developer who might be your next buyer is factoring that in.
Hate to admit it but it is self imposed what you are doing. You don't actually need a brand new driveway. You don't have to manage all 10 acres. You can keep up a little half acre of it same as you used to, and let the rest go to woods and whatever wants to grow. Maybe you can get goats and chickens to help manage the brush. Or lease land to someone keeping goats and chickens.
> Septic is another ticking clock. When that goes, you're in for 5 digits.
But for the length they last it is less than my city sewer bill. Though if my septic fails I'll connect to the city system was the quote I got to do that was about what a new septic costs.
One more reason I'm sticking with my current system for as long as possible. Though if my neighbor pays to bring the pipe the rest of the way to my house on the way to theirs I'll re-evaluate.
We did similar within the last couple of years, moving from quarter-acre to 25+. And there is no season you get off. Forgo irrigation in our climate and things flat-out die or you would be full-time watering things.
I would love to go back to myself 10 years ago when I was griping about the hassle of netting 5 small fruit trees, or cost of landscaping, and insist that I appreciate the scale and cost of that moment. Now we are dealing with a kilometre of vineyard netting, pruning hundreds of trees and vines, etc. Replacing all our nets back then would've been $200. Now it would be $5000+. I wouldn't give it up though.
It is suggested to set aside 1%-3% of your home's overall value for repairs every year.
Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth.
Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. So far this year I've had nearly 10K in random expenses pop up (!!) and based on the life expectancy of my HVAC system I expect I'll have some more major expenses next year.
If there is one near to you, join a tool library. It is a huge savings over buying specialized tools for one off jobs. Tool libraries are an amazing community resource.
Find a good reliable handy man, even if you know how to do things yourself. Hopefully one you can trust with your door code so if your neighbors report running water while you are away on a trip you have someone you can call who you know will take care of it.
Except in my experience the lack of upkeep doesn't actually affect the value all that much. In many places the vast majority of the price is the land and people seem less interested in valuing based on the condition of the structure. It may affect time to sell, but that seems about it. Sure some credits might be offered during escrow for some repairs, but again often the money is insufficient or the seller simply says no.
That depends on the market and how much deferred maintenance we're talking about.
In some places buyers will bulldoze perfectly good homes just to build a different one, just because the land is so valuable.
In other places, there are abandoned homes that municipalities can't even give away because the cost to bulldoze is more than the land is worth.
If the place you're in looks more like the former, maintenance doesn't matter as much. If it looks more like the latter, maintenance is going to be more important to your sale price.
At least where I'm from, the cost of a property with a burned-out unusable house on it is always a shit-ton more than land value, since running utilities to a house site, dealing with the paperwork, etc. is way more expensive and precarious than the cost to bulldoze. If there was a house there you can just raze to foundation and rebuild it without having to trigger a clusterfuck with the utility company or septic re-evaluation.
Also if the house is at least mortgagable by someone then buyers will still bid the price up to infinity on debt even if the house is only usable for bulldozing. The land value itself is also way lower for places without a house since the land value is loanable in one case and not the other.
This. Most value is location location location. It does not cost that much relative to price to reno when you want to sell. Space is the premium, not trendy open concepts.
A friend of mine had an interesting point there. It was more on a personal note that either of us had a hard time spending money on nice things for ourselves. Like, do you need better headphones, do you need this, do you really need that? Better not buy anything nice or fun.
A fairly unintuitive resolution to this is to setup a "fun and nonsense" budget and force yourself to spend it every half year, or to make a conscious plan on how to spend it over the year. If you plan the budget right, it won't hurt you, but it will force you to make your life better.
Maintenance, especially of owned property, seems similar to me. You should be saving up for the real "oh shit" situations, and you should accumulate a budget to just do things continuously. 6 months of routine maintenance budget saved up, what do we spend it on actively, before it becomes a mess?
> It is suggested to set aside 1%-3% of your home's overall value for repairs every year.
Rob Carrick, a now (semi-)retired personanl finance writer in Canada, observed that owning a home tends to not be a forced saving plan but rather a forced spending plan:
> Most people do not do this, and many homes thus slowly degrade in value
I agree with the first part, people absolutely do shoddy work or none at all but the value doesn't seem to go down. My mother bought a house had it inspected beforehand but massive issues with the foundation and the roof showed up the following spring when there was heavy rain. Sure, all that can be fought with attorneys and insurance (both cost time and money) but it doesn't feel very good psychologically or physically to be dealing with so much paperwork and house repairs.
Sorry to rant, I think your comment is spot on... owning a house is expensive.
This has been us the past few years:
* Fall 2024: we had to get star bolts[1] installed to reinforce our front wall - $24k
* Spring 2025: our (finished) basement flooded, requiring a French drain to be installed and the basement restored - $18k
* Ongoing repairs to our roof to address leaks - $8k
Just a seemingly never ending stream of major repairs, which is taking up money we could have used on actual improvements (HVAC upgrades/mini split installation, reinforcing insulation, kitchen upgrades, etc.) that might actually raise the value of the home. Instead, I'm just hoping the repairs will keep us from losing money on the house when we sell.
I’ve found 1% to be a wild overestimate on required home repairs if you DIY. 3% is crazy, that’s half a mortgage. On my $500k home I’ve spent only ~$3k total on necessary maintenance over 5 years (0.1%/yr), and that includes resealing a leaking flat roof, some furnace repairs, a new dishwasher, some electrical that went bad, cabinets that came off the wall, rotting fence posts, and a separate section of fence that fell down. Insurance is always there for true catastrophes like a tree falling on you or flooding.
But it’s also a small home in an urban area, so more expensive to its size than most. My take on the rule would be to save your square footage in dollars each year.
Now, I’ve spent a lot more that that on the house, but the rest have been cosmetic or quality of life upgrades. I struggle to think of any single realistic necessary repair that would cost more than $2k in materials to do myself.
The trick if own can pull it off is to mortgage in an area with cost of living a step or two down from where one had previously been renting. This was easiest during the proliferation of remote work but can still happen with some persistence.
This way one’s housing costs feel like a bargain and savings (including repair reserves) quickly rack up unless the individual in question has serious problems holding onto money.
Most home repairs give warning. My roof is old but it wasn't hard to inspect it and conclude it is good for another year. If I have to replace it soon insurance will cover it.
I would really recommend getting a Home Warranty. I probably saved myself $7-$8K just in the last year fixing all kinds of electrical, plumbing and HVAC issues.
Maybe, if your home warranty actually has competent providers in its network. When I had one, it was always pulling teeth to get a provider to come out; and most of the providers who are willing to drive 3-4 hours to come out on a home warranty contract aren't the best. And yes, they did replace some things, but at least for me, I'd rather have paid out of pocket to get things fixed or replaced in a timely manner, rather than f**ing around for 3-5 months to get my air handler replaced or my oven almost replaced and then just get a check because their selected oven didn't actually fit. Of course, the check didn't really cover an oven that would fit; but maybe if you have a less fancy house their part selection would work out.
Your rent payments now, may be quite different in a few months.
If you rent an apartment in a desirable location, which is
far easier than owning a house in a desirable location, then
rent payments are huge.
And comparable or worse than owning a house in farther out.
Your luck with landlords can wary a lot, and your rent payments
may increase substantially with little notice.
The landlord may also sell the building with either different
management or repurpose it for something else and you
will have to find a different apartment.
You may also suddenly have unpleasant neighbors.
That is true with a house as well, but the distance
between you and them is closer in an apartment.
As a dog lover, If you wish to have a big dog your may not be allowed to.
If you want a yard to kids to play, you cant.
If you want chickens you cant. (I know many in Denver who do)
If you wish to install extra cooling /AC/heatpump you probably cant.
None of that negates your arguments fully, but the case is far
from as black and white as you make it.
I think it's because there's only a tenuous sense of control with things in-between, and to some extent SFHs that have strict HOAs. I mentioned in another comment that although in theory (in the US & Canada anyway) you can buy an apartment or duplex or townhouse, but as far as I'm aware you only gain marginal control over what you can do to modify it if you wanted to, and the advantage to owning largely comes down to owing the bank vs owing a landlord, but otherwise (sometimes even with SFHs without HOAs) you are beholden to the local bureaucracy if you want to make any significant changes condo strata and/or city permits). Seems like buying a non-SFH for any significant amount more than renting the same place is just trading the fear of eviction for the burden of debt, and buying a SFH is just debt+burden but you get a garden or something.
Source? In my neighborhood on the outskirts of downtown (about a 10 minute drive out) at least 25% of the houses are rentals, maybe more like 33%. Lots of investment properties people scooped up when mortgages were 2%.
I got my mortgage at 2.5% interest. The mortgage was about equal to all of the cash I had before buying, and I'm pretty sure I could (and should) have gotten a much larger mortgage before buying. Mortgages are essentially the only way for ordinary people to access that kind of credit. That's why buying a house is such a good deal. No one's lending an ordinary 30-year-old hundreds of thousands of dollars at 2.5% interest to plow into the S&P 500.
Of course, this kind of credit is _incredibly_ risky. People don't think of it this way, but a mortgage is essentially a massively leveraged bet on your local housing market. Which is already gives your risk profile an incredible lack of diversity. The most valuable thing you "own" in the time of your life when you buy a house is usually your future earnings potential, and your house will be the second most valuable thing you own. The thing is, both of these things are highly correlated with your local economy, so buying a house doubles down on your already high exposure to local economic conditions. People think of owning a home as a kind of boring, safe, low risk/low reward investment, but it's really exactly the opposite.
A lot of discussion of the cons without discussion of the pros. For example: 1) your home is a hedge against inflation, your $2000 to interest sounds terrible when rent is $2500, but doesn't sound so bad if rent rises to $3500. If you live in your home for long enough, this is all but guaranteed. 2) your home is a leveraged investment. You may only be getting 4% per year in appreciation, but that's 4% gains on the total value of your home, not just your equity. If you have a 500,000 home that appreciates by 4%, that's 20,000 that you get directly, not the bank.
Interest rates sure have made it less of a good deal than it was ~5-10 years ago, but it's usually still worth it in the long run.
The biggest advantage of buying a house is that it forces people to actually put money into a giant savings account which is not easily accessible. Otherwise people just spend the vast majority of the money they have. As an investment, houses are historically mediocre outside of some hot areas.
You do have a point that in the long run, the health and growth of the overall economy impacts the quality of life of individuals, but the interests of individuals must be balanced against the interests of a country as as a whole.
Consider that people immediately spending all their salary at the beginning of every month and being broke and hungry for the rest of the month is good for the economy, but is obviously not what we want if we care about human well-being.
But that is an argument for banning everything and forcing people into a Matrix style pod at birth, since some people otherwise will be irresponsible.
And if you're talking about people who go broke and hungry waiting for the next pay check, in most cases it is because they have to spend so much on their rent or mortgage. Being "house-poor", as they call it.
If all the money of a country is not locked up in real estate of the olds, then that money could be invested in small and large businesses, in infrastructure, in young workers being able to create a family, and even useful products and useful services.
But it seems that the entire world has decided that everything except real estate - even the continuation of the species through children - is just "pointless shit". Better to have a very expensive tomb to haunt.
It seems like we're just a few years away from when the elderly start demanding to be buried in their houses and have them sealed off for all future.
All investments inherently have risk. Looking at historical data the average return is 4% per year on houses in the US. This average includes the '08 housing market crash. If you hold for long enough, your risk is drastically mitigated. Whereas with rent you're basically guaranteed for prices to go up year over year, unless we are in a deflationary market which is quite rare.
You are improperly accounting for risk. People don't own a diversified portfolio of houses, they typical own one house. The "if you hold it long enough" is to some extent disqualifying. Many people never see any real return over multiple decades.
Where I live rents won't cover the interest payment on a new mortgage. The return on renting is insanely good here in addition to the increased optionality and reduced risk. I've owned many homes, I'm just not emotionally attached to the idea of owning one nor deluded about the rate of return.
I'm not saying you need a diversified portfolio, I'm just saying that the actual rate of return will regress to the mean of 4% given enough time. Obviously we don't know if that regime will hold forever but that's the nature of investing, predicting the future is very difficult.
I agree though that this is a very location-dependent thing to consider. Local renting rates vs property values is hugely important when determining if it makes sense economically or not. In your area you'd probably be taking a loss compared to renting until rents rise enough to make your mortgage look appealing and appreciation offsets those early losses, which could be a long time depending on the situation. And you may not want to do that at all even if the math looks ok depending on your risk appetite!
My original comment was just address shortcomings in the original post omitting benefits to home ownership, it's certainly not a cut-and-dry issue which is why I had problems with the post originally.
The argument is that rate of return only regresses to the mean if you diversify. It's like saying "I hold stock in a single company, so if I hold long enough, my return will average the return of the S&P 500". Your returns will look like the mean only if you diversify across investments, not over time.
The general problem with leverage is a margin call though.
You largely will not get margin called over your house. The bank doesn't want it. And also the house largely won't get re-assessed in value so you can launder the volatility through bad markets.
However, if you take out a $1M stock position and it drops down to $0.5M the broker absolutely will re-assesse your position based on market prices and then take liquidate you to ensure they're whole.
If you're just looking at the numbers, it's worth doing the math. Obviously many things will be estimates.
Most people don't do apples to oranges comparisons, because a 2-bedroom, 1.5 bathroom you're living in is not comparable to a 3-bedroom, 2 bathroom, quarter acre house on a lot you're considering buying.
So it's obviously not just math, but also preference, or need.
Local house prices, tax rates, utility rates, services for maintenance and upgrade... they'll all vary greatly depending on the area. And if you're moving from an urban apartment to a suburban house, you're changing how much you'll drive, maybe even need an additional car. But maybe you turn in your rail pass, and decide to cook at home more, and eat out less.
If you think you can decide this based on a formula (or some folk wisdom), well you probably can, for yourself. But of course there's no one universal right answer that applies to most people, because there are too many variables and too many options.
I think 1% per year is insufficient for repairs. Even a paint job will cost more than that these days.
There's also a potential HOA fee, even in many neighborhoods with freestanding homes.
But there are tax benefits of home ownership too. The interest deduction used to very significant, although less now since they raised the standard deduction. There's also a $250K/500K non-taxable capital gains benefit when you sell a house for more than you paid.
There are years where I don't have to spend that much and sometimes there a year here or there where I do a major project (roof, new patio, etc) that goes way over, but an average of 1% per year seems right to me.
Seriously. My experience with 15 years of home ownership is probably more like 3% per year. I don't think I've ever had even a single year where 1% was accurate.
It’s fairly unpleasant at least in my opinion. I don’t want to spend hours breathing fumes. Also it’s boring and repetitive. And finally, IME professional painting is far higher quality (especially if you are texturing or have any complex shapes to paint around).
With a mortgage, you are forced to save money. In other words you have no way around being disciplined. So yes in theory you could probably make more money with aggressive investing, but chances are most people would risk too much and lose a lot and never have the mental discipline of saving the excess they have no matter what happens in their life.
And then hope you're not one of the ~1/3 that end in a divorce at which point your house gets firesold to first low-balling flipper. House can be really bad anytime it's multiple people liquidating it -- I watched some other family members inherit a house and it sold for about half it's value because some family members weren't willing to wait more than a millisecond for the inheritance payout.
All you need is to invest into the index funds tracking some sort of the total market and you are golden. Not sure if I would describe that as aggressive.
But I fully agree that mortgage forces people to actually save money, most people would just spend it all.
I made plenty of money (and still do) holding US treasuries and other safe investments. You don't need to gamble on stocks to have income from cash which offsets rent.
For most of my life, fixed income was outperformed by inflation. Indexed funds returned double fixed income over that entire period. Either you are in your 20s or you aren't nearly as good at investing as you think.
I'm fine with keeping most of my post-tax cash pile in cash equivalents. I don't think you understand investing if your only measuring stick is returns. You do sound like a finance bro though given you took time out of your day to trash talk someone for something they didn't even claim.
If your investment return is less than the rate of inflation, you are literally getting poorer. Sort of defeats the purpose of an investment. It isn't much better than literally keeping it in your mattress. Just because you don't understand that, doesn't make it not true. And software I wrote probably has managed or touched your money at some point.
Ok, and? You don't manage money. You don't seem to understand risk tolerance and opportunity cost. You're also comparing near-inflation returns with cash at zero pct return.
I can see why you only write software and don't actually get to touch other folks' money. Good luck buddy.
IMO most childless people would be better off renting (kids change the whole set of incentives). Exceptions would be people with hobbies that require a lot of space or a yard, and light sleepers.
A house means a better standard of living, but you definitely pay for it. I spent $25k replacing a fence at my house this year, and I'll need to spend another $20k to replace the air within the next few. The roof, another $30k, is coming up too. Where I live you can rent for quite awhile with $75k.
While it's true rent goes up over time, if you take the money you're not putting into a house and invest it, your investments will go up over time as well.
Theoretically these capital expenses like fence replacement or roof replacement should have been deducted from the market value of a house when you buy it: a theoretically rational buyer would take into account the present value of future capital projects. And this just goes to show how much the market value of a house is now much higher than the present value of all future rent. In simpler words, the market is frothy. Buyers just hope the market remains frothy when they sell.
Oh, all this stuff was fine when I bought the place fifteen years ago. But eventually everything in a house will wear out right down to the foundation. And that was my point -- these are normal expenses you need to account for as a homeowner. Forget the price; I'm just trying to keep the house livable because I live here.
I don't follow this logic. Homebuyers do deduct these costs - I certainly did. House price is still tightly coupled to NPV of rent - expenses. People are a) predicting higher growth in rent over time (there are sound economic reasons to do so, though AI is a curveball) and b) use different discounting rates due to access to credit, etc.
If you were renting, you would still be paying for the fence, utilities, roof, etc (quoted prices for fence/hvac are very high btw).
If every renter on the street had significant free money to invest, why wouldn't the landlords increase rent? The only thing stopping them is the availability of other land / houses to buy, which acts as leverage for the renters. As land gets bought up over time, zoning becomes more restrictive, etc and this source of leverage dries up.
The result is that while some high-income earners benefit from renting, it is mathematically impossible for the average person to do so. 'Anyone can win the race but not everyone' principle.
Usually when you're renting you're not in a detached dwelling, which is more expensive. On a per-unit basis, it's a lot cheaper for the landlord to maintain your unit than it is for you to maintain a separate house.
Renting a house just makes no sense, IMO, unless you have a family and you know you're going to be moving soon.
Also, rents don't increase just because you have extra money. People take the cost of living into account when they decide where to live, so there's a natural cap on what people will pay for rent if they can commute.
Where I live, people do indeed rent houses in large numbers. This is typically not because they wouldn't prefer to buy - it is because they can't afford to. This would describe such a large number of people globally that I'm shocked you aren't aware of this.
'Rents don't increase just because you have extra money'. Could you elaborate? Also, I said if everyone has more money, rent increases
While this is true, you're not actually contradicting what I'm saying. In economics, supply/demand is a curve (not a scalar quantity). If everybody's wage increases, then the demand does go up (the tail of the curve goes up).
But this is pointless abstraction really. If a magic fairy started putting 100 USD in the pocket of every renter each week, what do you think would happen to rent? Would the landowners be obliged to sell them land/houses at the current market rate? Or could the landowners simply refuse to sell and instead ask for higher rents?
As another thought experiment, imagine a law passes so that every renter is forced to eat soylent green and can't get a wasteful car loan or a netflix subscription. Every renter is now 100 USD a week better off (against their will). What happens to rents? Have the supply or demand curves changed?
If you read up a bit you'll see I'm talking about single people, for whom that is the normal progression, at least, here in the US. You rent an apartment and save your money until you can buy a house. In the US the vast majority of houses have at least three bedrooms, which is two more than you need as a single person, but if you buy something smaller you'll have trouble selling it. So you buy the three bedroom place, you fill one room with junk and make the other into a guest bedroom.
The point was you're better off staying in the apartment, financially speaking, if you take the extra money that would have gone to a house payment and invest it.
Renting won't match home ownership for few reasons.
First one already mentioned in the comments is you can be kicked out at any time within your rental agreement. I was "lucky" enough to get our rental sold two years ago and then again this year. Packing and looking for another rental with 2 months notice is not fun (and boxes smell).
Another difference is location and place itself. You'll have much fewer rentals in a very nice neighborhood, and even those that are rented out, are the worst - corner lots (3x gardening cost/effort), facing major roads or other things that make life less comfortable.
Rental condition is not under your control. At least in Seattle area owners I rented from didn't keep the house well maintained, which resulted in:
* roof leak (no moss treatment performed, grew and lifted shingles).
* 25 yo furnace "worked" until one midnight my family had to evacuate and call fire fighters due to CO alarms getting off. Four days without heating after that (owner offered to reimburse for the cheapest hotel nearby).
* Appliances are not replaced until they break. I looked at one property few weeks ago that had original once white appliances. I asked if owner is willing to upgrade them, the agent laughed at told us they will fix it if something doesn't work after we move in.
I pay only 650/mo for rent though. My friends with homes around me pay about what I pay in rent in their home property taxes alone... Or especially once you add in some utilities, like my heat is included in my rent and I can have my place at like 75F all winter if I want.
Also yes they replaced the dish washer and refrigerator with new ones before they broke or died while I've been there.
Great article, love that you enumerated all the costs in buying a home. I don't like how renters romanticize home ownership and fail to understand how many costs are involved.
> You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on.
However, this statement doesn't exist in a vacuum. You need some place to live, and you have to compare the cost of renting to the cost of owning.
To give an example, the typical rent in Toronto is $1000~2000/month, and the typical home ownership cost (including principal, interest, taxes, and maintenance) is $2000~3000/mo. We can just pretend that both are around $2000/mo.
If owning is still $2000/mo but suddenly rent is $500/mo, then renting suddenly becomes a great deal - even though you are still literally "throwing money away". You can use that differential $1500/mo to invest in a savings account, stocks, etc.
And speaking of that, I realized that the biggest cost in owning a home isn't the mortgage (and you correctly pointed out that paying down the principal doesn't change your net worth). The biggest cost is the opportunity cost of the down payment, when you could have instead invested in the stock market at 7~10%/year.
Continuing with the Toronto example, if you bought a home for $500k with 20% down, then the counterfactual if you had continued renting is that the $100k chunk of money could've generated $7000~10000/year = $580~$830/mo, which is a substantial fraction of the $2000/mo rent.
Why don't we say this about other expenditures? Am I throwing my money away when I buy dinner and not a cow? Did I throw my money away by buying a carrot and not farmland? I don't think the statement is true or false, it's just meaningless.
You somehow missed the second part of that sentence: "No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on."
The oft-repeated statement that "renting is throwing your money" is an implicit contrast to owning a home, where the mortgage payment "builds equity" in your asset that can be sold later.
"Throwing money away" means you don't get to own something that can be sold for money later on. That's why we "throw money away" on gasoline, but not "throw money away" in a savings account.
The second part of my argument is that throwing money away isn't necessarily a bad thing, because the alternative (such as paying to own something) can end up being more expensive and being a worse deal financially.
No, I read that part of the sentence. I don't know why you'd assume I didn't. Should I claim you didn't even read my entire response?
I've never heard someone claim I am throwing away money when I buy something consumable except rent. It's a stupid statement that doesn't convey any useful information.
OMG...the phrase probably comes from some real estate agent. Truth is, 50 years ago investing in US real estate was such a good investment that if you could own you did. Today, so much "value" has been squeezed out of the housing market that owning is very very difficult. Most people under 40 who own, are now all in on an investment in both the housing and interest rate markets that could either crush them or be their best lifetime investment. Its very hard to argue at this point that making such bets is a good idea for most people. The worst part is that this was all unnecessarily engineered by people who believed Disney movies accurately portrayed public policy.
That’s not what that expression means though. Wikitionary has it as “To spend money foolishly or indiscriminately; to waste money without regard of the consequences.” Which sounds about right.
I'm not sure that your definition of "throwing money away" corresponds to the OP's.
OP uses that phrase to imply the (un)worthiness of spend. You're using it to mean that it doesn't build or maintain equity, which is true almost tautologically but wouldn't be very meaningful unless your audience doesn't understand what it means to rent something.
Buying is cheaper than renting in most of the country, it's only in coastal markets with exceptionally high home prices that this isn't true. There's a basic formula you can use called "price-to-rent" that helps you calculate this for your area. Where I currently live I was able to buy a house for $285k that would cost $2500/mo to rent in the current market, which is an extremely favorable price-to-rent ratio. If the ratio is not over 20, it's better to buy in your market.
While it may not be well known to many, there are mid-sized cities all across the middle of the country where you can buy houses as cheaply as $150k in this year of our lord 2026, but rent generally will be no less than $1000/mo. Private equity and software like RealPage have had a nationwide impact of driving up rental costs, but this hasn't necessarily caused housing prices to skyrocket in places in middle America where there aren't a lot of natural reasons to want to move there.
So sure, owning a home might cost more than renting on paper in California, but that's not true in a lot of parts of the country. Even then, the financial aspects aren't the only parts that matter.
> My 1983 home had been used as a rental for years, so much of the maintenance had been neglected.
The author is acknowledging a reality without acknowledging it, also. Rentals are not well cared for. Most landlords do not keep up with repairs, maintenance, and improvements, and you are going to get to deal with the poor quality of living situation as a renter as a consequence. You get to control this when you own your home, and while it is an expense, it's a fair expense you can manage yourself.
> You can save a lot of money in maintenance and repairs by doing your own work whenever possible.
True. But even if you have the physical ability, skills, tools, and equipment handy - you can spend a lot of time on maintenance & repairs. Just ask anyone who's done yard work for a few years, or has repainted a house, or ...
That maintenance has to happen one way or another, hiring someone to do it can add quite a multiplier to the price. For example, I was recently looking at water heaters and called 4 different plumbers to get a quote. All of them came in around $5,000 for the job. The water heater they quoted costs $1,000 retail at Lowes. If you know what you are doing it isn't even difficult to install.
That said a layperson probably won't know the new code requirements in their jurisdiction and if you sell your house you'll have the inspector tut-tutting the work for one reason or another.
Hah, although, admittedly, when my AC died here I was looking at quotes for $17K for replacement (although I did also do the furnace at the same time, since both were early 1980s and basic models even then). "Why? I could buy the AC for $4K".
"Surely it wouldn't be too hard to undo/redo piping etc." But yeah, different refrigerant, different code requirements for vents and exhausts and drains. 4 people working for 16 hours, I saw where the money went.
The skill is in being able to solder pipes together, something that is useful to learn as a general skill. It doesn't even need specialized equipment, just a torch, some flux, and a spool of plumbing solder. There is also a tiny bit of electrical work, but that's literally just matching the colors and using a couple of wire nuts.
Admitting that one of my grandfathers was a blacksmith and the other a farmer, that my own father could have built a house from the ground down (I helped him dig and pour a foundation once) and then up, etc. - most modern Americans just don't have the backgrounds/aptitudes/comfort levels needed to try and succeed at such tasks.
I spent my 30s playing "this old house" when I could have made significant amounts of money just working more consulting hours. Yeah, I enjoy some home improvement and maintenance tasks, but I also enjoy financial security and pain-free joints. The tools and things required to maintain a home also take space you could use for hobbies or simply downsize. Home maintenance makes sense for folks with lower value skills and less means to side hustle though.
I learned very fast after purchasing my home that hiring out to a contractor made so much more sense. They can get done in a day what would take me a month+ of weekends.
Depending on the job, you can also do it better yourself than what you can reasonably pay for.
I built a custom shelf for my closet. It'd have costed me an arm and a leg to have someone else do that, even with a tech worker's salary.
I also built a custom walk-in closet. It took me a day, saved me over 2k and I got a better quality closet out of it. (You find find built yourself a walk-in-closet kits that are easy to assemble, it really isn't that hard, just don't get the home depot level quality ones.)
There is that famous study from a few years back where people value IKEA furniture they put together themselves more highly than pre-built stuff of a better quality.
Depends if you would be getting paid during the time spent doing these projects. People with flexible vacation time might even be getting paid while doing the work. But otherwise weekends and evenings are great times for smaller home projects.
There are other opportunity costs other than direct monetary income.
For example, to mow your lawn, you have to find a time to do it every couple of weeks when the weather cooperates, be at home at that time, store and maintain the equipment, have a pair of "grass shoes", clean up afterwards, etc.
This might be worth the effort if you don't have much disposable income. But if you have money to blow, hiring someone to mow your lawn can give you more time to do something else you'd rather do.
You come out ahead with home ownership if you buy the right-sized home and stay there. Homes almost always offer more space and utility for less than rent would, assuming the rental even allows you to do what you want to do with your home or at your home.
Staying put reduces the time and money you spend on borrowing, closing and moving, but most importantly, it keeps you from lifestyle inflation that is the biggest financial risk to homeowners or renters.
These are the dynamics in most of the United States in the broadest age range. They only break down a bit at the extreme low end (rooming with a bunch of people) and in the most expensive and house-constrained cities.
> Homes almost always offer more space and utility for less than rent would
1. you can rent a single family house so the space and utility are the same
2. if interest rates recently increased very rapidly, the owner can afford to charge rent much lower than the current mortgage would be because they are locked into a lower interest rate.
A rental house is almost always more expensive if it's an apples-to-apples space, or the renter's use of it is significantly restricted even though it looks similar. Sometimes both.
There can be temporary mispricings of rent vs mortgages, but they correct, and they go in both directions. There are always small mispricings in housing markets that let individuals do exceptionally well (or be ripped off.)
For the most part, those aren't like-for-like comparisons. In much of the US, where the average mortgage price is higher, it's because people are buying more than what they would rent.
There are a few distorted markets where that's not the case.
Didn't mean to offend with the preface before the rest of my comment.
> I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Any half-competent realtor will tell you that if you aren't going to stay in a house for 3+ years you will probably lose money on closing costs/fees.
Contrast this with my house, I stayed in it for ~6 years and the house went up ~$100K in value. During that time I put ~$50k into it (AC, Insulation, Pest, replaced some pipes).
But most importantly, it was mine. I did have to manage my own maintenance but I've lived through almost a decade of renting at differently places and the "included" maintenance is dog shit. At one point I had water in my kitchen floor such that as you'd walk water would come up through the seems in the vinyl for well over a month... on the 16th floor. I also had long streches where the elevators weren't working and every year they increased rent $50-$100/mo. Right as I was moving out they wanted to add a $25/mo pet fee and the removed our cable modems and made everyone use wifi-only (limit 10 devices). Yes, some of those could be avoid renting a house not an apartment but I've lived that life as well and it ain't all roses either.
TANSTAAFL. Maybe renting and owning come out about even for most people in most situations, but a lot of the "perks" of renting really sucked IMHO and I greatly preferred being in control of my own destiny, never having to ask permission, not feeling like a second-class citizen, not having the owners stop by or want to show off my unit to a prospective customer.
I have zero desire to go back to renting until it's time for nursing home/assisted living-type place for me.
We've been in our home for about 5 years now, but we bought down the interest rate as far as we could so our break-even point is still a year or so out, not counting appreciation. Our realtor told us over and over again than if there was any doubt we'd be in the house for 5 years we would very likely lose money selling it.
There will always be people who break even after 15 years, just like there will be people who hit the lottery and sell for 5x while the ink on their mortgage application is still wet. But 5-ish years on a standard 20% down no points 30 year mortgage seems like a good rule of thumb outside of VHCOL areas.
> Right as I was moving out they wanted to add a $25/mo pet fee
If my landlord did that, I'd be quite surprised as he obviously knew I have 2 small dogs when I moved in and they haven't done any damage. Is your landlord managing lots of properties, not just your own? It's the type of added fee I'd expect from a faceless company, not a person I've had a relationship with for a while.
> they removed our cable modems and made everyone use wifi-only (limit 10 devices)
The place in question for the pet fee was a corporate place. I’ve paid deposits for having a pet before but never a flat rate added fee to every month.
As for the WiFi, yeah, they told me they could raise it to 20 and didn’t understand that I had multiple devices that I didn’t want on WiFi or literally didn’t have WiFi (a handful of servers). The WiFi was the captive portal BS so it was hell to try and get anything headless connected to it. I was so glad to get out of that apartment.
Awful. I consider myself lucky to have never had the need to deal with these kinds of setups. At first I assumed "WiFi" was used to mean "broadband internet", as opposed to cellular, as I've seen Americans call it that, but it actually is just WiFi, nothing wired?
I've never had to deal with "X devices max", either.
What did you try to get around the limitation? What about a laptop that would serve as a proxy or a router or something?
The "X devices max" is so dumb, anyway. Shouldn't it be the total throughput that matters? It's like those electrical advices that say not to daisy chain power strips as it's dangerous, yet I've had 7-8 power strips daisy chained for decades with no issues. Obviously the issue is not to overload a single socket with too much power, but if you have 50 low-powered devices it's OK. Imagine if our electric company had a "X devices max" policy.
Yeah, to be clear, there were no wires available (I asked, and then begged). Thankfully I was in the middle of buying my house when they made this change and I just dragged my feet until I moved out and never turned in my old cable modem so that I could continue on as I had before for the last month or so I was there.
The device limit was so stupid and for all I know they raised/removed it after I left. Even at 20 devices, it wouldn't have been enough [0]. Had I stayed I probably would have needed to do a wifi->wifi or wifi->ethernet bridge so I could get around the limit and provide internet to the non-wifi devices. Also, just to provide some more info, this was in 2019 so it wasn't like it was the dawn of WiFi and people didn't have lot of wifi devices.
> The "X devices max" is so dumb, anyway. Shouldn't it be the total throughput that matters?
It should be, but that would require some level of critical thinking and the owners of that apartment building had long-since proven they possessed neither the ability or will to think about anything they did, WiFi or otherwise.
[0] Between my partner and I we had: 2x phones, 2x tablets, 2x laptops, 2x Smart watch, 3x servers (not even wifi-supported), smart home hub, smart scale, Xbox, 2x Apple TV, 3x Echo Dots, 3-4 smart plug wifi devices, and then I had a work laptop and a few work testing devices (phones/tablets) so I blew past the ( raised for me) 20-device limit without even trying. And I'm probably forgetting a few devices.
For my twenties, the biggest cost would have been opportunity. I was able to switch jobs multiple times in different states before meeting my fiancee. Renting allowed me to be far more adventurous than I would have been.
When you're 20 something and you can pack your 1 bedroom apartment worth of Ikea furniture into the smallest U-Haul, or just sell it on Craig's list and start over at the next place, renting is awesome.
When you have a house full of crap you've collected over 20 years and live somewhere you carefully picked for your kids to have a good school, the whole equation flips and you're willing to accept the downsides the author calls out, to give your family stability.
This is a super-useful article, and there are many cases where the cost of buying, owning, and selling a home is higher than that of renting. But sometimes ownership costs less than renting, and often—generally when you stay long enough—it can cost a lot less. One place in this article that hints why is when he says that in 2011 his mortgage was $2,329.92, whereas now 15 years later it's $2,440.48. That is a tiny crawl upward, nowhere near the rate of inflation. If he'd been paying $2,329.92 monthly in rent in 2011, he'd now be paying about $4,100. Inflation hits renters much harder than homeowners. Appreciation (a form of inflation) tends to help homeowners more than hurt them. Nerdwallet's rent vs buy calculator is quite sophisticated and can help you reason about your own situation. https://www.nerdwallet.com/mortgages/calculators/rent-vs-buy...
These own-vs-buy comparisons always compare an idealized rental situation vs a concrete ownership situation. Its never realistic (although this article does acknowledge it: "My 1983 home had been used as a rental for years, so much of the maintenance had been neglected".
Specifically: people think about maintenance costs as a "con" in owenership, but its not like in the alternative (renting) you'll get all of those things for free. The owner just won't do any maintenance beside the bare minimum required by law.
And when you invest in something because the landlord won't do it, then move to another rental for some reason, you may have to do it all over again. Especially for upgrades. When you own the logic is "I'll pay X for this and it will hold for ~Y years". When you rent it's "I'll pay X for this and if I leave before ~Y, I'll have overpaid on a per-year basis".
I really like this analysis. Considering this is written for america, a lot of these points somewhat apply to germany. Over here homeownership is pretty difficult. I put that decision away until I'm 35 or 40 and absolutely have to stay in one place because of kids and so on. I feel like I have more psychological safety when I rent and can move away whenever I want to, have a pile of cash and investments that pay the rent for a decade. I can't wrap my head around pulling most of your savings into a loan and then paying more or equal monthly than what you would pay for rent...
I feel like renting your first 1-3 flats in different cities is a valuable learning experience. You will learn where you want to live, what is important in a flat, its layout and its utilities and materials. It will save you a ton of money longterm if you know how thick the walls, well isolated the windows, locality of things and many other facets have to be...
Is Germany more like the US? In the Netherlands, before 2020, the cost of getting the loan was negligible. For a while earlier, it was zero - all transaction and notary costs could be included in the mortage. You could literally buy a house with €0 in your bank account, as long as you had the necessary income.
These days it's not so easy, prices have risen by 50%+, but you still pay less on a mortage than the equivalent rent, by a large margin. Renting (if you can buy) is pretty much throwing your money away.
The article details costs and leaves two big ones out. First, opportunity cost: lot of folks rent instead of own on the basis of keeping assets in higher-performing market sectors. Second (and perhaps actually an expression of the first), anything that prevents a working professional from changing cities can exert downward pressure on future economic opportunity.
Even easier than moving apartments if you just sell your house "as is". Depending on your rental contract you might have to do paint it etc before returning it.
I grew up in Puerto Rico where houses are made of concrete or concrete blocks. Maintenance was lower because there were not much issues with termites, water damage, shingles, etc. My house made it through a category 5 hurricane with minor damage to the windows and some flooding.
Now I live in a house made of wood in Georgia. I’m exhausted from all the maintenance and the extreme nickel and dime-ing from everyone. I bought new five years ago and the house now needs to be fully painted, a new A/C evaporator, and some other minor stuff. So, about $20K worth of “maintenance”. This plus the stress of having to live with the hopes that a hail storm does not hit and ruins my shingle roof.
I’m hoping to sell it and rent until I move back to the island and live in a proper solid home. I would build a house here with concrete but code does not allow it.
OP seems to disregard the fact that equity in the house is basically a pile of cash you can live inside of. If you're renting you're paying some premium for the landlord to pay their mortgage interest and pay down their own principal. The cash flow is lumpier for ownership (fewer, bigger expenses) and your risk concentration is greater (you're committed to a single asset). But ultimately that stuff is all priced into rent, plus a premium for your landlord to have "passive income".
If you're able to own a rental property in today's economy it feels like you'd have to be stupid to not be able to make above-market returns
The long-term promise of buying a house isn't necessarily "number go up" but "after 25 years you own it outright".
It seems like public (REIT) landlords haven't really been making an above market return. Admittedly they have constraints that private landlords don't, but they also own a metric shitload of rentals.
For me, the biggest 'cost' seems to be peace of mind. I rent my place, and even thinking about all this home owner sh!te gives me a headache.
To each their own, and I'm probably pissing money away, but I want to live with the feeling that I can quit this 'housing subscription' (that's what it is, just another subscription) within a month and not even have to think about it.
And be homeless, if you are truly not thinking (and assuredly acting) about it. It’s not “just another subscription” in many ways. The idea of renting being the “peace of mind” choice rings false with me.
Having your own home and property where no one on earth can tell you how to live: priceless.
Maybe home ownership is becoming a luxury, but humans don't exist in financial spreadsheets. The intagibles of SFH ownership are worth literally everything to me after a lifetime of renting.
It's also absolutely a class differentiator in the US. If you're behind on your rent and getting evicted, that's seen as a personal moral failure. If you're behind on your mortgage and getting foreclosed, it's considered a tragedy, and there are many options for support like forebearance. Just look at what happened during COVID; red state renters were getting knocked on by the sheriff within 90 days, while it can take years for someone to lose their house.
>Having your own home and property where no one on earth can tell you how to live: priceless.
Whatever you do don't read your local zoning code.
If you really want motivation to browse large bulldozers on Facebook Marketplace look into the legal doctrines that underpin these codes. It's pretty mind boggling.
A big reason why people believe one should own their own home (or that it is prudent to do so) is due to the historical fact that land has gone up in value in many countries with strong population growth (such as the United States).
As the population of the US starts decreasing (due to lower immigration, and historically low birth rates) and the urbanization trend completes, it's unclear why the value of land should go up, and therefore why real estate should increase in value.
The rest of the debate is very dependent on things like tax treatment (e.g. SALT and property taxes), personal preference (stability of fixed rent vs right to stay forever/customize), and transaction costs.
The buy/rent decision is quite complex for many reasons, but two overlooked factors are:
1) When a bank loans you $1e6 to buy a house, they are effectively deputizing you to act as a money manager: they allow you to make an investment that will hopefully appreciate more quickly than the interest rate. There are many other investments that have this property (e.g. the stock market), but banks won't loan to you to invest in them!
2) A mortgage acts as a forced savings rate: you pay the bank every month, and when you're done after 30 years, you have a large asset. So a large mortgage is (for some people) a good psychological commitment mechanism that imposes financial discipline.
Owning a home is as much responsibility as having infant which never grows up, can never be potty trained. There are thousands of things that need to continuously monitored and maintained. Time, money, mindspace and the stress are the huge operational costs of owning a home. Property taxes, insurance and repairs/maintenance, these three are increasing YoY will cost 3X the initial cost over a 30 year mortgage.
There is no incentive for homebuilders to build better homes, once they sell, they don't deal with the ongoing costs in multiple dimensions.
Having owned a house for two decades (well two houses because we moved) and having two children, I would say that owning a home feels like a doddle in comparison :-)
I haven't done the sums to compare expenses, but when they are young childcare/lost earnings is definitely more than insurance/repair/maintenance costs (and tax, although in my country you pay tax as a tenant too).
I'm not sure that's true. I own a flat in London and a couple in Spain. With the Spanish ones I have to do something every few years. I gather infants require more maintenance than that.
Depends very much on the region/country/jurisdiction/county you're living in.
Walls are your's? Not when it falls under some heritage laws/building codes which forbid too much deviation from the original.
As much solar as you want? Again, very much depends on not disturbing someone elses view, or the 'general character' of the surrounding landscape. OFC again dependent on jurisdiction.
Big bad antenna? See above. Cats 'n dogs, again dependent on country/county. The same for tree.
All of this applies to some regions only, where your next neighbour is far away, out of sight, usually.
And even then you can have shit like 'water rights', like in Colorado.
Gonna disagree with you on this one. For the ham antennas, sure. For everything else though? I've never seen an HoA that stops you from having pets (they may have some rule if you have 100 cats or a rooster, but "normal" variets are not an issue). I've also never seen an HoA give two hoots about network wiring inside your house. EV chargers are also yours to install as you please everywhere I've seen.
Maybe in a condo or something where you don't own the walls, but they are community property? But for single residence, the HoA is usually just a "mow your grass buddy!" nag machine.
Last summer I was reminded of the dichotomy of owning vs renting during the crazy heat wave in NY.
Both my coworker and I had AC issues.
For him, he called his landlord and that was it in terms of hassle. He then went after his landlord for a rent reduction due to the AC being an issue for a week.
I instead had to buy a portable unit as a stopgap while I dealt with finding contractors to give me quotes on a new central air system which cost 5 figures and probably 20 hours of time.
I had a towel bar fall out of the wall. I realized that that small repair would take a trip to home depot, buying plaster, paint, a paint brush, and probably some other crap. There are of course a million types of paint and brushes to get there. I'd have to research what makes sense. Something cheap but decent, I guess. I have no garage so what I do with the rest of the paint? Drive to the hazardous waste disposal in my city, which has limited hours. So maybe 3-4 hours of my time including watching youtube videos if I don't screw things up, and $50 of stuff.
I then sent a maintenance request to my landlord and they came the next day and fixed it in 15 minutes.
> Both my coworker and I had AC issues. For him, he called his landlord and that was it in terms of hassle. He then went after his landlord for a rent reduction due to the AC being an issue for a week.
This is the best case outcome. All too often, especially with mom and pop small landlords, the repairs are delayed or done incompetently, or there is no local ordinance offering recompense to the renter, or both.
You are also reminded of the same dichotomy when you (the renter) get a letter from your landlord asking you to leave the premises you’ve liked a lot for the past few years.
I was half expecting/hoping this would talk about the opportunity cost of owning a home. More precisely, owning a primary residence.
There are quite a few studies about this, but it is something which is not discussed broadly enough. But there is a inverse relationship between home ownership and income.
Because for most regions across the globe, once someone buys a home, they start looking for work that's in geographic proximity to their primary residence. And in most parts of the world, incomes generally tend to stagnate since higher paying jobs are almost always away from where people live.
Now a lot of people believe that they will pick the higher income, but the amount of logistics which goes into thinking about selling your home or renting it even often dissuades people from trying to look for a job which pays significantly more.
Interestingly, some multinational companies that I know of facilitate the entire transaction for their executives and senior managers when they need to move cities or countries because of this effect.
Owning a home for the purpose of investment and not living is a different matter, and the same effect isn't seen there.
> the total settlement costs were about 3% of the value of the home
> That's $12,777.92 to get the loan.
This is something I don't quite understand when people talk about homes: they just bought a $425,930 home. If they're getting a 30-year mortgage with a 20% down payment they will pay a total of $902k at current mortgage rates. The closing costs are such a tiny fraction of what you're spending. You wouldn't go into a store and refuse to buy a $40 item when you realize you need to pay $3 in sales tax, why would you be bothered by having to pay 3% of the home's value or 1.4% of what you will end up paying in the end?
Same thing with property taxes: my home-owning friends complain about property taxes like they're some huge imposition. OP is paying $515/month in property taxes. My rent has gone up by more than that in the past 3 years that I've been in my current apartment.
That being said, I appreciate this post for the breakdown of all the expenses. I'm considering becoming part of the land-owning elite, so this is useful.
In California, property tax can only go up 2% every year based on the original purchase price (prop 13). For my neighbor who bought their house in the 60s, this must be peanuts.
People act like owning a home and coming out financially ahead is an inviolable law of physics. It is not. Buying a house is like purchasing an option to have something at a set price in the future. That option can be overpriced to the point where it is not profitable.
This isn't to say that there are not emotional aspects to owning, but that is a separate discussion.
It depends on a lot on your timing with the market. This guy (from TFA) sold in 2007; I bought my first house as a (fairly dire) fixer-upper in 2008. I sold it in 2016, after it had more than doubled in value (partly due to improvements we'd made, partly due to market improvements). I bought the next house as a (cosmetic) fixer-upper in 2016, and sold it in 2020, after the pandemic had multiplied its value by 1.5x. Now I own outright, pay no mortgage, and my property tax is less than 1% where I live. Yes I got lucky on timing on both ends of the 12 years, but not selling into a down market (if you can help it, of course), buying with an eye to potential increase in value, and being willing to take advantage of market conditions are all things that can work in your favor.
There should also be a counter article titled the real cost of NOT owning a home. At least in the macro sense, there are consequences for a generation spanning the global that is willing but unable to afford to purchase a home.
In the US, median homeowner tenure is about 12 years. If the local price-to-rent ratio is high, (greater NYC metro for example) then you may have to stay 20 years to come out ahead financially. In a case like that, renting can be a very attractive strategy for building wealth.
It's more complicated than that. If you sell-to-buy then the tenure only affects the costs related to the purchase itself. I suspect many homeowners live in a house they own for much more than 20 years. I've owned since 2007, but my mean tenure is less than 12 years since I moved.
I don’t think we should be discouraging people from buying homes. In a healthy market, the goal should be more households owning the homes they live in, not more homes being accumulated by investors and non-owner-occupant buyers.
The mistake is not buying a home. The mistake is buying too much home, stretching the term too far, and ignoring maintenance.
A cheaper house, shorter loan term, and realistic repair/addition budget change the math a lot.
Financially, in very few cases renting actually makes sense.
Assuming of course you make an informed purchase of a home given your particular circumstances.
Most homes in the US appreciate in value, unless you live in rural Pennsylvania.
I also believe buying early forces you to be more financially responsible and makes purchasing your first family home later in life a lot easier.
So I always recommend young people to make the sacrifice and buy a place.
Your first home doesn’t need to be your dream home.
My first place was 700 sqf in a very shady area of the city, but it came with sweet tax abatements for several years and the area improved a lot but the time I sold.
There are always opportunities like that in almost every city in America, even in today’s market.
If you take away the "always increasing" price of homes.
Is that true.
Homes for the majority of human history have not been something that "always appreciates", the condition of the domicile might actually be worth less than the components it was constructed with.
At some point, nobody who isn't already on the ladder can afford to buy, then you've hit your market saturation. Then it's about how much more can you squeeze them for.
If interest rates rise, house prices fall, because most people buy at the edge of their affordability -- and soon there'll be no homes that they can afford at all, or: the house prices must stabilise and not "forever appreciate".. they can't both be true.
All those costs are baked into your rent by your landlord (who had/has to pay them).
The difference is that after 30 years you can own the house and have a low-cost place to live in your old age (not free, you still have prop taxes, repairs, etc.), whereas with rent you have nothing. That is significant.
But really, the biggest benefit of paying a mortgage is related to the value of money.
Over 30 years your rent will increase substantially in then-current dollars, while your mortgage remains fixed. Which means that it essentially gets cheaper over time.
Consider that the US national average rent in the US was ~$550-$600 30 years ago, and is ~$1700-$1800 today.
Exactly — it doesn’t matter how many “hidden” costs he finds to adds to the cost of owning for the article — the renter pays them all, plus the owner’s profit.
That's the cost of renting money (mortgage), not owning a home. I saved up cash and bought my home in cash. I did not have closing costs. Only the seller did. My closing cost was the price of the home.
I don't plan to sell. I'm not "investing" in the house. I'm living in it. Essentially, my home eliminates the biggest portion of my monthly expenses. I hope my home value goes down, a lot. Then I pay less on the one expense I do have associated with it: property taxes.
I'm old enough to have owned a number of homes in a number of jurisdictions, so I'd caution that these numbers will differ significantly depending on where you live. For example, insurance is hugely influenced by fire risk, so a rural or semi-rural home can easily cost 4-5x as much to insure (and some insurers will give you "please go away" quotes, so it's important to shop around).
Similarly, taxes will depend on the locality, loan costs depend on the lender and the loan amount. Utility costs in SFBA can be easily 4-5x higher than elsewhere in the US, etc. So your totals could be easily 30% or 300% of what's outlined in the article.
The one important point that the article makes is that your ongoing costs will also vary dramatically depending on how much work you're willing to do yourself, especially in high-regulation, high-labor-cost areas such as SFBA. A basic job, such as replacing a leaky flush valve, can be hundreds of dollars in plumber costs, or $19.95 if you go to Home Depot. Hiring a painting contractor can cost thousands. Etc, etc.
I've also seen several homeowners outright taken advantage of. My main example in the US are various "mold remediation" contractors, who can help you in some really bad situations, but they're just as happy to charge you $20,000 to do nothing of value based on vague fears.
Condos may, and quite often do, have enormously expensive maintenance issues that the condo owners are quite unaware of until the last moment and will have to shell out for via special assessment from the condo association. Example from personal experience: very soon after moving into my condo, cracks were discovered on the other side of the building. They were investigated and it turned out that the building was made from substandard concrete. All exterior facing concrete needed to be replaced or the building would fall down. To pay for the fix, there was a special assessment that I needed to pay into, and to add insult to injury, for 2 years I could not use my theoretically beautiful view from the balcony and windows - it was all jackhammering and concrete dust.
Which ones? Mortgage, real estate costs, repairs, maintenance are all still there with a condo.
My gut feeling is that repairs and maintenance cost more with condos than if you own a home and you're handy to fix minor stuff and know how to find good contractors for bigger jobs. I imagine condo jobs becomes more difficult and contractors charge more for those jobs. But I don't have data to back my hunch. Condo has extra issues in dealing with neighbor problems (issues with garbage, pets, unpaid fees, noise, etc...) and you have to maintain shared spaces (hallways, elevators, etc...) and you end up paying for that via your condo fees.
"Finding good contractors" can be pretty challenging, especially finding good contractors at a good price.
Condos can also benefit from efficiencies of scale - e.g. there are plenty of small jobs on myself that I do myself, but between the time spent on research, and expenses/trips to pick up supplies and tools, I'm spending multiple hours of my time/money on things that someone experienced/equipped could bang out in 20 minutes - but any decent handyman is going to charge their call out rate of $100 + materials for a 20 minute job. vs at appropriate scale a condo corp can effectively just have/share a full-time handyman and save a pile of overhead.
A condo will have an HOA which is responsible for things like fixing the roof.
However, not all HOAs are actually financially responsible. So they might raise monthly fees, issue “special assessments” (lump-sum charges that can be $10k+) or take on loans. And they decide when they will do that.
Condos basically just force you to pay for the ongoing maintenance that the author mentioned, but with the downside of not actually having any control over the quality of the work or the decision making process at all unless you're on the condo board.
Condos are generally the worst of both worlds, because you have almost all the responsibilities of homeownership combined with nearly all of the restrictions of renting an apartment.
There's a reason they appreciate significantly less than other types of property.
You can always go join your condo board meetings though. In my experience most HOA boards are filled with people who have seen horror stories of HOAs and don't want to live in a place with a bad one.
Sure sometimes they do make bad decisions, but you're welcome to just show up to their board meeting and give them some advice.
Owning a condo can be quite scary financially. If the building itself needs expensive repairs, the condo board can pass those costs down to the tenants.
You may own your condo, but the condo board can also hit you with a 6-figure bill for building repairs and aggregate maintenance. Enough to force you to get a new loan, even when you might still be paying your mortgage.
And if the tenants take issue with these kinds of bills (they frequently do), they can tie things up while things get worse and more expensive to repair.
This was actively a problem for the tenants at the center of the Surfside condominium collapse, with maintenance needs directly related to the problems that resulted in the collapse.
Condos come with another problem: you don't own the land. The condo itself is a depreciating asset unless maintained and money is put into the unit and the building. You're also exposed to the risk of the area becoming less desirable, newer condos being built nearby, general economic trends, mismanagment of the property, etc.
Right, owning a condo has many of the downsides of owning a home without the upside of owning the land, which is the primary thing that appreciates. Not saying it's never a good idea to buy a condo, but it's not as dependable an investment vehicle.
Yes, but so are some of the advantages (e.g. "More space and a quieter environment"). It's somewhere in between home ownership and apartment renting on the spectrum of living situations.
Over short term windows it’s very possible for renting to make more sense. Over the long term it’s very difficult for renting to come out ahead. If you’re talking about the same town over say 20 years then the chances of renting coming out ahead is near zero.
In the US at least the tax system is also heavily setup to favor home ownership. Mortgage interest and real estate taxes (which are baked into rent) are tax deductible for the home owner and not for the renter. That’s another big difference that adds up over time.
I have been renting the same unit for 15 years now. It was 400/mo when I moved in 15 years ago, and it's 650/mo now, 15 years later.
I have paid about 90K in rent now over the last 15 years and this also includes water and heat.
My friends with houses in my area pay about that much in property taxes plus heat that I pay for rent...
I pay this small amount and make 6 figures and I put the majority of my income into index funds. I am fairly sure that I am coming out way ahead of a house. Plus how do you put a value on the time sink for maintenance and upkeep? Mowing, shoveling, etc.
Again, you are truly blessed. I've lived in multiple places (California) where the rent increases by the maximum allowed amount every year ($100-$200). None of your friends refer to their houses as "units", do they? You can't compare your situation with theirs lol
Why shouldn't I compare though? I have looked at buying a house multiple times and I can't make it make sense personally. It's so much more expensive and more work. I just need a place to cook and sleep and keep my things.
I bought my house about 10 years ago and it has appreciated around 50% since then. That might sound good but the market is up massively and meanwhile all the price increase on paper means is that I pay more property tax. Since I have no plans to sell there is no actual benefit to me from the price increasing.
I calculated it recently and in retrospect I would have been vastly better off renting and buying VOO with my equity stake. It doesn’t help that taxes + maintenance have cost almost the same as rent even if you don’t count the actual purchase price.
“ the price increase on paper means is that I pay more property tax”
In almost all jurisdictions that’s not how property tax works. You’d only pay proportionally more if your home went up more in value than your neighbors. Also, property tax goes up on rentals too, it’s just baked into the rent vs something a separate charge. In the US the homeowner gets to deduct all or part of that tax from their income taxes while the renter must pay that with after tax dollars.
Owning a home is like paying into a bank account made from bricks, but it increases in value. Yes it requires upkeep and maintenance, because entropy wants it to be a decaying pile of rubble. The land will always have a value, so maintenance is kind of optional-ish.
The people trying to convince you to keep renting are, sometimes, rental investors stealing from your children's inheritance. Renting is paying a property investors mortgage in return for a home you don't have to/cannot directly maintain but you are still paying for the maintenance on a weekly/monthly basis at an agreed rate with annual increases.
On the other hand if you're not going to have kids it's bit like Brewsters Millions where you try to spend everything you make without acquiring assets and without running out of money while you still need it.
You can always sell and go back to renting, but if you rent for 30 yrs you will put at least a couple of homes worth of your earnings into renting over that period.
> After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Don't tell that to real estate permabulls, even the idea of a landlord making money for a month or two between them paying banks for homes is a whole diatribe.
Money in the toilet! They surmise, as if trading equities wasn't an option, or any other way to make money faster wasn't an option. As if other leveraged investments don't exist. As if leveraged investments that can optionally generate cash flow don't exist. As if they aren't such poor traders that they need the extremely slow collateral calls of real estate to survive.
Because one of the dozen middlemen fumbled the bag, the real estate flipper had to pay rent for a month! Woe! They couldn't live in yet another suboptimally located suburb far away from stimulation or economic center, instead of using some of that that capital to rent somewhere in the middle of where people would actually want to live while putting the rest in equities or a productive business
The decision to buy vs. rent is completely dependent & goal dependent. If you're in the bay area, buying really only makes sense if you have kids and want them to be in a good public school district. Otherwise, many houses are oversized and have extremely high repair costs. Finding a good rent controlled unit could be better, especially if you find a landlord who will repair things.
And anybody who is saying their property value went up, so it was worth it, you really couldn't know that at the time. It wasn't a given (tbf neither is the market going up). Also, it's not like the property actual increased in value due to some quality upgrade, it's due to artificial scarcity. If the political winds change to encourage more housing, that trend could reverse.
There are arguments that you can customize a house you own more and that's true, but that's not a financial argument. I don't think a lot of big renovations pencil out anymore the way people expect. Paying X to renovate a kitchen doesn't increase the value of the house significantly over X anymore because the costs are so high and the high inflation erodes your dollar value much more quickly than in the past.
Yikes! I know that this is "normal" here in the U.S., but the guy paid over $26K just to sell his home. We sold our home with a "quit-claim deed" and only paid a lawyer $600 to write it up and make it kosher. Buyer was THRILLED not to have to pay all the ridiculous fees a normal sale entails...
(and yes, I know that a bank might have a hard time creating a loan for that type of sale, but it worked for us)
There are lots of often overlooked costs to own a home. I have been 15 years in my place, and now I get some advantages e.g. my loan is fixed so the monthly cost is roughly the same as 15 years ago... in a place like San Francisco, it is nice.
The property tax goes up slightly every year, but not faster than inflation.
There are recurring things to maintain (repaint every ~10 years), the roof has been patched about 10 years ago, might need a new coat eventually.
When I was a homeowner (I recently exited), I found it incredibly discouraging how every vendor who came over for this or that looked at you like a walking sack of dollar bills after driving up to your home in a brand new pickup truck. When you do hire them, the owner never even shows up for a final inspection. There's a large part of the economy who knows their customers will treat their equity like a bank and prices accordingly.
Another thing to keep in mind is the lumpy nature of costs, meaning you need to have access to cash to pay for multiple major maintenance projects in one year. My largest single-year expenditure for maintenance was 25k in a LCOL area pre-pandemic. That would probably translate to 50k today. If you have to dump that on a credit card, good luck digging yourself out of that hole.
It's common to hear that renting means you might need to move at the end of any 12-month period. Well, that cuts both ways. You have the option to move away at the end of any 12-month period too. Lots of folks had to turn down job offers in the aftermath of the housing crisis because of their homes.
West EU here, bought a new, architecturally wrong (yikes) house in 2012. I knew its conception would spell trouble, and sadly I was not disappointed on this part almost right off the bat. But the location and the price (right on the aftermath of the 2008 financial crisis and economical fallout / market bottom) were good.
After 14 years it cost an average of $130 per month on maintenance, mainly to correct on multiple occasion the conception issues aformentioned after the 10y warranty. Utilities are about $170 per month. And taxes are now about $1700 per year (rise 3-4% every year)
This $250k purchase must have cost less than $2k in fees, the credit was... well no credit. Spent almost 100% of my savings except some cash for my business. On the overall this house cost me less than $500 per month so far. Not really surprising for a new house, certainly.
And its market value rose by 60% in 14 years.
Yep, ownership is (was ?) very profitable in the west EU, mind the location.
There are places in the US that are cheap still. Midwest you can still get 150-250k homes today, decent ones at that too. Large american style, 4 beds with 2 car garage sort of thing.
> You can save a lot of money in maintenance and repairs by doing your own work whenever possible. I replaced the drain pump in my dishwasher, replaced a leaking kitchen faucet, replaced the control board on my HVAC system, do all my own yard work, etc.
This is where the margins of home ownership open up. Doing your own yard work also has added benefit of giving you routine awareness of potential issues around your property before things become much more expensive. Irrigation and drainage issues are usually obvious when you are standing right on top of them. I would argue that if you aren't willing to push a mower around your property, you might not want to own that property.
Also, DIY yard work also forces you to maintain various tools and skills that are extremely useful for adjacent applications. For example, lawnmowers and standby generators tend to have similar principles of operation. The tool and knowledge I use to gap the spark plugs for my mower works just as well for the generac.
It's also really nice to just do some work outside instead of staring at a screen . I really enjoy mowing my huge lawn, doing some light landscaping stuff. My wife and daughter pick weeds for hours and it really centers them.
> I bought this house new, and didn't live there very long
End of story. That's the entire conversation right there.
Note how much money he made on the house he lived in for a decent amount of time... (~330k, minus minor investments on repairs)
Renting is better than buying if you're not going to live in the house for any real duration (real meaning 5+ years).
Otherwise... at least in the US... the financials around 30 year mortgages and a target inflation rate mean buying is going to work in your favor.
Will this blow up at some point? Meh, maybe? But for now, owning is FAR better assuming you actually hold onto the property. The longer you hold, the better it gets.
> Otherwise... at least in the US... the financials around 30 year mortgages and a target inflation rate mean buying is going to work in your favor.
Yeah, subsidized mortgages (via government insurance and mortgage interest deductibility) tilt the market towards home ownership in most of the USA.
Most of the rest of the world doesn't intervene in its housing market as much and the ROI on owning vs renting can shift. Switzerland will tax your home on the potential rental income of your home, whether you rent it out or not (I think this recently changed, though). The home ownership rate is historically between 30-40%. Basically farmers and the upper quartile of income earners are the majority of owners. The result is that most Swiss have their wealth in more liquid assets and are also highly mobile for work.
> Will this blow up at some point? Meh, maybe?
Owning is also turning into a problem for many Americans. Some people are trapped in their homes because moving means resetting locked in low interest rates. Insurance has made home ownership extremely expensive in much of the states that were fastest growing over the past decade. I'm sure solutions (good and bad) will come, but sometimes it's nice to just be able to hand in notice and walk away.
Yes, it will take effect in 2028. Although that's unfortunate, it was a good tax to equalise tax treatment of owners vs renters.
The Swiss market is also different in many ways: no capital gains taxes except on real estate, which really shifts the invest against house appreciation towards renting.
> Basically farmers and the upper quartile of income earners are the majority of owners.
I'm not certain the second part is very true. Of course, given how prices are you need to be rich to buy, but I think the bias is a lot more towards age than income: those that own are overwhelmingly those that bought a long time ago or inherited.
Finally, rent control results in some crazy price to rent ratios in the big cities: Zürich is around 35. But as usual with rent control, it's if you can find the right place.
There are cheaper ways to hedge inflation. Also, people with careers don’t really need to hedge inflation especially.
In 1960 rent was about 10% of median income. Today it’s more like 30%. This might sound bad but in 1960 food was 30% of median income and today it’s around 10%. Prices are always relative, it’s impossible for everything to get cheaper. There’s no reason to assume rent is especially prone to this except that it has been over a certain period. Other periods it has been the opposite.
The markets with rent control have astronomical increases in rent when compared to markets without rent control. Also, you lose supply when there is a unit that it doesn't make sense to renovate because the future rent won't be high enough to cover it. So it remains unrented instead.
I mean, I would argue that's why rent control exists in the first place: Because there is a market with astronomical increases in rent (not the other way around, like you are suggesting)
>You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
If you take literally anything away from this article, this opening line is it. People who say this bought their house decades ago and have no clue what the present situation is.
I don't know who is telling you this, but the people who gave me that line lived through several recessions including '08 and are still making money buying rental properties to this day. They know more about the present situation than you do.
Someone else's risk. Someone else's liability. I can end my lease and walk away without penalties or obligations. If anything happens to the property, it isn't my problem. I just need <$200/year renter's insurance, and my landlord is literally responsible for everything else, including things like my washer and dryer.
I can move on a whim, and the worst-case costs will be a modest lease termination fee and literal moving costs.
You also never see any of that money ever again, with a mortgage a % of the money spent a money gets converted into the best asset for retaining wealth there is.
Worst possible situation you can get in with a house: not being able to just walk away, difficulty to sell if the area has gone bad, even with all these the worst thing you can do is just walk away from the house and even then you're just back to the same position you'd be in if you had rented, you'd have nothing.
I'm not from the US but I find some of these numbers ridiculous.
$515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else?
> Cut down trees that were too close to the house: $2,800
I could've likely flown to the US, cut down your trees for a few hundred and flown back home for that much money. Why so expensive? I'm beginning to question the other numbers.
> Replaced leaking faucet: $185
Can't you do it for like 5-10 $ yourself? If you don't have any tools, maybe spend 20 $ for tools? The author even says he replaced his own faucet - I don't get it at all. Or are we talking about a fancy top of the line faucet?
I realize repairmen cost a lot but that seems like a LOT. And I get that in the US you have to have lots of insurance and inspections and whatnot, but... it still seems high.
Cost of labor quite higher here. Especially house work. Any licensed person to work in your house you're looking at paying $200 minimum just to walk in the door. At least in the major metro areas.
Why would you care if they're licensed if they're doing yard work or replacing faucets or cutting down trees? I understand wanting some assurance for whoever will wire your whole house or will make major plumbing repairs but not for small jobs. Yes, trees can fall, but it's easy to make sure the person cutting them knows what they're doing - I've cut trees myself.
For small repairs (light switches, blown fuses, faucets, installing water heaters, cutting down trees, cleaning gutters), before I started doing them myself, I called friends who knew what they were doing, usually 50-something year old men who were jack of all trades.
What kind of expenses are covered by that? I can only think of garbage collection and collapses of the street that affect your property.
Where I live I pay rent on a relatively small ~150000 $ house and have no idea how much the property taxes are as the landlord pays them but if they were ~1/5th of 500 $/month, I'm sure my rent would've been higher than what it is now.
> What does this cover - garbage collection, what else?
That's the fun part, it doesn't even cover garbage!
Jokes aside, property tax in the US typically go towards safety net funding for your community. So a lot to schools, public safety, roads/infrastructure, etc. There are definitely some places where garbage is covered in that, but a lot of places garbage collection is privatized in the US.
Sometimes hearing about how much it costs to cut down trees makes me want to quit my job. I think a lot of that is probably for liability insurance though? Both for worker injury risk and for risk of property damage. It will cost a lot to fix a house that has a tree fall through it. But also since those are market rates, it's still a very good idea to ensure they have legit insurance. You are usually SOL if they don't.
Interesting, I assumed most regular taxes (like another comment said - police, fire, schools) would be from income taxes or other taxes collected from businesses.
> but a lot of places garbage collection is privatized in the US.
Closed housing complexes, like the suburb ones with gates where you have HOAs and your own security? Or just random parts of a city?
I really kind of want to move to the US to cut down your trees now. I'd be willing to yolo it without injury insurance for a while if that's allowed. If I cut the trees from top to bottom there's very little risk for the house. But I guess the clients would expect me to have such insurance? The whole thing is kind of foreign to me, as if I was incapable of cutting down my own trees I'd just hire some company, likely a small one recommended to me by someone I know, and never question what kind of insurance they have or whether they're licensed or not.
>$515.50 per month for property taxes? That seems soo high.
Where I live (Texas), there is no state income tax. They make it up by having high property taxes. It's something like $20,000/year per $1MM of property value. $515.50 would be so nice...
> What does this cover - garbage collection, what else?
Here, none of that (Garbage is billed by use as a utility, like electricity. You're charged by how big of a bin you get).
It funds all the things the state and local government does - schools, roads, parks, police, fire, social services, anything tax would normally fund.
> Where I live (Texas), there is no state income tax. They make it up by having high property taxes.
I guess that makes some calculations quite different, like what rent should be, how much you can view a property as an investment, what types of businesses you can start there, and so on, compared to other states?
> You're charged by how big of a bin you get).
Are there no communal bins? Or is that for a closed community as opposed to a city? What would you do if you had to throw something out while you were walking around?
I've never been to the US so it's a bit of a culture shock.
In general, rent in Texas is higher than some places but lower than say, the Bay Area in California, because there is much more supply.
I live in a neighborhood of single family homes that are on big lots and spaced out (perhaps 20-30 meters between homes). There is no community trash bins. There also is very little foot traffic, aside from people who live in the neighborhood. In more urban areas, there would be public trash cans.
> $515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else?
I agree, but the what else is that property taxes are often the largest source of income for a city budget, if not the sole source, so everything that goes into running a city; road maintenance and police usually make the top.
> Can't you do it for like 5-10 $ yourself? If you don't have any tools, maybe spend 20 $ for tools? The author even says he replaced his own faucet - I don't get it at all.
Labour would be free as long as you can't spend that time earning more money or doing something you'd prefer instead of replacing a faucet, but like any other product they can be anywhere between $0 and much more than $185. I personally don't value faucets that much, but if I were replacing one, I don't see why I'd get a crappy one.
> I could've likely flown to the US, cut down your trees for a few hundred and flown back home for that much money. Why so expensive? I'm beginning to question the other numbers.
There's not enough information to make a coherent judgment, but assuming the tree is a rather large one, why would you? If someone said to me "I'll give you $400 to fly to Europe and cut down a large tree that's too close to someone's house without causing any damage and you must bring your own equipment, dispose of the tree, etc.." I sure as hell would not take that offer, especially if I knew how.
The surprising amounts are the point of the article; home ownership is excessively expensive, and if you don't value these things highly enough to either DIY or hire someone to take care of it, it's probably not worth buying one. That's why I'm happy to rent, I don't give a damn shit about any of that and would rather light my hair on fire than volunteer for these burdens, unless I was rich enough to not need to be concerned at all. The same could be said about the house itself; in my city, a house like this would cost around $2m USD just for the privilege of doing all this other bullshit for eons.
That said, your line of reasoning seems akin to the old "why spend thousands on a macbook, I could build a PC for half (which isn't true anymore)" or stubbornly using some ancient piece of trash for your whole career even though you can afford something good. Quality work and good/better tools are worth investing in if you value them or their output. I could use a garden hose and a bucket to shower everyday and live in a cave too. Luxuries are when you get into pointless spending territory, where you're just spending wild amounts more than necessary to achieve the outcomes you want in the timeframe you want.
> property taxes are often the largest source of income for a city budget
Hadn't considered that, thanks. :)
> I personally don't value faucets that much, but if I were replacing one, I don't see why I'd get a crappy one.
I realize I don't know how faucets cost in the US so 185 could be close to what one would pay even to DIY it.
> If someone said to me "I'll give you $400 to fly to Europe and cut down a large tree that's too close to someone's house without causing any damage and you must bring your own equipment, dispose of the tree, etc.." I sure as hell would not take that offer, especially if I knew how.
I'm not sure I'd literally fly over with equipment to cut down one tree, but from what I've seen (admittedly, not a lot), damage occurs when people are careless (want to do it quickly, don't secure bigger branches properly or are negligent in general) or try to cut from the base like a lumberjack in the movies. Of course anything could happen no matter how careful one is - I've broken lots of cups and plates - but it doesn't seem especially risky compared to other jobs. But again, I'm not a professional tree cutter - I've cut a few trees. I took my time to do it and was careful but they weren't huge trees right over someone's mansion.
> Quality work and good/better tools are worth investing in if you value them or their output.
Definitely. I regularly pay experts lots of money, like a week's salary, for a few hours of their time, and it's worth it. And when I'm looking to buy a new tool, I almost always select one with good specs from a reputable brand. Unless it's for a one-time job where I just buy whatever's cheapest (within reason). Not surprisingly, I have had to use such tools multiple times shortly after that "first and only" job was done. Yet surprisingly, the cheap tool usually does the job. But there's a big difference between using a tool 10 times a year and 10 times a day.
> Unless it's for a one-time job where I just buy whatever's cheapest (within reason). Not surprisingly, I have had to use such tools multiple times shortly after that "first and only" job was done. Yet surprisingly, the cheap tool usually does the job.
This tends to be how I approach tool investments, especially on the hobby side side of things. If I'm trying out a new interest, I'll get something on the cheaper end, and if I find myself continually pursuing the hobby, then I'll upgrade. Same for work, I'll use the minimum viable tool until it starts getting in my way, or I know I'd just enjoy the process more by spending more. Growing up poor makes every actual investment quite painful.
Last year, I reached my breaking point with my old computer; running Docker containers was just not serviceable anymore, so I upgraded substantially.
Right now, I know I need to get a bike stand and a wheel truing stand. Technically I don't actually need them, I could do it some other way or pay a professional (what I normally do), but the set of good tools will encourage me to keep trying it myself.
For the tools, I had a friend years ago who worked part time as a repairman and he said he always buys cheap as even expensive tools break. He viewed his tools as consumables, almost as disposables. He had a few of each type and said he didn't care when one broke. Not your philosophy or mine (buy expensive when you need to use it a lot) but it seemed to work for him.
I tried to DIY a bike stand. I wanted to make a truing wheel, too. I made something a very basic bike stand with spare materials lying around in less than an hour - just 2 metal desk legs bolted onto a piece of wood, as well as a couple of smaller pieces of wood to hold the front wheel in place (and a few smaller pieces where needed). It works for my bike only because of the geometry and it's definitely not great but it does the job! I watched some videos on how to make a good stand and it seems possible to DIY something really great for a fraction of the price. Sure, your time and labor costs money, but it would be satisfying to make something good yourself. I'm thinking of making another stand in a couple of months.
This isn't an overly apples-to-apples comparison. It factors in costs like "updating your kitchen", making things more stylish, etc.
The author also seems to assume you'll be paying more to heat and cool your house because if you're renting you're in an apartment? Just down the road from him, four of the five homes I rented before buying in 2021 are larger than the home we bought.
"Less than 21% of my monthly payment is going towards paying off the loan" - well, yes, because it is front-loaded with interest. And as you get through the loan, 80%+ will be paying off the loan.
Maybe different loans are different, but generally your home insurance and property taxes are rolled into the mortgage (and often paid on your behalf by the servicer) - indeed, it seems like there's a double dipping of breaking down his mortgage payment and the component that is tax and then saying below "I currently pay $515 in taxes monthly".
There absolutely are additional costs to owning a home, to be very clear.
But there's definitely a contingent (and this post isn't the "worst" of them) that likes to paint home ownership as nothing more than opening your check or pulling out a credit card every month for "the next four digit expense".
Especially in Western Washington where the property market 2010-2020 was "a good one". (I put down 10% and at the contractual "year-and-one-day" on my loan for the soonest I could remove PMI I was able to because I'd hit 20% equity on value increase - only making my regular payment), something that he benefits from, too:
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. I've put a lot of money into it catching up on maintenance, repairs, and improvements, but the appreciation will definitely exceed whatever I've put into it when I decide to sell it.
And you know the funniest part: you actually don’t own it at the end, you are on a different (worse) type of rent contract called property taxes, that if you stop paying them you lose all that!
So to rent nowadays is better: it’s controlled, you can bailout any month for whatever reason, be it a bad neighbor or another personal stuff or just getting into a better newer building, you don’t pay anything for maintenance, and sometimes all utilities are included too.
Meanwhile owning is all burden, plus you don’t actually own it, you do all maintenance, and taxes aren’t controlled. Additionally, you are already paying for an inflated asset because of the speculation prices rather than actual cost.
I actually enjoy it much more than I thought I would.
I love tinkering and solving problems on the computer, and it's fun to have a space to do it with my hands in the real world. Learning the basics of carpentry to erect a fence, basics of plumbing and the various international fitting types to install a (from japan) bidet toilet, cat6 throughout the house and trench out to the garage, basics of hvac for a whole-house humidifier and smart thermostat (MN winters) -- have all felt like very fun projects.
Next project is probably trying to replace the plumbing up to our second floor bathroom with pex (water pressure upstairs is very poor).
Also helps that I have a very handy dad that I can fall back on to ask questions or help.
So, roughly 16 years ago I bought a tiny flat. Renting tit for that long would already be more expensive than all the costs of ownership, even assuming that renting cost was constant (it TRIPLED). As a bonus, the flat is worth more than three times of what it was.
So in total, I've paid 1.5x for a flat worth x and now it's worth 3x and I don't have to pay the rent!
I'm not saying the article's author it wrong, just that your mileage might vary.
Where you die matters. A $30M estate left to children in WA owes $5M in state estate tax. Move to one of 34 states and that drops to zero, and in 8 of them state income and capital gains tax disappear too. The hard part is cutting that tax bill while landing somewhere you'd actually enjoy living: who your neighbors are, how educated and affluent they are, how they vote. This tool lets you optimize all of it across 8,000+ U.S. suburbs, towns, and cities at once: https://where-move.vercel.app
This argument is just rich people trying to convince poor people they don’t need to own anything (as they often do). The gap between wealthy and poor grows ever more.
> I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost...
I was renting around 10k a year, that is -50k in the bin every five years. Even if I make 0 profit selling my house I am already up +50k. I pay less monthly and works like a savings pot. It is a lot of work. But whatever way you math it, renters are just paying someone else's mortgage
Some of us get lucky and it is financially beneficial. I bought my house right before the housing market spiked so the value of my house almost tripled. It has since gone down a bit but it will be a boon if I ever sell. The rent at the apartment I was at was equal to my mortgage payment but now if I wanted to rent that apartment, it is 4x my mortgage. I also have an EXTREMELY low rate (2.5%) because of my credit.
I save almost 6 figures of money per year of owning versus renting just because of timing. I guess the moral is: get lucky or optimize your living situation for how you want to live instead of worrying about cost (unless it's huge)
Is the author accounting for the equity built up?
Cash has to go out whether it’s a mortgage or rent. With a mortgage you are building equity. This changes the true math when you sell (leaving aside your ability to now get a HELOC).
Yes the author is accounting for the equity buildup. They only count the interest part of the mortgage repayments as an expense. Any principal repayments are neutral.
He's saying - and rightly so - that outflow towards rent can be significantly less than outflow towards real property equity given the structure of a traditional mortgage + maintenance burden. And with (a large amount of) financial discipline that delta can result in substantial increase in wealth at the end of the day.
interesting enough to read this. One thing that is not talked about is why would homes just keep going up, i understand the math behind it and what appreciation does to a home value. where is the cap that a visually home is 150k but market value over the three previous years has gone up 4% for example. This makes sense for high value areas, and upcoming areas. My confusion lies in the market value and negative equity. separate the mortgage "rate" and "market value, est home value" We can expect some gain is a guarantee, this could be 20% or 4% in 5-7 years of residing. The chilling wonder of rates exceeding 4%-6% is temporary as we saw previously in the 80's and 90's.
Someone can argue that indeed this is a natural cycle of mortgage financing, however my conclusion is to draw attention of the the span of time that mortgage rate have stayed high and the implications of inevitably adjusting to lower rates by the feds. The president has persisted to lower the rates regardless of the Chair's decisions. Lower rates cannot be done alone. The market also needs adjusting at the same time. Sure by adjusting the rates will have an immediate effects on the market as well, but not large enough.
Those that have updated and added additional features to their home did so with materials and services bought during high pricing. It is true that a deck built a year ago is going to be 20% less for example. later when selling a home how will this reflect on the bigger picture for the total price. Let alone the market when the cooling takes affect you will owe more than what the home is worth lets say. So my confusion is brought by a conversation with a coworker. Stated that he wanted to buy a home at 21 years old i said that unless you have a family and know that you will be stable in that location for arpox 5-7 years that sure, however when the market cools and your locked in mortgage rate is XX% how will you sell you home and come out even or even +.
Response: equity
me: you mean negative equity!
response: homes are only going up.
me: to what a million dollar for a two bedroom, one bath dwelling located in a busy street and minimal parking and adjacent to neighboring property.
He seemed convinced, he seemed to convince me that i was wrong.
People seem to have very strong feelings about the subject (myself included), and some seem to think there's only one correct conclusion.
Renting an apartment and owning a home have so many differences that it doesn't make much sense to compare the two.
Many people seem to assume they'll be moving every few years, but if you want to stay in the same place for life the equation looks very different. I hope to be done paying the mortgage around the same time I'm too old to work for a living, and if that lines up it's a pretty big win on the own instead of renting side.
While this is true, I think the bar should be lower - the real question should be "and how does it compare to renting" - there is very possibly a universe where owning is cheaper than renting even if your home depreciates. Because paying some amount for years to be left with a fraction of what you put in is better than getting none of what you put in.
However many of us knowingly exceed that point. For example we pay ~$500/mo over that point. Though there is no really comparable rental, we definitely could have chosen a more cookie cutter rental to be about +$6000 / year.
We would expect them to be equal on the margin if the market is even somewhat efficient (not always true with rent control, but still pretty close in most places).
That doesn’t mean it’s equal for any given individual of course. So it’s important to do your own calculations and make your own decisions. But I think the fact that it is debated so much shows that it is probably roughly equal on the margin.
This is mostly the real cost of borrowing money, not the real cost of owning a home. What's more, it could be argued that these costs are actually directly associated with NOT owning the home.
For me personally, I used an LLM to build out a financial model with different macro and financial input variables (e.g. mortgage rates, if I rented rooms, HOA, home appreciation rate, etc). These factors changed my projected return differently on a 10, 30, 50 year time horizon for renting vs owning
I recommend everyone who's making this decision to do something similar as an additional perspective. So many variables will be dependent on location, personal finances, and goals
Houses are almost allways bigger then something you rent… well that might be because you would not afford the rent of the large property, and the whole comparison falls apart.
Home ownership is a 30-year bet that you will have continued income to sustain the lifestyle[1] . It is extremely unlikely anyone will have a 30 year home run, without job loss, divorce, bad health and any number of life events. Most people would be considered super lucky to have a decade of good run.
On the other side of the bet are the financial institutions, which will get continued income (as long as you pay) and will own the asset the moment you can't pay.
It is a win-win for one side of this bet. If home ownership was actually profitable, the super rich would have setup all kinds of structures to completely own all housing. The funny thing is the bank does not have the money, they create it out of nothing based on your ability to pay[2]! Extracting rent from money which they don't have. You either rent a home or rent the money (very few buy outright with cash). Bank can rent the money they don't have, as long as you show income + credit history. This is why Warren Buffet owns (some part) Wells Fargo, not homes.
[1] lifestyle = (mortgage + property taxes + insurance + repairs + maintenance) + health insurance + child support
Don’t get a loan til you can save 20% for a down payment and then, never get more than at 15 year mortgage.
Good advice on both counts.
Once you have 20% down you get out of paying PMI (private mortgage insurance) and you can open a an equity line (HELOC) for about 80% of the equity in the house. It’s typically like a super low interest credit card that you can tap for emergencies. I didn’t have an income for 6 months once and had to live on it.
The 15 year is critical. Do the math on a 30 year mortgage and you pay almost nothing toward the principle for a slightly lower payment for the first 10 years.
To further understand how banks win, the interest is front loaded. Proponents of home ownership always point to low interest rate for 30 year mortgage. However, with front loaded interest, the majority of payment goes towards interest payment and not building equity in the first 7 - 10 years.
For a $400,000 mortgage at 6.4%, after 7 years, you'd have paid over $210,000. However, the equity built is only $38,942. The other $171,226 went entirely to the bank.
The average homeowner stays in their home for only 7 to 10 years before selling or refinancing. Which means very little equity building, mostly interest payments.
i bought my home and went from paying 650 euros/month for a single room and sharing the rest of the flat with a roommate (in his own room) to paying 430 euros/month for my whole flat (in the same city, btw).
fast forward a few years and:
- the same room now goes for around 700-900 euros/month (post covid inflation)
- my mortgage price would have stayed the same (fixed interest rate)...
- ... except i paid it in full before time (and saved a ton on interest)
- my flat is now worth a lot more than i paid id (again: post-covid inflation)
nowadays i'll be kinda braggy, i'm leaving the dream: i work in tech, i have a very good salary and all of my fat paycheck stays in my pockets.
having a mortgage with a fixed interest rate meant i could plan around the payments i had to make.
and don't get me wrong: i'm 34, i'm not a boomer.
they say that renting gives you optionality. well... i can still easily sell my flat and move elsewhere OR, hear me out... i can rent it.
My home on 3/4 acre is worth 2.5x what I paid for it after just 7 years ago.
The best time to plant a tree... same for a house... Do it now or live with the regret of generations of "wait and hope" idiots. I waited and I see the folly of my ways. If I had done it 20 years earlier and dealt with the hardship of being "house poor" for a few years I would have been able to retire at an early age. Do not let fear control your decisions/actions! Carpe diem!!!!
There are pros and cons to home ownership - this article is both U.S.-centric and focused on the cons.
Obviously maintenance costs are high, maintenance is time-consuming, and transaction costs buying and selling are insane. I'll add one - property tax will turn that high income tax (especially in an expensive blue state like CA or NY) and add a massive additional tax, easily transforming that 35-45 percent of income into 55-60 or more, a math absolutely no one does when comparing taxes with W European ones which are supposedly much higher.
Here are pros and why you should probably buy:
If you want a house in a low density but in demand area, you won't find anything for rent. Because appreciation goes up, because renting gets more expensive every year, because lease renewal every year is a stressful waiting game and decision point, because renters subsidize owners via interest tax deduction.
And most importantly, you are free to do what you want inside your house. Just avoid HOAs.
Is there someplace that takes all of these inputs. Then graphs them over 10 or 20 years and include some adjustment for inflation? I didn't see in article any discussion about mortgage rates versus appreciation versus inflation.
Article did sum all the inputs/outputs, and came out at loss. I'm just wondering if there is some other trends over 10 or 20 years that make the house better.
Not all the inputs, but Ben Felix’s company (makes videos on this topic) has a rent vs buy calculator, mainly focused on investing the cost difference for mortgage vs renting: https://research-tools.pwlcapital.com/research/rent-vs-buy
Landlords do whatever the hell they like with zero consequences. Thats not a game I’d like to play with a 40 year horizon of unknowns.
With a mortgage the risk is interest rates. And on that I’m confident I can carry far more exposure than my peers. So if that blows up in my face then the entire country’s financial system is cooked anyway
More housing supply is not a solution to landlords deciding to evict tenants or raise the rent for arbitrary reasons. ("The housing market is great for sellers right now and I want to sell my house." "My niece wants to live in the city." "I don't want tenants with pets/children." etc.) Renters deserve stable housing just as much as homeowners and that requires some degree of regulation.
> More housing supply is not a solution to landlords deciding to evict tenants or raise the rent for arbitrary reasons.
Irrelevant. Sensible tenancy laws are important but are unrelated to discussions of housing affordability.
To fix the affordability crisis the long term solution is to address the structural issues caused by imbalanced supply vs demand as result of market distortions.
It is directly relevant to the comment I was replying to:
> Landlords do whatever the hell they like with zero consequences. Thats not a game I’d like to play with a 40 year horizon of unknowns.
Rent control (and tenant protections in general) help ensure that this does not happen. My landlord can't raise my rent more than x% a year, so I won't have to leave my apartment just because he's found a richer tenant. I'm quite secure in my housing barring a full-on condo conversion of the entire building with no further renting allowed.
people might scream about corporates owning housing - but one thing that's a blessing is if corporates sink their money into apartment blocks | buildings instead of single family homes.
you can rent for multiple years at a favorable rate - then save some money into the stock market.
however in america - people have been fed the propaganda you need to live in a single family home.
This isn't propaganda, a single family home is actually better housing along a bunch of axes people care about, as plenty of people in this thread are talking about at length. The idea that a person would be less likely to want a single family house if they weren't subject to propaganda is itself propaganda.
Yep. Yet many on here (and other specific online forums) will tell you that your only options should be owning a home or renting an apartment because they don't feel the single family home they desire is within their price range, and resort to advocating for short-sighted, draconian policies as an means to an end that is favorable for them.
I have been renting 15 years and have never once even really thought about my landlord...
I pay them on the portal and if something needs fixing I put in a maintenance request and they get it fixed. That's all i've ever thought about with them.
I rented for somewhere around 20 years before I was finally able to buy a house, and I hated every minute of it. I've had a landlord (in Arizona) tell me that it's normal for an air conditioner to only be able to reduce the temp by 10 degrees. I've had a landlord decide to convert the complex into condos and tell me I would have to let potential buyers into my home before my lease was even up. I can't even remember all the times I've had disputes over various repairs.
There was a period of about 5 or 6 years where each year I would get a raise at work, only to have my rent increase by almost the same amount, so I could never get ahead.
Like anything I am sure there are good and bad experiences.
I mean both my pay and rent go up by about 3% each year, barring some position change, but 3% of a 100K salary is $3000 more a year. 3% of a 650/mo rent like I pay is $230 more a year. So not even 10% of my raise is eaten by the rent increase.
My house is twice the size of my last apartment and my utility bill is half. apartments just generally don't have as good insulation or as efficient HVAC at least where I live.
The person also discounts the impact of horrible neighbors, stomping and barking at all hours of the day. That can happen in houses but they are not right next to you
I mean my heat is included in my rent, it doesn't change no matter how much I use it. I pay 650/mo in rent including heat and water and I have it like 75F in the winter...
The person counts the 12 month escrow prepayment during closing as "cost to get a loan" It's not. It's the cost of 12 months of taxes and insurance on your property.
Also notable is the "1 year insurance premium" either they're double counting the escrow, or this 1 year insurance premium is mortgage insurance where the bank makes you take out insurance to protect them. This can be prepaid, split paid, paid monthly, or you could put down 20%.
The lender makes you purchase title insurance for them, but this person also purchased title insurance for themselves. This is mostly just pure profit for the title company. The cost for the insurance is for the company to do the research, if they found an issue, they wouldn't insure the bank. Buying it for yourself is mostly just lighting money on fire.
A lot of those closing costs are shoppable, you can find better lenders. Before closing, you're given a truth in lending disclosure with all this carefully spelled out. If you don't do even basic due diligence, I question if you have the financial literacy to own a home.
I'll also note, they didn't mention in their closing costs paying for a home inspection (beyond termites). This is likely why they had to pay for real repairs on the house.
One of their "repairs" is new water pipes. There's no reason listed for this, but this is often pushed by door to door salesmen telling you need to do it to protect your property/health and is mostly, like all door to door sales, a scam.
That note about counting the cost of heating and cooling is similarly nonsense. They claim "apartments are almost always smaller than houses" which isn't true, and count electricity rate increases as cost of ownership, rentals have to pay that too. They also assert, with clearly no evidence that heating and cooling is half their electric bill. There's easy ways to figure this out, an emporia can do it easily.
The whole premise is flawed. They note that in the beginning only 20% of their payment goes to principle and A) you can control that (bigger downpayment so no PMI, less interest), bigger more frequent payments or a shorter loan, and B) exactly 0% of your rent payment goes to your principle.
This might better be an examination of "can I afford a mortgage with the same rent payment as I make today" and the answer, not surprisingly, is no, if your rent payments are a the top end of what you can afford.
They also neglect the Mortage Interest Tax Deduction and State and Local Tax Deductions, whcih reduce the cost of both by your marginal tax rate, and is a big benefit towards owning.
More importantly, this neglects that buying a home is locking in the price for the long term for the majority of your housing cost. Buying usually is similar all in the first year, but after 5 years your mortage payment is the same while rent has probably gone up significantly.
If you own a house and pay interest, especially like this person, they'd max out the SALT deduction with the house alone, much better than the standard deduction.
As a non American, I have to admit a lot of things sounds very weird to me, especially on the "mortgage loan fees" part.
In particular, the title part sounds horrible (and expensive). As far as I know, over here it's all handled by the state, no insurance required. I don't know if it's because of different laws regarding future claims (the registry is the truth, too late to change it?) or just better records?
Same with tax/insurance escrow, you just pay directly as it comes, but since we have essentially no property taxes, it's probably not required?
On the other hand, here mortgages only have a closing fee (and quite often even none at all, with all the small fees being invisible and rolled into the margin), so that transparency is welcome.
The title part is kinda weird. The government makes a best effort to ensure all lien holders are satisfied, but that can't be always guaranteed, so title insurance happens. They do the indepth research and put their money on the line (and charge a pretty penny for it). It's pretty rare, but there's little recourse if you buy a home from somebody and they weren't empowered to sell it to you. Banks obviously want to be protected from these situations since the loan is secured with the property. If the title company finds something suspicious, they won't insure it, which is why it's almost never a good idea to buy it for yourself too.
> Same with tax/insurance escrow
You can do this, but only for jumbo loans (>400k). Property tax and home insurance is usually paid once per year, and especially for first time home owners, not being prepared for one of these could be significant financial hardship. So the bank mandates an escrow to make sure a regular yearly charge isn't going to make you miss payments to make. They don't make money on this escrow and there's no interest or fees involved.
> On the other hand, here mortgages only have a closing fee (and quite often even none at all, with all the small fees being invisible and rolled into the margin), so that transparency is welcome.
Yeah, it's super nice. Spells out all the fees, the interest rate, the APR and everything. It clearly delineates fees that can be negotiated/shopped for and which are set by the government and which are set by the bank that you can't shop for (unless you change banks who might charge differently). It's also required to be provided to you in advance with a minimum time window to allow you to read, understand and come prepared.
>I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Home ownership isn't a net positive from day one. Otherwise, everyone would always do it. Home ownership is net positive in the long run. It's a long term position. You don't day trade houses.
I zero'd out almost all these costs by building a shack myself and leaving it uninsured. Maintenance cost almost zero because I own all the tools and much the spare materials already form building the house. Cost of house $60,000 post COVID, there is a similar ready-built house next to me for sale almost $300,000.
You experience more than 100% of all of these costs as a renter, while you have none of the up-front costs and less liability you also have no agency and no equity. It can be a trap though, as selling isn't free and if you didn't have enough equity built up you can end up losing money to move. Some housing ends up as rentals because of this, makes more sense to not sell and to rent it.
Renting is definitely the better option for certain people, if you intend to move often, or want to live in an apartment your overall costs are likely to be lower. If you want a single-family home and don't want to move often (or be moved out) Buying is worth it. Even setting aside the satisfaction of home ownership if you can mange to pay off your property you pretty much can't live cheaper at the same scale.
that said I've rented, I've owned, and I've been a landlord and I'd take home ownership in a heartbeat. It's not all rosy, and being responsible for maintenance is no joke but not being subject to the affairs or whimsy of someone else's finances along with the pride and sense of actual ownership is is wonderful.
I enjoy the maintenance, doing what I can myself, trying to learn if I don't know. When the house was renovated (read rebuilt internally completely), we chose to stay in it during the works. It was fascinating.
And, houses (usually) increase in value. Some more than others.
One huge plus of owning is you are forced to put money each month into a likely appreciating asset. It probably doesn't beat someone who diligently DCAs into s&p 500 though.
“Smart” people always tell us to rent. But ask any regular person if they’d rather own a home or rent and they will say own. Who cares about xyz costs or a lower investment return. The entire point is to have a stable base from which you and your family can thrive.
I'm just a single guy, why do I need more than a small apartment which is like 1/4 the monthly cost of a home mortgage payment. I put the other 3/4 of that cost into index funds. Also saves me time not having to do things like mow and shovel which is quite valuable to me.
I suppose you do say family. For me I don't really plan on having a family, so it semes like renting will always be a better option. Perhaps mainly because they don't really make houses small enough to match the cost of renting, or at least not in the area I want to be in.
I don’t share this experience at all. I bought a fully finished new house in Japan, and I haven’t had to do or pay anything extra (other than mortgage and yearly tax) for the past 6 years.
My understanding that Japan is exceptional in this case; I've been told that houses in Japan depreciate about as fast as a quality roof, so e.g. a roof-replacement is not ever needed -- it's just time to build a new house.
The housing industry is the one industry that makes healthcare look efficient. Next time you buy a house visit your titling company. White Collar daycare. Great coffee though. And free pens, nice ones.
If you have some spare cash flow, you can pay extra principal on your loan. Since early years are mostly interest, this can make a big difference in ultimately paying off the loan early if you plan to live there that long.
No one mentioning you can borrow against an asset. Unless you have a massive portfolio of stcok, you usually aren't going to be able to borrow against it (at least on favorable terms).
The author mentions interest but not that there is the mortgage interest deduction, which is a massive tax deduction especially during the first years.
This is an excellent post for folks just getting into the homeownership racket: what is pitched as a necessity for wealth creation and an “easy” transaction with nothing but upsides is - unsurprisingly - a nuanced and complicated financial transaction that has no guarantee of upside.
A few things I’d note to add more data points to the pile:
* Property tax caps like the OP discusses are likely to go away in the near future. Having been artificially capped for so long with so much uncaptured asset appreciation, communities are having to face either serious cuts in services or to seek permission in raising property taxes. If you’re buying a “forever home”, ask yourself if you could still afford it with 2x or 3x the property tax bill; if not, you might not be ready to weather the disruptions ahead
* Rent has skyrocketed alongside home prices, making both untenable (local housing jumped 50% in home prices during COVID, while rent has appreciated about the same over the past ten years; wages have not kept pace with either). Some states have tried forcing higher density housing near mass transit, but those have been blocked or lawyered around; now tenants are pushing to rent caps, terrifying landlords. The point is that pricing in the near future is going to be incredibly volatile as asset prices and rents adjust to meet what workers can afford instead of what financial models spit out, and that’s going to impact your own home prices accordingly
* The primary benefit of home ownership going forward isn’t likely to be asset appreciation so much as stability. For those of us who want to put down roots, owning our homes is critical; for folks happy to move around and explore, renting is far preferable. I would strongly caution against the old adage of “buy if you’re living there for 4+ years”, as there’s no guarantee you’ll come out ahead anymore and may be better off renting
* Most “affordable” housing stock will require repairs anywhere from 20 to 50% of its purchase price, especially in older regions of the country. Do not waive inspections when buying a home or you’re likely to miss a five or six-figure repair - like an oil tank that’s leaked into the foundation, for instance.
The ponzi scheme of property-values-always-go-up only holds when population is increasing. In the US, immigration and fertility changes are bringing population growth to a halt. Good news: We may yet enter an era of housing abundance!
Yes and no, at least in the USA. Thanks to companies rug-pulling with RTO, the populace won’t leave cities again this generation regardless of how cheap other places might be; we have to stay near the place of employment, and those are predominantly in cities.
Frustratingly, cities have a housing crisis in that there’s not enough stock to meet demand - period. We can carve up the rationale in a variety of ways (too expensive, too many vacant units held hostage for investing, NIMBYs, red tape, etc), but the blunt truth is that companies and the government have made it abundantly clear that the only chance at a successful career is in a major metro, and thus more folks will move to them seeking their lottery ticket to the middle class.
So what ends up happening is rural areas will continue to thin out due to a lack of local work to support existing workers as well as a dearth of remote work to allow city salaries to come back to Small Town USA and prop up businesses through outsized taxes and spending. This will cause a contraction, forcing more locals to cities, deflating rural property values further while cities keep struggling with a lack of supply.
The silver bullet - the only silver bullet for any crisis we’re currently facing - was widespread remote work allowing humans to relocate based on preference rather than career need, and thus alleviate urban sprawl and revitalize smaller communities. Capital and Government have killed that dead, and there’s no way to bring it back.
I have a ~2000 sq foot ranch. A new roof was $25k. New siding was $55-85k depending on the material (vinyl vs james hardie). Gutters are $7k. I had a bunch of trees removed and a forestry mulcher out: $7k.
This article does not mention the opportunity cost of all the home equity you accumulate, which is frequently a big component of the overall cost of ownership.
It's true that there are hidden costs to owning but get this: Those costs exist regardless of who owns the house! When you rent, you are still paying those costs, but you don't have an asset when you're done. You actually have to pay more in taxes and insurance on a rental!
When you buy, you will pay a certain amount for 15-30 years, and then you only have to pay for the continuing maintenance. When you rent, you will pay a certain amount every month forever regardless of whether the property is paid off or needs any maintenance.
If you live in a house long enough, you will have to deal with things. There will at some point, be a new roof, a new furnace. New windows. Some of it will be optional, some will not. If you are renting, part of your rent is going to the landlord to cover these things. And you are dependent on them doing it. One way or another you are the one paying. If you own, at least you have the choice of doing it the way you like.
Probably the biggest factor of considering the rent/buy question is how long to do you expect to be there. We paid off our mortgage after 16 years, so now it's 'free', except for ongoing maintenance and taxes. And we're looking at some nontrivial reno in the future: the kitchen is quite beat, and someday we'll need to deal with the asbestos siding (one of four layers on the house!). But it least it's our choice.
At current rates you are losing when renting (excluding possible appreciation), that's why it's hard to sell and easy to rent. Due to low rates before homes went big in value cause you were earning even not counting appreciation, so whoever had credit was maxing it to full for easy money but now situation starts to stabilise / reverse?
Something I've been eyeing is the All In One Loan or FirstPosition HELOC where you take a HELOC on the entirety of the homes value, then use that credit account as your daily spending account.
It's a higher interest rate, but then you only get charged on the amount you have actually borrowed which ideally would be get lower and lower.
If anyone has any feedback on it I'd love to hear it
The annual price-appreciation of a home is usually lower than the risk-free rate (and thus the HELOC rate). If you "pay yourself" rent and use that to pay the HELOC down then it can make sense I suppose.
It's just leverage and it depends on the returns you're getting on the loan. Renting is also a kind of leverage though so if you own a home outright it might make sense to lever up. If you want that kind of leverage while still having the position in the house then an I/O loan is probably the easiest way to do it.
>You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true. There are so many hidden costs to home ownership that most people who have never owned a home don't know about.
I appreciate your saying all you said. I just want to add on, the ownership picture is even uglier. (what I'm about to say will break your brain, frequently to the point of downvoting; don't blame the messenger for the bad news you don't want to hear.)
When you buy a house or a condo apartment, you now have the right to rent it out to other people. That rent would be income to you, and you are entitled to it.
if instead you choose to live in this piece of property you just bought, it is an identical financial situation to you being the payer of the rent. Owning the property did not eliminate rent (the monthly rental value of your property) from your budget.
Now, you are paying the rent to yourself, so isn't that break-even? well, it needs to be compared to the opportunity cost of the capital you had to put down and the interest you need to pay on the mortgage.
due to many govt subsidies for homeowners, it can work out in your favor, but at the same time the stock market does offer higher returns. But more importantly, why are non-homeowners on a very large scale being expected to subsidize wealthier homeowners in the form of an unfair tax burden?
If you have public REITs active nearby you can do this comparison for real: if you buy ~1 unit's value in shares of that landlord you will probably own about 1/<however many units they operate> of the company and receive someplace around the rent of that unit in dividends and capital gains.
The government subsidies for investing in the stock market are also pretty nuts, and the TCJA hosed owner-occupants by limiting the interest deduction, the gains exclusion, and raising the standard deduction.
If you invest you get to deduct any interest against investment gains (even better: you can just not pay any interest), you pay ZERO capital gains taxes on up to ~$80,000 of (real!) contributions each year (with no maximum excluded gains), you can defer $22,000 of (real!) income to literally whenever, AND you can take the standard deduction every year (including in retirement when you wouldn't have had any income to deduct had you paid off a house).
For renting to be a better deal than owning, one of two things has to be true:
1. Your landlord is losing money
Or
2. The rental market is dominated by landlords who own outright, or bought long enough ago that their cost is much lower than the cost of owning is now.
I’ve never seen #1 happen, and the only place i’ve lived where #2 was the case the market has now adjusted and it’s very much not true anymore.
Just like in the production of other durable goods, the lower bound on price (rent per sqft of floorspace per month) has a relationship with opex, capex, & financing costs, but it's only binding when we are talking about a very small scale - and individual with a mortgaged property trying to get into rental.
Buildings last 60-100 years. It does not take that much over building in a previous era to decimate the bargaining position of landlords of a future era. We have been using the law to prevent this horrible no good outcome /s for the last 100 years or so. We can stop anytime.
Transaction overheads are generally not that significant over any realistic period of ownership (5+ years). The OP's situation was a not expensive house in a not expensive area over a negligible period did not appreciate sufficiently to cover overheads. That is not surprising.
Philosophically the real cost is that you become a sitting duck target for taxation, theft, etc. The asset is also highly subject to external effects, such as regulatory change. This is not something you have control over, and can greatly alter valuation.
Given the low returns plus high risk profile plus high capital input, it is generally fiscally smarter to have money in the stock market and rent.
However, on the plus side owning a house means investing in subtle aspects of your environment becomes possible: things like gardening, workshops supporting your interests, or infrastructure projects toward self sufficiency. These can be some of the most rewarding parts of life. Ideally, if you can stand debt-free at a certain age and have self-sufficiency and passive income, with kids grown up and moved out, then you are well placed to relax. Renting ... good luck.
> About 80% of your first mortgage payment is interest.
Is it common in US?? In France the current rates are about 3,5% fixed rate, meaning in your first payment on a 25 years loan you pay about 55% interests. Which I think is pretty high already!
What kind of rate do you have to end up paying 80% of interests in your first payment?
It stands to reason that owning must be cheaper than renting an equivalent place over the long term, unless the guy renting to you made a poor investment. But you're usually not comparing equivalent places when you make the comparison.
Been thinking about this a lot. Curious what the rational folks of HN would suggest for me. Fact pattern:
- I'm in the 25-30yo range, single male
- Living with parents because I can; there's no friction and I mostly enjoy it. And I'm saving a ton of money.
- Remote senior SWE for a non-FAANG, but still doing around $200k/yr between my W2 and a few other things
- NW somewhere around 400-500k.
I could easily go buy a house, it just seems like... a trap? Home prices are stalled at a little over 7x median household income, a bit above where they were in 2006 [0]. Everyone who tells me to buy property seem less like they have my best interest in mind and more like they're either repeating the cult saying of the last 50 years, or they're invested in a class of bigger fools existing.
I fear the one-two punch of me becoming unemployable (AI is getting _really_ good at even the niche stuff I do) and the market crashing. I'm glad I don't have dependents to worry about; even more glad I don't have a mortgage to service.
If I had to go live on my own, the napkin math I've been doing, even ignoring closing costs and house maintenance costs, is that I can rent a house for cheaper than I can buy a similar house in my area. This is "in the long run"; meaning at the end of 30 years I will have higher net worth having rented than bought, with conservative estimates of market performance and aggressive estimates of rent increases and house value appreciation.
It all just seems nuts. I see people my age working at grocery stores (a good and honorable line of work) who are buying houses and I don't understand how they make ends meet.
If you rent and remain invested in the market, it's a wash. So yes there's nothing wrong with renting. It just tends to not be effective for most people since they lack the self control and discipline to invest in stock equities, since lifestyle creep means they tend to overspend. A mortgage for most people is then a form of forced savings which helps them build equity through rising land values.
I want to buy a house, but I do not want to end up crazy underwater on a house. If I thought values would be at-least-stable I probably would buy. Everything just seems so bubbly that it feels like a trap.
The general consensus is that there is never a best time to own a home (for example, rates are much better today than in the 80s). If you want it, figure out how to pay for it, and buy it. Keep enough savings to weather a year of unemployment. You might be unemployed for longer, in which case you'll just figure out other options, like forbearance/hardship program/loan modification, state unemployment, temporary work, renting out rooms, food and utility assistance, etc. Worst case you can sell the home.
What about the relationship thing? Most significant others don't want to live with their in-laws and fear failure to launch. Clearly not the case of a failure with your great income. That said, this isn't as much a buy a house point as it is a get your own place point, which could be either rent or buy.
Oh sure, if I found an SO I'd move out. No question. Nothing on the horizon and I've never even met anyone I would be seriously interested in, but that can change quickly.
But as you say, that's orthogonal to the rent/buy question.
For me, it is about stress and time (and money). I hate to say this because I don't want to upset anyone (really just trying to help, not perfect), but we created HomeSpark.AI to try to reduce the stress/time/money blackhole from personal experience. What my contractor was doing didn't feel right, so I had to hire a "auditor" of sorts who wrote a 47 page report of the issues. Didn't relief the stress but did relieve the uncertainty. Then I said that has to be an easier way with AI. I just ran into this issue with an oil pressure gauge for my whole house generator. The AI gave me the part, video and where to buy/cost for part. $30 and 20 minutes later installed - before that I had no idea other than call a guy. Sorry not trying to shill anything , just hope to be helpful.
Rent goes up every year, your mortgage goes down. 30 years of renting and you’ll have nothing except more renting. With buying, you’ll own a house. That house is now effectively free to live in, as a rentoid still has to pay rent and make repairs to avoid losing their deposit.
Somehow it's taken as given that rent goes up - SF took 6 years to recover its 2020 rent, other cities saw a dip during COVID too. Similar thing took place during the dotcom crash.
> You've probably heard someone say something to the effect of "renting is just throwing your money away".
Then skip to the bottom:
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. I've put a lot of money into it catching up on maintenance, repairs, and improvements, but the appreciation will definitely exceed whatever I've put into it when I decide to sell it.
There you go.
The only counterexample is one that's a truism: author bought at $321k and sold at $333 a few years later. Real estate is a long term investment, same as the funds you'd choose for a retirement account. In both cases if you're buying/selling short term you missed a very important implied premise in the conversation.
The thing with home is that it's leveraged investment for normal people. You can pay 10% of value and resell later. Buying home for cash is less optimal but for credit it makes sense usually due to leverage and little downside risk. Plus usually every now and then you get money printing and you 2x your leveraged money or more rarely get hyperinflation and home for free. This was mostly issue of too low interest rates but that's how I see it from the past 10 years (non US resident)
One thing the author does not think about is end of life depreciation. When you retire and drain your investment funds they very quickly will disappear and stop producing value, especially at any sustained rate.
A house has none of these issues. Costs are relatively constant.
Rent on the other hand. Well. Anyone who rents knows the cost goes up and will keep going up, if not simply for increased utilities.
Another way of course is to die quickly once you retire but then what’s the point of savings anyway?
And yet the property will appreciate in value, barring the implementation of a land value tax, and negate those extra charges the article's author is enumerating. One can borrow against one's property and reinvest in the property and you'll still make money. No bank or credit union will ever turn down land as collateral for a loan because in this economic paradigm land remains the safest and best investment. Nothing there is really relevant and skeptical r
Author is correct that if you don’t live in the house long, the overheads such as transfer duties and legal fees make it somewhat expensive.
But over here we have a pretty high interest rate of around 10% and comparatively high inflation rate, which makes the initial purchase of a house be a bit challenging, but if you start paying more than the minimum as soon as possible you can find yourself in a financially more comfortable position.
My bank allows me to have something they call an access facility on my bond account (the account for the debt on my house). With this I can transfer extra money into my bond at any time and I can draw this extra money out at any time too, this extra money counts as extra paid on the principal.
This essentially means that any extra money I put in it is worth about 10% p/a in terms of the interest it saves me.
They calculate interest per day so even if extra money sits in there for only a few days, depending on the amount the interest saved could be worth a coffee or possibly a meal.
Although I settle my credit card every month, everything I route through it and don’t have to pay back interest free for the next 30-45 days is essentially saving me that portion of interest on my bond, so easily over a percent. And that’s before credit card rewards.
And while I don’t recommend this except for the most financially disciplined as it is a little precarious feeling, I have a second credit card which I’m able to settle using my first credit card, this adds yet another 30 days of essentially interest saving to me.
It’s a great way to save for something big over say a year or two, even if you draw everything you deposited out again two years later, it’s saved you from the interest in the meantime, so you’re still better off.
Then there is the effect of inflation. If you’ve been able to put a good amount extra into your bond each month, you will find that after 5 years or so it’s probably less financially burdensome than renting.
This is because since you bought the place, property prices have gone up, so has rent and so has your salary, but your principle debt has not increased with it, meaning you’re paying no more than you were 5 years ago for the monthly instalments, but due to inflation it is comparatively less expensive.
Anyway, that’s the financials aspect, but on the quality of life aspect, a few years ago we finally bought a house that should be very nice for our family for the next 20-30 years, in terms of size, comforts and security.
We also bought a house with an old interior and renovated it, making the bathrooms and kitchens modern and how we wanted them. Was also able to chase conduits into all the walls (brick and mortar houses are the norm here) so that every room has CAT6 going to it.
Is South Africa a place your family will want to be (or be able to be) for the next 20-30 years? What are you doing for electric power, water, and physical safety from violent thieves?
Electricity has been essentially uninterrupted since the last load shedding about two years ago. I did get some solar panels and an inverter installed while load shedding was common as I work from home and didn’t want the stress due to lack of power. Another thing I put in our new kitchen is a couple of gas hobs next to the main induction ones, allows us to cook even during power outages. But as I said, no real outages in two years now.
Water is quite reliable, maybe interrupted half a dozen times in a year. I have 2kl of water backup tanks and a booster pump so I don’t generally feel any outage, although not uncommon, I expect that most middle class don’t have backup tanks like this. Regional water infrastructure hasn’t been keeping up with growth, so there is a large issue looming there.
Crime is common, but not so common that most people have been a victim of it. Most (middle class) people have house alarms linked to armed response services. I’m a member of community association which amongst other services they provide from membership fees, they also have a special arrangement with a security company and additional patrol vehicles are dedicated to our suburb.
Most security systems are door sensors and interior passive beams. I did however add outside beams which tends to catch intruders by surprise and gives early warning. I actually had an intruder in my garden last year and the outside beams caught the guy by surprise, he had dashed by the time the armed response got here. Harrowing for sure, but not tragic fortunately. Since then I added some IP cameras and there was a gap in my electric fencing above my garage which is where it seems they got in from, so I also had that remediated.
Our suburb (like many others, but not most) has road closures (gates get closed across most streets on the suburbs border) in effect except during morning and evening peak traffic times, this helps a lot, but criminals are regularly trying their luck in the area.
The intruder aside, and without load shedding, and being vigilant in case of criminals, it’s not that different than my 2 years I spent in Cork in Ireland where there was the occasional violence incidents with chavs and several water outages.
If I was living in a township (inhabited by those living well below a middle class wage) my experience would be quite different, probably lots more crime and I expect water and electricity to be quite spotty.
How will things be 10, 20 or 30 years from now?
My biggest worry right now is the water supply, but it’s more a worry of inconvenience of it being turned off regularly to manage demand. I’m expecting within 5 years they’ll have addressed it. Basically it’s a repeat of the electricity capacity shortage issue of the past, despite people telling government for over a decade they need to increase infrastructure to meet expanding demand, they do nothing until they run out.
Otherwise, I’m optimistic things will improve overall, not get worse. I think our democracy is maturing. The ANC which has managed to stay in power since the first democratic elections in ‘94 has been progressively losing voter share, it seems the masses are finally saying no to their excessive corruption and incompetence.
Another point not really mentioned in here is the type of home. Buying a condo has absolutely been the worst decision of my life.
It was our first home after getting married. The condo HOA will probably go down as the most disfunctional HOA in California history - not exaggerating. It has/will cost an obscene amount of time/money that I will never get back.
If you're in SF and weighing this decision, it's easy to get tilted in the buy direction because the rental stock is so horrific. Landlords have very little incentive to update properties or provide basic amenities that people take for granted in other major cities (good luck getting a washer/dryer).
I'm firmly in the renting camp and I'll only own a home if I can buy some land and build it, probably. From a US perspective, I see too many people buy a house because that's what they're "supposed" to do since that's the American Dream. They end up with projects every weekend, stressing about repairs, and dealing with random BS from the local government and Karens.
I also despise the culture around owning a home and the insane things that we do to prop it up. Zoning restrictions, absurd mortgage terms (what other country does 30-year fixed rates?), overbearing building codes all so we can live up to this arbitrary life goal of Owning A Home.
Buy a vacation home (seemed like a good idea at the time)
Sell everything and rent a house (move to an area better for my kids) <--- I am here
Buy one primary home and stay there forever <-- the plan next year
Renting a house is a great financial decision for my current market but the landlord is erratic (will he raise the rent? sell the house? move in?), I still have to deal with a HOA, and there are several big upgrades/changes I want to make and I can't: double the solar/battery, add some covered storage, put in wired cameras, put in a high quality RO water filter, devote most of the backyard to an orchard/garden, etc. And the rent will keep going up, whereas insurance/property tax will go up much slower because I plan to buy in cash.
Not aure anyone else mentioned it but good luck keeping a big dog in a rental unit.. or any other animals for that matter. Gardens are a pain as well...
I've come to the conclusion that high housing prices are pretty much the root of most of our problems and is probably the biggest factor in increasing wealth inequality. I came across the housing theory of everything recently [1][2]. Disappearing third spaces, out-of-control inflation. homelessness, etc can all be traced back to housing affordability being the primary factor.
I tend to abhor buying vs rent calculators. I always have. Why? Because of inelastic demand. You can't opt out of the housing market. Well you can. It's called being homeless. If you rent, you have in effect taken a short position on the housing market. If house prices go down, rents tend to follow and you're better off than those that bought. If house prices go up, you're worse off. That's a short position.
So, by buying a house, all you're doing is closing out a short position. You might argue "but you still win or lose depending on the housing market's movement" but that's not actually true. Why? Because if all houses double in value, you still own 1 housing unit's worth of wealth. You're actually no better off. Who is? Corporate landlords and those that own swathes of houses. But your "investment" in tdhe housing market is used to buy your vote. You have a tendency to become a NIMBY. You tend to think of rising house prices as "good" despite the ultimately destructive effect on society.
Once again, China has been proven to be correct. Xi Jinping said back in the 2010s "houses are for living, not for speculation" [3]. Remember the trillion-dollar Evergrande default? Have you seen Western coverage of Chinese "ghost cities" or how the Chinese real estate market has been in turmoil like it's a bad thing?
All that happened was that Xi quietly popped the real estate bubble and made it more difficult and expensive to own more than one home. Prior to Xi's reforms, property speculation was rampant. It's going to take years for that correction to work itself out but it is ultimately a good for China as a whole.
Oh and one nitpick about the "costs" of home ownership from this post. A lot of the things like the repairs are cash outlays but they also tend to improve the value so that's more of an ivnestment than an expense.
You'll likely enjoy the book 'Progress and Poverty' by Henry George. His 'land theory of everything' predicted continued increasing rents, decreasing interest rates, low real wages, continued global population growth, the GFC, analysed the case of superintelligent AI, explained how free trade and immigration without tax reform would lead to backlash from working class, and that communist states would become tyrannical dictatorships - all in 1879.
Came here to say this but you beat me to it- sorry to the author but home ownership gives you a real tangible piece of equity for the rest of your life if you maintain it reasonably well. This is especially true for people who aren’t good with saving money.
It's insane that there is literally nowhere that you can have a piece of land reserved to you without perpetually owing someone money. Like it isn't possible at all. With home ownership, you will always owe taxes, so there is no such thing as paying it off. People claim mortgage payments are fixed/stable... yeah, taxes are not. Where I live taxes are like 50% of what rent would be. And on top of that you have costly maintenance that could happen any time, and if you live anywhere prone to natural disasters or even the occasional naughty storm, you better have all kinds of insurance. You're still renting. Even if it is fully paid off.
Let's say you decide to abandon modern life and move into the woods, guess what, there are fees to camp in BLM land or in national forests even, and even then you have to move around every few weeks. Camp anywhere near a city, you're homeless scum that has no rights anymore, what's the matter, the shelter is full? participation in the system is not optional. The only actual liberty and freedom is wealth in modern society, you still have to pay but you can setup lawyers and corporations to manage that for you, and fund any life style you want anywhere without worry.
It used to be in our history, that so long as you can work a land and live off of it, and you lived in peace and got along with your neighbors, you were left in peace and to your devices.
In the name of liberty, slavery has been instituted, since you must work, get currency and exchange it, and even then you must be kicked around like a nomad, whether you are renting (rent prices increase yearly until people move out), or camping in the forest or on a mountain top. Even in medeival feudalism, you got to stay in your allotted house and land, and to the most part currency exchange wasn't required, simply a share of your crops, animals,etc... was what was expected of you.
I don't have (never will) children, I don't drive cars (and even if I did, there are road taxes when you pay for gas!), I pay a ton into medicare and social security, so why am i paying for property tax? i already pay for water/sewage separately, simply having the fire department out to help you costs thousands of dollars anyways, and i wish we could reduce the funding to cops. why would i pay property tax so much, and it is perpetual and permanent, the property owes the tax even, not the owner!! how ridiculous of a mental gymnastic.
And all of this is assuming you're not unfortunate enough to live in a HOA, in which case it is the worst possible situation, non-compliance with a random person's wishes means they can sell your house on the cheap and tell your property with no consequence. I hope there are countries where things aren't this twisted.
That's technically still true according to the tax laws here, but Trump raised the standard deduction during his first term in office so where I previously took an itemized deduction and claimed my mortgage interest from my taxable income, it's now more beneficial for my (basic) tax situation to claim the standard deduction. I appreciate the simplicity, but I'm no longer getting a tax benefit for home ownership.
I own a modest house that I bought close to 20 years ago before the standard deduction changes. The first year the calculated tax savings from itemizing was a whopping $800. This went down every year and at year 7-8 it no longer made sense to itemize. Interest rates are higher now but the standard deduction is way higher now as well. This strikes me as something that was a big deal in the very high interest rate 80s and has then been parroted as a huge benefit for decades after is largely ceased being true.
Beyond financial costs, I was caught off guard at how much time home ownership took up. House maintenance and projects have taken up most of every single weekend of mine for the past few years.
Part of it is simply that I bought a house with more space than the places I usually rented. More to clean, more to maintain, more things that can go wrong, etc.
But the biggest thing is that I'm the only one in charge of maintenance. There's no one person I can call for every single problem. Keeping track of regular maintenance, performing that maintenance, and learning how to DIY things takes a lot of time. And even if I want to pay someone to do it for me, I still have to research contractors, coordinate estimates, and schedule the project. And I still need to learn enough about the project to determine whether they're doing it right!
Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
>But the biggest thing is that I'm the only one in charge of maintenance. There's no one person I can call for every single problem. Keeping track of regular maintenance, performing that maintenance, and learning how to DIY things takes a lot of time. And even if I want to pay someone to do it for me, I still have to research contractors, coordinate estimates, and schedule the project. And I still need to learn enough about the project to determine whether they're doing it right!
The thing is, you can actually find these people. My landlord has one. Sage old handiman who knows everything about how the building works and fixed half of it himself already. Seemingly he can do every trade. He's under the building doing plumbing or electric one day. Landscaping the next. Installing appliances. Paint and drywall. Roofing. Most of the time it's him by himself, but he will occasionally bring out his crew of similar sage old handimen who know seemingly everything there is to know.
You don't need a contractor. They will give you the runaround. You need to find a handiman like this. Not easy I'm sure, but they are out there.
> Seemingly he can do every trade. He's under the building doing plumbing or electric one day. Landscaping the next.
Doing this is basically illegal in modern day. The requirements to get even one trade license, much less more than one, are set up to make it uneconomical unless that trade is your full-time profession. Who can justify doing a multi-year full-time apprenticeship in each trade when they expect to spend 85% of their time mowing lawns and painting decks and other things that aren't that trade?
There are still people who do it, of course, but then you're stymied by their inability to lawfully advertise their services.
The other trouble is that every handyman thinks they have a great handle on everything but have at least one blind spot where they do really, really stupid stuff.
More often it's just that the situation changes with time.
Like someone will work with existing shared neutral aluminum circuit spaghetti because that seemed right when the scope was narrow. Maybe they're just throwing an outlet on the opposite side of the wall for someone's CPAP machine. Maybe they're actively avoiding putting it on the bedroom circuit because of which window the A/C goes in. Then the scope grows, circumstances change and the specialized solution is no longer optimal.
Then the next owner shows up and has to troubleshoot something and between hindsight and the smug know-it-alls on /r/everytrade (seriously, the internet is great at driving off people with wisdom and experience) they pronounce the prior guy to have been an idiot.
It seems like you misspelled "human" there.
A large number of people can't afford contractor rates, so the alternative to the handyman is doing the work themselves. Who is more likely to screw it up, the person who does it once a month but not every day, or the person who does it once in their whole life?
Honestly, I'd debate this.
The problem is the "handyperson" may "know" (but not actually) and do what they think they know. When I encounter the same task, I don't know I stop and try to learn the right way first. So there's a good chance the homeowner is actually on a better path.
A lot of the handypeople you hire, kinda by nature of being under-the-radar, also end up intentionally cutting corners where "it doesn't matter" because savings are a priority for their customers, and it can go too far. I, on the other hand, at least know I'm not trying to cheap out on my own work just because my last customers were broke and I'm conditioned to working in that mode.
> The problem is the "handyperson" may "know" (but not actually) and do what they think they know. When I encounter the same task, I don't know I stop and try to learn the right way first. So there's a good chance the homeowner is actually on a better path.
Maybe that's true for diligent technical people, but they're not the majority. The average person is going to watch a YouTube video, run out of free time and wing it.
> A lot of the handypeople you hire, kinda by nature of being under-the-radar, also end up intentionally cutting corners where "it doesn't matter" because savings are a priority for their customers, and it can go too far.
This is just humans again. Plenty of people willing to skimp out on something, even when it's for themselves, when it means saving time or money. Especially the people short on time or money.
> I, on the other hand, at least know I'm not trying to cheap out on my own work just because my last customers were broke and I'm conditioned to working in that mode.
This is the argument for doing it yourself when you have the time and wherewithal to do it yourself. It's not an argument for pressuring people to do it themselves when they don't have the time and wherewithal by making the only other lawful alternative be the one they can't afford.
I'm sure it varies from location to location, but my handyman has said that the line here is modifying existing infrastructure versus installing new stuff. The former is fine without a license, the latter not. Thankfully, I've never yet needed him to do work that falls in the latter bucket.
There's a fine line between large modifications to existing infrastructure and "new stuff". You need a handyman you can trust in order to know the difference.
It also depends on your insurance situation. If I'm doing renovations, my house insurance company will not honour my insurance if the work is being done by a contractor without knowing the insurance status of the contractor.
One thing to consider is whether there is a reasonably-priced "emergency contractor" service to which you can subscribe. Enercare in Toronto offers plumbing protection for $21/mo and electrical protection for $16/mo. Service calls — 24 hour service calls — are included and covered in the plan, and labour for fixing the problem is included. We've had multiple cases where we've needed to call a plumber out to look at issues and it would have cost ~$200 to get them in the door and more than $400 by time the work was done. We've also used them for discounted plumbing work (15% off labour and most parts) in the past when we didn't have a different contractor for something we needed done.
Licenses aren't always required in all areas. But there seem to be fewer of those areas than there used to be.
Honestly the most shocking think i learned when moving to Massachusetts was that only licenced trade people can request to have work done inspected. This was insane to me. Why would towns not want amature work not to be inspected. It wasn't illegal for a homeowner with poor experience to electrical, gas, HVAC, without a inspection... It was wild, I understand know its like this because its basically impossible to get certified in trades without it being your full time job and scares people from doing stuff on their own. But I think its also really damaging to society because people who don't know what they are doing will still do things and it shows in houses in Massachusetts which have incorrect wiring, bad plumbing, unlevel floors. Its because we overly protect the trade from handyman.
Oh, wow. So if you buy a house and find some sketchy looking work later on, would you have to find a pro to even call in an inspection, and would they even do that without getting some commitment to fix it if something's wrong?
If you treat your house like a rental that you rent to yourself, you can avoid a bunch of headaches - mainly because you’ve given yourself “permission” to spend on it.
wait ... There are landlords out there who will "spend on it"?
Mine took 3 weeks to replace a broken HVAC when it was 35 degress out. 5 days to fix a toilet that when flushed dumped sewage into my downstairs neighbors ceiling.
Maybe if you're treating yourself as a tenant but your run of the mill rent extracting (or worse, middle man) landlord is the cheapest creature on the land.
There are, but they're often found in places where the rent pressure isn't so great (e.g., there are many options for renters). When demand is so high or prices are fixed, everything else goes out the window; because what are you going to do, move?
Don't know about your landlord specifically, and I'm no landlord, but there's also a bunch of people (including homeowners) that will wait until summer starts to test and then complain about HVAC... just on peak season for HVAC maintenance, where the waiting times are long (and the price will probably be higher).
Owner-occupiers in 2-6 unit buildings (who don’t have RE empires beyond that). The incentives are wildly different.
There are good landlords. Unfortunately many of them aren't and there's not really a good way to know before.
Yeah but then I have to deal with my tenant. :P
Evicting yourself and taking yourself to court could have fun Fogerty vs Fogerty vibes!
You jest, but a couple of years ago I added myself to my company’s workers compensation insurance in case I get injured. If I ever do I’ll have to put in a claim against myself and hope my insurance covers it. :P
>If you treat your house like a rental that you rent to yourself, you can avoid a bunch of headaches
Or you do a bunch of shitty halfass 'landlord fixes'
My landlord has one.
That is a B2B relationship, not a B2C one.
The old handyman probably might not need new customers and even if they do, they probably don’t want random homeowners because the inexperienced tend to have unrealistic expectations and only own one property,
To provide a counterexample, my parents always had a handyman growing up. I think they still do. Not the same guy through all the years, but they've always managed to find one.
> He's under the building doing plumbing or electric one day.
I believe I've encountered that guys electrical work, and it ain't sage :)
(I.e. there are a few of those "fix it all" guys, but they're not always code compliant. They do get stuff done, though)
Plumbing: plumber. Electrics: electrician.
Most other things (besides obvious big things like foundation, drainage, roofing, load supporting areas) can be done with a good "fix it all" kinda person, or (with patience) youtube.
Plumbing isn't all that complicated, really. There are things you have to understand, but a little research will take you a long way.
I only call the plumber when I don't have the equipment I'd need, like cameras and snakes.
If you're comfortable doing DIY a lot of equipment can be rented at your local Home Depot or similar store. I had a clogged sewer line and rented a drain snake for the afternoon. Much cheaper than calling the plumber.
The thing I won't do is roof work. Too scary.
>The thing I won't do is roof work. Too scary.
And that's why you're still allowed to DIY it.
If schlepping packs of shingles onto a 150deg roof was as easy as pulling wire or laying pipe (heh) they'd have trade groups and lobbyists convincing the government to keep you from doing it yourself just like the lower altitude trades do.
In many countries you are legally required to use a licensed plumber and electrician.
[dead]
> Not easy I'm sure,
Can confirm it’s not easy. If you want to describe a method of finding one, I’m all ears.
Ask your realtor for references.
Or your office/building manager at work.
Why would you ask a realtor?
Realtors tend to have a lot of contacts. The realtor I worked with knew “a great guy” for every aspect of the house (roof, plumbing, cabinets, driveways, etc.) due to the fact that she naturally encountered so many of these tradespeople.
She would get recommendations from sellers. Either the seller recently had work done in order to improve the home before putting it on the market, or, the seller had some trusted expert they used for years.
My realtor actually encouraged me to ask her for any contacts if I needed something done in the future. I sense that her contacts like having customer referrals as well.
Realtors are also notorious for recommending service providers that give them a kick back.
Finders fees aren't nefarious
Realtors often have a list of contractors they rely on to help potential sellers get their homes ready for sale. I have found and used recommended roofers, plumbers, HVAC and electricians from a local realtor that wants my future business.
I would caution seeing a Realtor as an easy way to avoid doing your homework on someone. I did this long ago and the Realtor's recommendation was one of the worst I have ever worked with.
There is, unfortunately, no shortcut to finding quality handymen.
Seconded. What Realtors value in a contractor is someone who will respond quickly and do a job that looks good on the surface to avoid delaying closing. For the most part they don't know whether the job was well done and will hold up over time since they are already on to the next house.
you can definitely save a lot of time by asking your friends for referrals. Anybody who loves their Electrician/Plumber should be listened to in particular.
A good realtor will often not recommend the same contractors that they use for prepping a home for sale. The requirements for getting a home in saleable condition and getting a home in livable condition are not always the same.
Instead they act as an information hub for homeowners.
Obviously "good realtor" is doing a lot of work here, and I don't know how you find a good realtor (kind of lucked into mine after having a terrible one for my first purchase).
It sucks to find good tradespeople because word of mouth does so much for them that they hardly advertise. So if you actively look for one, you tend to ONLY find the bad ones, and you're actually less likely to find the good ones... unless you know someone who happens to know someone. Which sucks since I don't know anyone (and trying to look for someone encounters the exact same problem)
This is my experience as well. Maintenance of the house and the property is a huge time sink, but the worst offender is the distance to everything and how you need a car. Driving around constantly in suburbia is absolutely maddening. Oh and the car needs maintenance too. Changing tires, service appointments, keeping it clean, shovelling snow so you can get to the store.
We sold the house and moved to an apartment in the city last year. Now I have time to hang out with my family, we have all these restaurants and things to do everywhere. Got rid of the car and I bike to work.
My maintenance now is pretty much:
- Mow collectively owned lawn once per summer
- Spring and autumn cleaning of collectively owned spaces. One or two chores. Last autumn I cleaned a carpet. This spring I cleaned two bathrooms and checked the fire alarm batteries. Then each time we had a barbecue after the chores.
- Service bicycles when needed
- Make sure food isn't rotting in the fridge
Oh and I have time for hobbies too. My kids have way more friends now (playgrounds are really spread out in the suburbs and they are mostly empty) and the area we moved to is a lot calmer than in the suburbs where teenagers would roam around and be loud because there was nothing else to do.
We might get something like a summer home to be close to nature when it's nice to be (currently we rent a cabin for a few weeks in the summer) but just everyday living is so much better in an urban environment.
For context we live in Europe.
I don't think home ownership is an "every single weekend" thing unless you bought a fixer-upper.
Honestly, it sounds like you enjoy it.
If you are doing it with that frequency I think you just are "into" your house.
> I don't think home ownership is an "every single weekend" thing unless you bought a fixer-upper.
It really isn't, and I don't know why so many homeowners act like it is.
I bought my house in 2015. It was built in 1983.
The only things I've had to do are a roof replacement, HVAC upgrade, and deal with a broken water main.
Sure, none of those were cheap, but that's 3 events in 11 years, and the first two I expect to not have to do again for at least 15 years, and the water main was a random one-off thing, and it didn't flood the house. It put a lot of water into my crawl space, but it didn't become a problem.
People who swear by renting will use it as evidence to show that owning is more expensive than renting, but I think they just ignore that those costs are factored into the rent, not to mention the fact that once I noticed my roof had a problem, I had people out the NEXT DAY to give quotes on replacing it. When I replaced the HVAC (Old A/C compressor was frequently tripping the breaker and was underpowered), I was able to choose to upgrade rather than dealing with a landlord who would install the cheapest thing they could find.
But ah...I've digressed.
The point was that home ownership isn't nearly the maintenance burden some owners seem to claim it is, and when there is a problem, being the one in charge of getting it solved, rather than having to harass a landlord into solving it, is nice.
The incentives change when you become a homeowner. You reap the benefit of any improvements you do to the property; you also know for sure when you're going to leave it, and you have the freedom to do whatever you want to do to it. Before, when you were renting, any improvements you did were throwaway time and money, benefitting the landlord and future tenants more than yourself.
Many homeowners respond to these incentives by doing more improvements.
This is also why many governments (both local and federal) subsidize homeownership. It incentivizes residents to improve their properties rather than let them rot, which has positive externalities for many of the surrounding properties.
> you also know for sure when you're going to leave it
Well, about that...
There is a thing called a Compulsory Purchase Order in the UK, with equivalent in the US for example.
Guess which freehold home owner with two thumbs can expect a CPO sometime in the next 10 years?
https://en.wikipedia.org/wiki/Compulsory_purchase_order
The USA (and other countries?) equivalent appears to be "Eminent Domain": https://en.wikipedia.org/wiki/Eminent_domain
Are you saying that during the 11 years you never had an electrical issue, window/door breaking, a paint job, a clogged pipe, mold growing somewhere, a tree that needed handling, etc... You either have very high quality materials, don't care or were just lucky. Usually something (small/medium) breaks every 2-3 months or so and something (medium/big) breaks every 3-4 years or so. Depends on usage too (1 person is very different than a family of 5 where 3 are kids jumping around).
> electrical issue, window/door breaking, a paint job, a clogged pipe, mold growing somewhere, a tree that needed handling, etc
I did forget about two of those. I did need to get some trees handled a few years ago. Was about $3,000 to get like 5 trees (A couple over 150 feet) removed. And we did get the house repainted, but that wasn't completely necessary, but was a nice to have. Wasn't that expensive, surprisingly.
But have not had electrical issues (Unless you count installing an EV charger), broken door/window (Unless you count my dumb ass trying to walk through a screen door and tearing it up, but that's a $150 replacement from Home Depot I install myself in 5 minutes), no clogged pipes, no mold.
Even my water heater has been fine. No idea when this tankless heater was installed, but it's been 11 years and no leaks or problems.
I did have the garage door tension spring suddenly snap, but I'm fairly sure that was only $300 to get fixed.
Again though, if I was renting the cost of all this work would have been included in rent. Sure, renting makes living costs more stable, but in the long run, I'm not convinced there's a scenario where it comes out cheaper, even if you're investing the difference. Rents in my area have gone up 75-100% in the last 10 years. My mortgage stayed the same.
EDIT: I suppose if you're in an area where rents are significantly cheaper than mortgage payments, it may be cheaper to rent. But in my area, it's very close to 1:1. When I bought my house, it was $340K, minus a $20K down payment. $320K at 4% for 30 years was $1527/month. Plus property tax brought it to about $1,900/month. Meanwhile, the rental estimated value was $1,800/month.
Rent is determined by supply/demand. In the USA, rents are higher (than buy) because rental businesses are dominated by companies who can do the math. In many parts of the world, rental businesses are small/micro by someone/family who want to own property.
See this: https://www.numbeo.com/property-investment/gmaps.jsp?indexTo...
So for many people around the world, it's more economical to rent. You are basically being subsidized by the people who are obsessed with the idea of owning a property.
Yep, this.
A unit (multi-dwelling property, not necessarily an apartment) might cost 650k here, but only rent for 500$/w. 25kpa is a 4% return on that principle, before expenses (property management, maintenance, rates/taxes etc).
The only context in which it makes sense is if capital gains/land value goes up, which it has historically but that's no guarantee.
Houses make all these numbers even worse - higher upfront expense (land value) and lower rental yield (they rent for more, but tenants prefer a better house/dwelling more than they care about a back yard, so cost goes up more than rent does)
More to the point, some people just want to be constantly changing/improving things and a subset of those folks need to acknowledge that this is a choice not necessity.
Most homes are fixer-uppers. They graduate to that after just a couple decades. I owned 2 homes, both in the 20-30 year range in 2 different cities.. combined (sometimes both) they needed... new roof, new hot water heater, kitchen and bathrooms updates and water mitigation, pest damage and control, leaky pipe fixing, wood deck replacing, furnace and AC replacements, basement flooding issues, foundation issues, probably more I can't remember.
Home ownership sucks and after selling my previous home I'm so glad to be renting. Just never having to deal with another contractor makes me so happy. :)
Apartments are the middle ground. I bought one about 4 years ago and haven’t had to do anything. Any issues like water heaters and such get handled by the building management. Eventually I’ll have to repaint and repair the internals but it’s been good so far.
You can tell when a home was built like that though. Why did you purchase it regardless? Why did you do it again after your first experience?
If professional inspectors cannot tell what makes you think you can? Our first home was inspected by a bank inspector + my wife's father who works in construction and everyone found it OK. We had the second home inspected by 2 separate inspectors and both OK'd the house with only minor issues.
All our friends have equally terrible stories. Maybe you just got lucky or haven't owned a home yet?
Most "professionals" in most professions are mediocre, and even when they have potential their incentives are rarely aligned with yours. Bank inspectors don't care about the same things you do, and construction workers don't necessarily have skills which are directly transferable to inspection, at least not without training and practice.
Saying that out loud, yes, inspection is a skill like any other, and it's a bit simplistic for me to say that "obviously that house is good/bad," at least as an intervention I'm recommending to randos I don't know.
But...if I've just gotten lucky then I should buy some lottery tickets. I'm never wrong when I point out the places a house is going to fail or the places where it's going to succeed. My background is a bit off the beaten path (lots of construction, handyman activities, bank demolitions, out-at-sea yacht repair/captaining/maintenance/emergences, electrical installations, whatever -- at least until I finally settled down into a more stable tech career); maybe that helps, or maybe I have some loose wires upstairs. Whatever the case, I don't think it's hard to avoid a bad house if you take the time and care to properly inspect it (and it might take a lot of time, including some disassembly -- big red flag if you can't peek into the internals, and I wouldn't make a multiple hundred thousand dollar investment if you aren't allowed to check on the details).
Yardwork and cleaning can easily take up hours per week. That's why we outsource it. When I was a kid, it felt like all my dad ever did on the weekend was yardwork, fix cars, and drive me to sports practice.
Hi - homeowner here who is NOT in an fixer-upper. "every single weekend" is clearly hyperbole however here is regular maintenance for me:
- once a quarter clean the pollen off the A/Cs
- once a week clean the pool (okay I pay someone but still its part of maintenance)
- inevitably something on the pool goes wrong
- once a week clean my grill
- Blow leaves (seasonal) off porch
- pull weeds
- power wash the deck
And then most homeowners, no matter how new your house is, inevitably find an endless amount of "projects" to improve their home experience. Wife wants a table for the grill made, I add automated sprinklers, we put new planters for a garden in our backyard...the list goes on..
I'm confused - so are you working on your house every single weekend, or not?
Because that list clearly says "once a week" for one item and has a ton of stuff on it that looks pretty regular, like if you're not doing it every weekend then it'll mount up to be a real problem that takes you all weekend.
Different homeowner - most of the high frequency stuff there is quick and easy to do regularly with practice and it slots in pretty well with just living.
It's more in order with keeping yourself, your dishes, your clothes clean and exercising.
Slightly physical stuff (eg: hedging - waving a weighted object about from ground level to above head level for 20 to 30 feet say) is desirable to some - cheaper than gym work, keeps the body moving, fits in well between at desk sessions and a good time for thinking while you flex.
I get that, and agree. It's just the whole "every weekend is overblown" and then listing stuff that you need to do every weekend thing that didn't make sense.
All weekend every weekend I'd agree is probably overblown, unless you enjoy it as a hobby. Or as you say, an alternative to the gym.
Depends where you live. In the midwest you might legitimately need to mow 3x a week and you might have a huge lot. If you say screw it and let it go to knee high weeds, city might show up and cut your grass and fine you for it.
3x/week is wild. I'd get a different type of grass at that point.
Just what happens with the rain load during the peak growing season. Later in the summer it will switch to a more drought condition though and there won't be so frequent mowing. But the peak parts, yeah, not much I don't think you can do via strain selection given the quantities of rainfall.
Fescue grasses mostly flop over rather than stand tall.
Most lawns in North America are Kentucky Blue or ryegrass which are what produce the eyesore.
But lawns in general are a pestilence.
Go ahead and try and mow that after its flopped over. Mower is going to choke with how much grass you are putting into it. You may need to weed wack it down and rake or blow it out before you can mow.
Verdant lawn pride is a scam. An avoidable waste of time, water and maintenance dollars that seduces even desert dwellers
I live in the midwest and there never has been a time where any lawn I owned, nor was owned by anyone that I know, needed mowing 3x a week. You might like to do it to keep a perfectly manicured lawn, but it definitely isn't needed.
How much rainfall you get in the summer months? That is probably why. I do not kid with the 3x a week. If you don't keep up the grass gets too long and chokes the mower.
The weeds are the hard part.
But as far as when I owned my own home, cutting the grass was just part of my routine and at least guaranteed some physical activity instead of working all day during covid.
“Mow & snow” will eat most of your life, if you let it.
Apparently robotic lawnmowers work pretty well these days, though it sounds like only one might not keep up if the lawn needs regular mowing that often.
You can never fully automate lawn work because a big time sink is actually stick pickup ahead of the mowing. Also, every property is loaded with edge cases.
This is true! But apparently the whatever percent that can be automated has crossed the line and become "worth it" for some.
It's also worth noting that owners have changed their behavior to favor their robot vacuums, though I have not read any similar examples for robot lawnmowers yet.
Buy a house without grass :)
How would you keep it from filling up with weeds in any reasonably grass-friendly climate?
I just pay someone $50/week to mow my lawn and I pay zero attention to it. If we have a mini-drought and the grass turns brown, oh well.
Kill your lawn and let the native plants take over.
I'd rather not get a bunch of ticks while walking to my door.
If you kill the lawn, won't the invasive plants take over?
Even if they were going to, you could just seed it with some native, low-growing "groundcover": clovers, fescues, whatever is in your area.
Actually illegal in a lot of the midwest I'm not even kidding.
And having a grass lawn is actually quite expensive (water) and borderline illegal/immoral (water) in the American Southwest. Having a grass lawn is only mandatory in a few gated communities with out-of-touch HOAs. We’ve gotten used to the xeriscaped look…blends well with the brown stucco/adobe exteriors. When you don’t have much green, it becomes a (cheap) accent color (e.g. shrubs, evergreen trees) rather an expensive-to-maintain background color (e.g. lawns).
Nah, I live in the midwest, even people that have lawn services have them come weekly or even every 10 days.
That would be fine in late summer but in growing season chances are you aren't noticing the increased mowing frequency. Most of it happens when you are probably working 9-5 after all.
It depends. If you own a single block dwelling and have a yard with trees, plants, lawns or a pool there are always things to do.
$500/year for the garden is very conservative, even when you're doing all the labour.
It would be more like $500/month were you to get a gardener in. If you need an arborist (for example cutting back tall trees close to power lines or encroaching on neighbours) it gets expensive very fast.
A pool also costs at least $500/year just in chemicals.
> House maintenance and projects have taken up most of every single weekend of mine for the past few years.
Mine come and go but it's no where near every weekend since I've purchased in 2019. What sort of things occupy this much time?
Houses are very different. I grew up in a guest house (so: three floors, a cellar, 14 flats/rooms) that has various layers from various ages. The foundations are hundreds of years old, most of the rest 50s, 60s, 70s, 90s.
If you're living in a new house you may have peace for a few decades, but at the cost of everything piling up the longer you wait. Exchanging corroded drain pipes someone thought was a good idea to bury in concrete is especially fun. At some time door hinges break, window mechanisms break. Water pipes clog, electrical is outdated (e.g. landlines are out, ethernet or fiber is in). The intercom breaks, wasp nests are under every second roof tile, there is a water intrusion in the cellar, a storm knocks down the fence, the washing machine breaks, the garage door motor dies, the asphalt on the runway cracks and needs a tar pour, the attic needs to be insulated, a portion of the roof needs to be retiled, the wooden parts of the facade need to be repainted, a drainage needs to be dig to avoid water piling up into a garage, a doorway has to be added to a repurposed storage space.
And mind, I was the son of the house, this is only some of the stuff I worked on before I moved out with 18.
There was constantly something to be done. What and how much is mostly a function of (1) the age and build quality of the house and (2) your own standards when it comes to maintenance.
I think it's a U shaped curve probably... lots of stuff breaks initially due to mistakes/defects, and then 10/20/30 years out. The sweet spot is moving into home renovated 5-10 years ago.
I've lived in a new construction condo as well as a 1970s home that had renovations in 1990s and 2010s.
New construction you deal with a lot of defects that show themselves in the first few years. You also contend with modern construction just being lower quality materials in a lot of cases unless you do a high end build for yourself. So the floors, cabinets, etc are going to wear out much faster.
My 50 year old house of course had a ton of deferred maintenance from previous owner that resulted in break-fix work on plumbing, heating, cooling, siding, roofing, etc.
I type this as I have 2 faucets, a fence, some driveway potholes and paver stones to mend, an irrigation head to replace and a new central air unit coming in next week. Dishwasher was replaced 2 months ago.
Not op, for for me: I have a 4" hole in my cedar siding that I have to craft a custom replacement board for due to a woodpecker. I have a leak in _two_ bathroom shower fixtures that drip into the basement. The first, I started fixing and realized the copper pipe needs to be re-routed. The second, I just turned off the water; I'll get to it later. I have two retaining walls with water routing issues. I need to figure out a mega-gutter or I need to otherwise route a lot of water coming off my roof. I have a broken window that needs replacement. I had to board it up for now because I can't get ANYONE to come out in the middle of Montana. I will be learning how to replace a window in log siding sometime this summer. My water heaters are on the fritz and might be to blame for tripling my propane usage this winter. I need to fix those. My pool pump needed servicing, so I tore that apart and fixed it. My chainsaw needed servicing, so I tore that apart and fixed that. My riding lawnmower hit a rock and broke the spindle so I had to tear that apart and replace that. I still need to get out and clean my gutters. And do trimming in the yard. Oh, and I had a couple of pine trees come down over winter, so when my saw is back up and running, I'll go cut up some of those. And an apple tree died; need to cut that up and plant a new tree. And I have some boat maintenance to do, my oil gauge stopped responding this season so I'll tear that apart maybe this weekend. I have an outbuilding that seems to be leaning. I need to hook up a plumb-bob and make some measurements and monitor. More yard work. More maintenance. I'd like to job most of it out and just do the fun stuff if I could actually get anyone to come out.
Related: https://www.youtube.com/watch?v=_UZFI-8D5uA - 40sec ("What does it look like I'm doing?!)
haha, yes. I love this clip
I'm a heavy DIY person who does almost everything myself and I'm also confused about the comment above.
The only periods where housework took up every single weekend were during renovations, which can take extra time on an old house like mine.
Simply maintaining a house shouldn't take up every single weekend unless you have a humongous old house on an extremely large property.
Not gp, but I bought a fixer-upper and it was at least weekends for the first two years, then slowed down quite a bit after that. Now it comes in fits and starts similar to you.
This is the answer - there are plenty of move-in ready, turn-key homes that require basically zero maintenance unless you want to remodel or change something, but those cost more (sometimes a lot more) than the ones that need more TLC or true fixer-uppers.
Eventually the maintenance comes back again: The turn-key homes have typically had most of the things that needed maintenance replaced, but they eventually come back, and they can be quite the headache. See the wonders of having a plumbing stack going past its useful life, land resettling leading to having to do regrades, or lift concrete slabs, or just general tree maintenace.
Don't do your own trees! Wood is very heavy! It wiggles a lot! Dragons!
IMO the key to doing your own trees (or presumably having them done for less money) is having enough room around them that you can just drop them whole, rather than having to hire someone with a bucket truck and/or climbing spikes to disassemble them from the top down.
Even with fixer uppers the house is usually functional and fine. Just people think the bathroom is too ugly to poop in, so they have to spend five figures and rip out the walls, floor, ceiling, and everything else, to replace it with new walls, floor, ceiling, and everything else.
More like the bathroom is too ugly to poop in because there's a leak behind the shower and now there's mold growing on the wall.
That might be why some people renovate, but for most its because they think the color is wrong and they don't like the fixtures. Queue squandering money to achieve the same functionality and all the material waste throwing out the perfectly good fixtures and such and buying newly built fixtures and such.
I bought a fixer upper a few years ago. It was a solid six month stretch of various projects of various sizes rushing to be done before my child was born. Since then it’s been very chill, though I did just spend about another six months renovating a bathroom down to the studs myself, but I took that upon myself for the thrill of it.
The frustrating thing is, that for not much more spent at the time of construction, we could have nearly maintenance-free homes for 80 years or more.
Like, why use wood in an climate like the American South, where there are multiple species of termites that like to eat wood?
I was a member at a maker space - the building has been around since the 40s or 50s and never damaged by a hurricane - why? The roof (with a rubber rolled roof on top) along with the rest of the building is made out of concrete.
It probably depends on where you are in the South and also cost sensitivity. If you are hugging the Gulf Coast then you do see a fair amount of cinder block in new builds, at least in wealthier parts.
As you move north, you enter either the South Carolina or New Madrid seismic hazard zones. Building codes require reinforcing new masonry construction to modern US seismic standards which adds significant expense. Older masonry construction that pre-dates the current seismic standards are typically grandfathered in but you might not want to be inside it during one of the infrequent strong earthquakes.
The US uses wood because it is abundant and cheap. But people also forget that most of the US is subject to strong earthquakes, so the alternative to wood is massive amounts of steel which is expensive. The original masonry construction in the US was mostly destroyed by earthquakes.
Where I live a new house is required to survive a M8.5 earthquake without material structural damage. If you avoid the use of wood in construction, the amount of steel required to meet that standard tends to be cost prohibitive. Steel construction also requires much more expensive labor in addition to the material costs.
I’ve always wondered why the South uses black asphalt shingles. Aside from being the worst possible color, they like neither the hot summers, the hailstorms, nor the hurricanes.
The level of stupidity exceeds California homes using sun-baked wood shingles that can be torched off from the suggestion of a single spark.
Job security for roofers. Individual home buyers are too dumb to understand or too busy too think about tco.
There's a reason you don't see shingles on commercial buildings.
Exactly. I daydream about building a simple house to commercial standards that is optimized for low total cost of ownership and easy cleaning.
Indeed. This is why I'm a preferential life-long renter, although I think the primary reason is that I can't stand living anywhere for more than 2-5 years. So much friction to move, unwinding this risky position very expensively, with loads of transaction fees stacked--I can't understand the appeal. Even owning a condo was enough for me to realise I don't want to own my own bare metal, and that I look at housing as a cloud service of sorts, where much of what I pay for is just for all operational questions to be someone else's problem and to relieve myself of the burden of owning and liquidating what I would otherwise have to CAPEX.
For me, it's hard to put a price on the reclamation of _time_ spent otherwise thinking about those issues, to say nothing of the money. I just don't have time to think about even 1/60th of what's involved in getting vendor quotes for roof reshingling or painting or whatever, and even if I do have the time, I'd rather pull my fingernails out than spend it that way.
I sure do miss that mortgage interest deduction, though. I had no desire to accrue equity in the property--and indeed, if I had more equity, I would have lost even more money than I did in the 2008 crash--but I loved my super high-interest loan. It meant that my most of my housing payment was tax-deductible, and that's fantastic. My only regret, besides buying itself, is that I didn't take out an interest-only mortgage.
However, this isn't a Great Recession sob story. The condo would be way too much work and cognitive bandwidth theft even in the best of times, and that's like a tenth of the structural, landscaping, etc. issues one has to think about with an SFH. No thanks, man. I have other stuff to do.
> I loved my super high-interest loan. It meant that my most of my housing payment was tax-deductible, and that's fantastic.
Absolutely insane.
I guarantee that the tax deduction did not offset the extra interest you paid and that overall, it's a net loss for you.
The deduction reduces your taxable income, it does not reduce your tax directly. If you paid $30,000 in interest, it might reduce your tax by ~$10,000, so you're still down $20,000. Meanwhile, if you had half the interest rate, you might pay $15,000 in interest, reducing your tax by ~$5,000, so you're only down by $10,000.
And that doesn't even get into how the standard deduction works, which you can't take if you itemize so you can take the mortgage interest deduction.
I don't think there's a single scenario where choosing to spend more money than you otherwise would just for tax benefits results in a net positive.
It's absolutely a net loss, but the $55k deficiency when I walked away was worse. However, I realise that this was an artifact of the recession.
Less flippantly: I look at it as a question of government distorting the housing market with tax policy, and whether to have a deductible housing payment or not. Any conceivable appreciation is perhaps a bonus, but I truly don't care.
Re: standard deduction -- it wasn't then what it is today, post-Trump tax cuts.
Moving every 2-5 years sounds like one of the rings of Hell from Dante.
Moving is no fun at all (and also costs money! deposits, movers and the rest of it), but the only thing worse is staying in one place. I just can't do it.
I mean, of course I tell myself this is the last time we're ever moving, and that this is the forever spot. However, experience suggests this is never, ever the case, and there's no actual precedent for that.
Staying in the same place for decades seems like hell to me too.
It is my experience that people who see things that way and people who see things the opposite way truly inhabit incommensurable realities.
Wow, moving every 2-5 years? I suppose it works with no kids, or spouse ..
I have both and it's still doable, as long as your spouse is as into it as you are.
Mine isn't going to stay put for more than a few years either. We enable each other's moving fetish.
At least with me (married filing jointly), when Trump raised the standard deduction so high, the mortgage interest deduction doesn't come into play. It hasn't seemed to change my total tax liability, it just made my tax return easier to do. I haven't had to itemize for years now.
It is true that the interest deduction is not nearly as valuable as it was in my ownership days (late 2000s/early 2010s). My total annual interest of those days wouldn't even meet the individual standard deduction now, and that was a 6.65%/8.25% 80/20 loan (30-year fixed) with essentially 99% financing, back when that was a thing.
However, my assumption, given the cumulative inflation since then, is that my payments would be twice as large today and easily clear the individual deduction, as long as it wasn't one of those lower-interest loans people like. I hate those.
Agree completely about the time thing. Indeed, every time I’ve fallen into the trap of somehow believing I’ve moved “past” the time sink it inevitably has bitten me down the road when something breaks or I learn about some maintenance task I should have been doing but didn’t even know existed.
More than anything, I’ve come to admire those who learn how to do this stuff consistently because it is hard.
Haha for example, to the homeowners out there, you should change your water heater anode rod ASAP if you have not. Good luck getting the rod out, because the caps on the water heater get corroded shut. And did I mention you need to drain the hot water heater to do so. You ever tried draining a hot water heater when that task has not been accounted for in the design? You need a way to drain it.
>>Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
Same could be said about Real estate investments.
I know people who look up real estate investors as an inspiration as something they want to do themselves. One day trip scouting for properties, is enough to make them quit when they realise most of it is lots of irritating driving, due diligence, legal work, loans etc.
Hard things have little competition for a reason, process is a high attrition journey.
Once you get a good handyman, just need a good electrician and plumber
+1, my SO was so hard to "have our place", that we essentially dedicated two years of our lives to it (from finding the place, negotiating, legal stuff, renovations, etc).
It gave us two extremely stressful years, you're just not prepared for it.
And yes, we have way more things to think now than we used to.
It's going to financially pay off when I'll be close to 60 (I'm 38).
I'm not saying I wouldn't do it again, I like my house, but sure I'd be much wealthier (hell, I sold my investments in 2021 to buy it) and care free.
> Home ownership is definitely a lifestyle choice first and foremost more than a financial one.
Kinda depends on the prices. Where I live you can be lucky to find anything resembling a living house for under 1m EUR. First you'd have to be able to do a calculation and say 'I can afford that', only then it makes sense to ask the lifestyle question.
FWIW, my parents had to spend the first 1-2 years renovating a lot in their house (in the 90s) but after that it wasn't really that much of ongoing stuff. Small garden helps a lot though.
100%. We bought a house because we wanted to be able to adjust our home to our family and lifestyle and we both like futzing around with homeowner stuff like repairing things and having a big garden to grow stuff right outside our door. I don't envy the people who get into homeownership and learn that they actually hate being their own general contractor (or don't have the money to pay someone else to be their general contractor because they hate being one).
I've rented a studio all the way to a 5 bedroom house. The difference in maintenance/upkeep for me has mostly been the yard. There's also the fact that cities typically have more demands on landlords.. meaning renters foot the bill/time on more maintenance items more in some areas. I think that's often overlooked when weighing the costs.
I sadly don't get much benefit out of renting beyond freedom of movement and higher cash on hand in my current place. Sometimes I've lost my freedom to stay though.
I have a, perhaps irrational, fear of getting stuck with a house.
I owned two single family houses both built in 2002. I am not handy at all and only will do remodeling when im going to sell a house. I was fortunate with both houses needing very little maintenance over the 7 years i lived in them. If i did need a maintanence guy my realtor has a good number of great reliable contractors in her back pocket. Realtors who have been selling houses in your area for MANY years usually have a great rolodex of solid, reliable contractors at their disposal vs. going online and rolling the dice.
> There's no one person I can call for every single problem.
There absolutely can be if you want to pay for the service. Look up home concierge / residential management services, like Para Home Services.
True, but you still have to cough up. The benefit of renting is that it's an SEP (Someone Else's Problem).
There are also home warranties or tech solutions/concierges like tidy.com.
The issue historically is that these concierge things are expensive (should be solved by tech/ai) and the warranties create their own class of problems (claim frustrations etc).
But home ownership is expensive, no way around it. But the work in coordinating etc doesn’t fundamentally need to be.
Yep, I debated mentioning home warranty services, but that is also a thing a lot of folks surprisingly don’t know about.
When I bought my house the realtor gave me a free home warranty for a year (a $600 value vs the tens of thousands in commission they got paid). The old washing machine broke during that year and the home warranty did replace it, so on paper I got good value out of the policy.
However, I think it was on the phone with the company waiting on hold for about four hours total to process the claim. That was without any dispute or confusion, it’s just how long the process took. The person on the other end of the line would ask me one question, then put me on hold for another 15 minutes before asking the next question. I got the impression they are actually handling multiple customers at once and switching between us. I can only imagine this system is designed to deter folks from making claims. I was afraid to delay the call any longer by inquiring about whether there were multiple replacement models I could pick between. I received a $600 model from a manufacturer I wouldn’t have chosen.
If I’d paid $600 for that home warranty, I would not be a satisfied customer. I certainly wouldn’t recommend home warranties as a time-saver. It would be much easier to directly purchase products and services from people with some incentive to obtain my business.
I definitely don’t think they’re generally worthwhile and don’t subscribe myself, but my in laws have had excellent luck with their policy.
Sort of. If it's not something that's damaging the building, landlords tend to not be in a huge hurry to fix things. So it's your problem until he gets around to fixing it. I've had good landlords and I've had landlords that took two weeks to fix the sink.
I've had worse, and experienced the full range from literal slumlord--I say that advisedly and not frivolously--to excellent landlord. One does have to choose one's landlords somewhat carefully. However, on the higher end of housing, I've had very good experiences with this, in the median.
It has been my experience with nearly all of them that you need to limit their exposure to big, capital items, and might need to fix smaller items yourself, at own expense. To run the latter through the landlord is just more trouble than it's worth.
That's okay with me. Very small price to pay for the convenience of not having to own the thing, and moving out essentially whenever I please (no, a 12 mo lease isn't "whenever you please", but compared to a mortgage, it is).
Living in a college town, there's a lot of this "prelease for $((YEAR + 1)) in August of $YEAR" crap going on, which really, really grinds my gears, since it undermines the most cherished aspect of why I rent -- the freedom to move, move often, move quickly.
Of course that’s a benefit of renting. How does that relate to the OP _homeowner_ saying one downside of ownership is they don’t have a single number to call for any maintenance issues?
I guess on the face of it, it's not related. I didn't read his comment as literally lamenting the lack of a number, or even someone to orchestrate, but rather to imply that there's nobody on the hook for it in all facets. With a landlord, you just call the number and magic happens and it's free to you (in theory, not always in practice).
Heh, gotcha. Yes, as a homeowner, the buck stops with you since you own it.
This is also a hazard of renting, because the landlord will deal with it on their own schedule and as cheaply as possible.
This is true. But I've had some really great landlords, too.
And some terrible ones.
I bought a fully renovated house as my first house. Unfortunately the builder was a moron. I spent 10 years with near constant repairs. Every house on my block has the same story: different builders, same shoddy quality. I was lucky to find a buyer that paid the asking price. I’m now happily renting again. I’ve always had great luck with rentals fixing things immediately.
Get good at one thing that needs regular doing, trade work with other homeowners who got good at another thing.
"Home ownership is definitely a lifestyle choice first and foremost more than a financial one."
Respectfully, that assertion isn't really supported by your anecdote.
... and thats why I prefer very much big apartment. There is concierge who takes care of all the outside, and we handle just the inside. Which in past 3 years meant 1 plumber and 2x heating specialist (but that was to give digital controls for floor heating for each room). My and my wife time is way more expensive than his.
House? All the land with endless lawn mowing and vegetation maintenance, the fences, all the connections, outside of the house, roof, garages. Its even more - most houses have boilers, many have heat pumps, solars etc. Plus all the internal stuff. Generally the biggest issue is usually some form of water damage over time.
No, thank you, we have 2 small kids and have more passion activities mostly in the mountains than we can handle. I could never make maintaining property into passion, its hobby at best but hardly something that would make me feel alive like say rock climbing or ski touring does. Being slave to the property sounds like a bad life choice if avoidable. If that means kids have to play outside of our property during 6 months of usable summer time instead of our backyard thats fine price to pay. And anyway you have neighbors in both cases. There is the part of having to agree as a collective, but most people are reasonable and you only need >50% of the votes.
Where I live (major city) because of zoning there are few apartment buildings and basically 100% are only for rent, not individually owned units. So if you want to own where you live it must be a townhome or detached house.
Time not spent drinking, etc. To some that’s a win
What maintenance is there to do exactly ?
Yard work, gutter cleaning, power washing exterior, cleaning windows, bi-annual HVAC service, exterior paint (especially if the house has any wood) and trim upkeep.
And as the house ages, you get things like repainting interior rooms, more frequent plumbing issues, major HVAC repairs, roof replacement, repaving driveway, electrical upgrades, remodeling, etc.
We downsized to a townhome to avoid some of that (half the walls are shared, so no exterior upkeep for those; smaller yard; fewer rooms).
If you have a big enough yard, yard work in itself is a constant stream of work even if you have all the right equipment
I have 2/3rd of an acre, but most of it is a 45 degree hill, so it's more like a full acre equivalent of flat ground (except drastically more of a pain). Pulling weeds up several hundred feet of steep hillside that grow back constantly is a punishment worthy of Sisyphus.
It hadn't been done for about 5 years when we moved in, so one of the neighbors spent 200 hours cleaning it up for us. Not joking, 200 hours of labor. Scotch Broom is a literal nightmare.
Why not get rid of most of the grass (especially on the hill) and put in a perennial garden of hardy (for your zone) shrubs and trees?
> Why not get rid of...
Soil erosion.
There are other ground covers and plant options that don’t require weekly mowing. Creeping junipers and native bunch grasses come to mind.
True. But on a large and very steep hillside - "2/3rd of an acre, but most of it is a 45 degree hill" - it can be extremely difficult to replace the plants holding onto the soil, without experiencing horrible erosion during the transition.
Yep. Depending on the property layout, and how close that slope is to the house, it might be something to contract out and have hardscaping and drainage done.
My last house didn't have anywhere near as much land, but there was a fairly steep hill on the back of the house. We ended up having part of the slope dug out and a "seat-height" retaining wall installed, with drainage installed as part of the build, and lots of low-maintenance plantings. Reduced the work from weekly mowing on a slope to occasional weeding and trimming. But, it wasn't cheap to do properly.
Weeds are pioneers, helping the soil, when nothing else can grow (or is allowed to). First of all why do you need to get rid of those weeds? Second of all, if you improve the soil and go through successive plantings of larger things, the weeds will be outcompeted.
You could just not do any of that stuff. Most people don't power wash their exterior or clean their windows. They don't call in hvac service, maybe just change the furnace or ac filter and probably plenty don't even know to do that. Exterior paint has become pretty rare in places that see weather but even then you can let it go to hell. Plenty do. Maybe some trim board will rot. Ehh. Priced in probably already when you bought it with that. Driveway you can also let go to hell, plenty of people use actual gravel or dirt. Roof replacement, plenty of people let that go too long. Repainting interiors, again something you don't have to ever do.
Is it good to do these maintenance items? Sure. But also, the house isn't going to come down if they aren't done. You go around your city right now you will find very few homes are actually upkept to this level. Most see the bare minimum to avoid the city fining you for the grass being too long, and many are sold in whatever state they are in.
To add to the list: Replacing bad wood, pest service, aging appliances, fence maintenance, septic emptying (depending on your location), flooring wear and replacement, grouting and caulking, pest control, exterior cleaning, etc.
It can occasionally feel like an endless stream of tasks.
It never ceases to surprise me how North American homes are just a source of time wasting for the owners. I grew up in Italy and we never had to do any of that (except repainting the rooms once every 20 years with my father).
How you you occupy yourself without spending four hours every other day mowing the lawn (gas, ride-on) and then blowing the clippings and dust back and forth with your leafblower (gas, backpack) and then spreading fertilizer and chemicals to make sure you can continue mowing the lawn so frequently? My neighbor would lose his mind!
There is an ever-expanding list of maintenance tasks depending on the age of the house and its systems, all with different periodicities. A roof will typically not need to be replaced very often (let's say once every 20 years), but cleaning gutters at least annually is a must because overflowing gutters can lead to foundation issues, rot, etc. Depending on the size of the yard and what vegetation it has, yardwork can be at least a couple of hours a week in the warmer months. Making sure drains are clear is good practice to avoid catastrophic failure. And there's always random things like a fence board that needs to get replaced, chipped door that could use repainting, trim that needs replacing, etc. Newer houses will have (hopefully) fewer of these menial tasks, but as houses age things inevitably need attention due to the fact that it has to weather the elements and daily use all the time.
How much an individual homeowner cares about the minor cosmetic things vary, but skipping out on regularly checking the major stuff can lead to incredibly expensive problems like flooded basements, structural issues, major leaks, etc.
The IRS allows you to depreciate rental real estate on set terms and ages, and they’re not really giving you much of anything. Houses have a complete and complex list of maintenance items.
If they didn’t, living in a rental that the landlord doesn’t spend anything on maintaining would be fine.
Basically everything. People think of homes as static but they are a big machine that is aging.
Nothing is getting better with time, only worse.
Condo is suppose to be that nice hybrid but they became enshittified long ago and have routinely proven to be bad deals for the average buyer in too many circumstances.
The US doesn’t understand how to make the housing market functional. I’d love to have a condo where a great many things are handled by the association but the math never maths, as they say, and a great deal of the issues is because condo associations aren’t well regulated and they often don’t account things correctly.
I’ve rented in a rental, rented in a condo, owned in a condo and owned a sfh.
Condos are in a lot of ways worse for ownership. You have communal costs you can’t control, risk of irresponsible neighbors (leaks), and limitations on who/what/when/how of repair or renovation you want to do within your own unit. All of which introduces coordination overhead, cost and time.
> The US doesn’t understand how to make the housing market functional.
I'd say the US understands how to make the housing market functional, but there are more-powerful interests pushing the market in other directions - financialization, extraction, NIMBYism, social exclusion, ...
I had this, but as you say, it's risky. I do like renting condos, though -- not my problem either way.
you prbly bought an old aging home
Every home will become old and aging...
yes but you dont have to live there
But at varying rates determined by use, design and location. I recommend desert living if you want low maintenance, or even a graceful manageable decline. Maybe not true adobe that requires regular remudding, but frame-stucco or stabilized adobe. Becomes more charming with age. Taos Pueblo has been around for 1000 years…
The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or owner move ins or any of that other stuff that renters deal with.
And if you have kids, they get a sense of home and place.
But don't do it for financial reasons.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
That is not the right way to see it.
If you have the cash to buy upfront, then yes, real estate is not that good an investment, unless you have a loaded portfolio already and want to diversify a bit, get some high inflation hedge, etc.
The real value of buying a home is leverage. That is, most people cannot go to a bank and borrow $500k. The bank will just not make a blank loan like that without any idea of what you're going to do with it.
Buying a home though is well understood and borrowing is made relatively easy.
For most people, buying a home is the only way they have to actually get significant leverage from borrowing.
Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion.
It's probably worth making a closer comparison though:
* Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments, another 400k in interest by the time you're done. Your home probably appreciates by that much in most markets, which gives you a million dollar asset at the end. In some good markets, it may appreciate by 3-4 times, which would mean you have a 1.5-2 million dollar asset.
* Pure Financial Investment: put $50k into a fund, add sustained regular $2500/mo contributions. Let's imagine that the fund averages a conservative 5% annual return and we do this for 30 years. The outcome should be... a bit above 2 million dollars.
All investment involves risk and variable outcomes, but the BHL plan probably has a more varied outcome. Parity may be as common as substantial profit.
The PFI plan, on the other hand, performs really well even considering conservative 5% returns: over 2 million dollars (minus 400k you would have probably paid in rent). Bump it to 8% returns and we're looking at 3 million, a performance even many good real estate markets couldn't match.
Its major problem is that you need to be disciplined about putting the chunky contributions in, which means you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.
Leverage lets housing costs go to equity and interest payments, which is key leverage for people who don't have disposable investment income. But less key for people who do.
A house is an inflation hedge. Any calculation about investing the difference has to subtract the rent you are paying and rent goes up every year. There is no where where you can pay a rent anywhere close to what I'm paying for my mortgage in my area and I'm only 5 years into this. Of course I lucked out by locking in that sweet sub-3% rate, but still, I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.
A house in a long term play. I didn't buy until I know where I wanted to anchor. That's the deal. I didn't want to be in a situation where late age destitution came because I couldn't afford where I wanted to live anymore. I got to see that play out with older relatives who did go the rent only route. Course I have to pay property taxes, but as it stands it's less than $200/mo and I don't imagine it'll rise above that taking inflation into account. That is something I can afford in retirement even on social security.
There is maintenance, but living in a neighborhood full of elders, a lot of it is truly optional. And honestly I think the only maintenance I've paid thus fair is the yard only because I don't want to do it myself. For me financially this is a hell of a deal with the only trade off that I must stay here. And... I'm settled enough that I'm willing to do that. I moved all over in my early career to find where I wanted to be.
> A house is an inflation hedge.
So are Stocks ...
> I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.
You are not alone. The thing is this is such a common argument that there are a zillion rent vs buy calculators [1].
That said, yeah sub 3% the math often does work out in terms of buy (assuming you don't sell before 7 years which the average person _does_ sell before). But sub3% and holding for 30 years is actually rare.
It basically comes down to that the down payment gives renters such a headstart in gains that the homeowner takes forever to overcome it. But keep in mind they're also comparing a similar rental house to the bought house. So If you'd rent a smaller 1 bedroom apartment but only going to buy a 4 bedroom house then you're really behind in the math.
[1]: https://www.google.com/search?q=rent+vs+buy+calculator
The problem I have with buy vs rent calculators is that the speculative questions often end up dominating the decision. How much will rent go up in the place you rent? Nobody knows. How much will the value of the property appreciate during the period you own it. Again, this is unknowable. So you put in a range of guesses for these, and you can get it to come out as a good or bad investment depending on what you guess.
My guesses were ludicrously wrong when I did these back in 2018, relative to what has actually happened in both the rental market where I live, and the value of the house I bought. I concluded that the reason to buy was only about the non-financial aspect, and that we'd probably lose a little money all told. But it has turned out to be a six figure win in practice. Rent has gone way up, we were able to refinance to one of these very cheap loans during covid, and the property value spiked around the same time. I never would have guessed any of that. And any of it could have gone the opposite way.
So the calculators were honestly pretty useless. It's all too unknowable.
Stop - have you also accounted for 750K loan amount in mortgage interest tax deduction, and the SALT cap of 40k?
Are we looking at markets where we had massive appreciation in real estate values in the last 5 years? Because while you might say they were outsized and abnormal, the stock stock market was, too. The years of ZIRP made everything nuts.
Don't forget the mortgage interest deduction as well, which is a huge subsidy for those who can afford to buy.
The one thing missing from that calculation... the rent goes up over the 30 year period while the mortgage is fixed (subject to changes in tax rate and insurance as value hopefully increases).
9 years into my current home and my 20 year mortgage is substantially less than renting a similar house in the same subdivision. And because it's 20 year, the interest rate is lower, and when I retire, I'll only have to cover tax and insurance at a fraction of the future rent.
Exactly. After 8 years there is absolutely no way I could rent a comparable house in my area for what my mortgage costs.
And people aren't including the interest deduction on income - up to 750K loan amount worth. This is a form of subsidy that renters are handing over to mortgaged owners.
I always consult this calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
It forces you to make some assumptions on market returns and such, but it gives a pretty clear picture. The biggest variable is how long you expect to live in the same place (longer favors buy) and the next biggest is the ratio of average rent to average housing payment. The inflection point being that if you live in one place long enough to pay off the mortgage, then it obviously starts to be much more advantageous to buy, but that requires you predicting your life 30 years in the future.
> but that requires you predicting your life 30 years in the future.
This is true, but the vast majority of people - especially in the US - don't move around the country or even state every few years. One of the biggest, perhaps the biggest, pro of renting is that you're not tied down to one place for very long.
It's pretty rare that someone buys a house then is suddenly forced to move hours away.
Moving around a lot incurs its own costs. Time, transportation, movers, deposits (which you're unlikely to get fully returned), new furniture... I think it's an additional "hidden" cost to renting that doesn't get talked about much.
The cost of moving from owned home to owned home is far higher. Brokers, lawyers and all the associated closing costs can be huge. And you still have to pay movers and worry about new furniture.
Yes, but you decide when to move from your owned home. My point is landlords can and do cause moving “churn” when you rent above and beyond when you’d move voluntarily.
I think people sell their (occupied) house after about 10 years on average, for whatever reason.
It's not true that paying off the mortgage makes it more advantageous to buy, home equity creates portfolio drag.
It is possible to find weird inversions where it never makes sense to buy - prices are too high and rents are too low. CA has these places, where property tax arbitrage by renters can be less than the new property tax would be if sold.
Many high cost-of-living places have this property. People bid up owner occupied home prices even when rents can't support them.
You forgot to include the actual living costs if you invest. You're not gonna be able to contribute $2,500 a month. You would be able to contribute not that much , around here rents are $2,500 a month.
That point is in the analysis after the bullet points (in phrases like "minus 400k you would have probably paid in rent" and "you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.").
I considered putting it up in the bullet points. Apparently deciding against that lost my expressions of this point to some readers, including yourself.
But yes, this is why the analysis after the bullet point mentions the profile of people who don't have $2500 disposable income. The leverage matters more to people in this situation.
Having seen this conversation play out more than a few times and even turn a tad fighty, I think this is the fault line:
* people who do this kind of analysis frequently and generally have high disposable income often see that they can leverage compound interest rather than pay it, so the Pure Financial Investment plan seems like a slam dunk to them, and for their profile they're probably right.
* people who generally don't have high disposable income see that they can use leverage to make their rent payment do double duty, which seems like a huge win for them, and for their profile they're probably right.
What I did leave out is how a mortgage can bound your living costs. Another commenter correctly pointed out rents can expand dramatically. Where incomes track rents, I don't think this makes a dramatic difference, and that's why I didn't include it, but it's true this isn't guaranteed, and mortgage can function pretty well as a hedge.
Then analysis that includes buying a home should as well include investing $rent amount every month in addition to mortgage.
They forgot to mention that they will move back to mom’s house.
Exactly lol
The 'Pure Financial Investment' one is overlooking that you still need a place to live for those 30 years.
Your calculation is bogus, you are 1) assuming infinite money 2) assuming infinite time.
1) When you say "add sustained regular $2500/mo contributions", you forget that compared to buying your place, you also have to pay rent, most likely at the same amount you would pay back your mortgage assuming same quality of life. So either you have a free $2,500 to spare (in which case you could also have invested that amount in the buying case, or borrowed more), or you have $0 to invest.
2) You cannot just take the expected value of two different returns distribution and assume you would earn it in both cases. That would assume you have infinite time to wait for the average rate of returns to converge. If your life depends on said returns, you cannot just say "oh nevermind I'll wait another 15 years to withdraw". In your example, stock market returns are immensely more volatile than real estate.
The house gives you a place to live, so the PFI plan is either a huge miscalculation (not a great place to start when you're making a numerical argument) or intentionally disingenuous. Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes. If you're getting a $2500/mo mortgage, what's rent for a similar house? Could be $2k/mo, could be $3500/mo. And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years. After the initial post-purchase increase, taxes are usually capped to some degree as well. For most people rent is capped for at most 1 year. So every year you rent you will have less money to invest, and eventually you'll have to start taking money out of that account because your rent has surpassed what your mortgage payment would have been 5, 10, 15, 25 years ago.
When you run the numbers honestly it's really, really hard to get similar gains renting as you can buying, especially 30 years in the future.
I understand it’s more complicated than this, but it seems really really confusing at a basic level.
In one situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you’re out on the street.
In the other situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you have a house.
Renting gives you a giant pile of additional money you can save and invest so that after 30 years you could buy a house in cash if you wanted to. The person with the house does not have this cash, they have a house instead.
After 30 years you either have a house or enough cash to buy that house. In many cases, the rate of return on the cash is sufficiently greater that it is significantly more than the value of that house.
Eh, not really? If you have money to invest after rent, you’ll also have money to invest after mortgage payments.
Rent is much cheaper than the total monthly purchase costs in many locales. Literally thousands of dollars per month of net cash per month to investments in the renting scenario. And that cash appreciates at equity rates rather than debt rates. This is on top of being able to invest the down payment instead of spending it on a house.
I have decades of data on this in a few locales (including Bay Area and Seattle) based on my own experience and despite buying and (still) owning homes several times. It never pays out better than renting and investing. The math doesn't math. I still buy places occasionally but I am honest about this reality.
For the kinds of places I rent the finance math is so heavily tilted toward renting that it is a no-brainer. I'm not alone in this; I know many people of means that choose to rent even though they could buy any house they wanted.
Run the numbers - mortgage with interest deduction, SALT deduction (property taxes apply), appreciation, add the principal as paying yourself back. Compare it to renting comparable home, with the rent going up with inflation (which in some places is being generous). After a few years, you'd be surprised how the math looks.
Invested capital rises with the S&P (for example). A house's value rises with the rate of inflation (on average)
> The house gives you a place to live
A careful re-reading of my comment will reveal that I did mention rent as a factor in at least two places: one as an opportunity cost to be reckoned with for people following the PFI plan (with which my example still comes out looking good), one as a cost of living substantial enough for many working people that they do not have significant disposable income, which makes leveraging their largest living cost appealing.
> Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes.
Using a 5% interest rate was one of several simplifying assumptions that I chose to be generous to the Buy Housing on a Loan plan.
You are correct that interest rates are presently and historically higher than that, and that mortgage insurance, homeowners insurance, property taxes, and some maintenance costs that under the BHL plan can add up to significant housing costs that aren't going to equity and therefore aren't well-leveraged. In other words, the BHL plan actually comes off worse than I made it look.
(If there's a counter side of that, it's that landlords can and will pass on those costs so they're reflected in rents... but sticklers will notice that landlords who are done with amortized costs or who financed at lower rates can choose not to do that and may have incentives to depending on the market.)
That's in absolute terms. There's a relative point too: the higher the interest rates, the more the field tilts towards the PFI. It magnifies debt/leverage, making that path more expensive, and it magnifies return from invested income, making that path more rewarding if you can swing it.
> And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years.
I did leave out the bounding effect that a mortgage can have, and that's arguably an important missing point.
Wy would someone do that? My observation is that incomes also tend to grow in rough parity to rents in many markets -- in fact, local income growth is probably the primary variable local rents are dependent on (at least in a functioning market). This means during prime earning years decades from retirement, rent changes might be an acceptable simplification. But you're probably right that the closer you get to retirement, the more important bounding costs is. And there might even be other situations where the tradeoff starts to make sense even for earners with significant disposable incomes.
You can live in a house, but you can't eat stocks
Eagh, the leverage really isn't that cheap, and you can think of renting as giving you cheap leverage too (it's just your borrowing the house instead of the money).
The leverage only matters in an appreciation market (which we’ve been spoiled with in the USA since boomertimes). If you distill the math on assumed zero appreciation (or zero “real” appreciation) it becomes not so terribly pretty.
It’s really a form of various hedges wrapped up with a bow, that for many people is desirable (and since we HAVE had appreciation it doesn’t “turn out bad” most of the time anyway).
Anyone who says “renting/buying” is the only way to go is missing something.
Renting also has hedges embedded, and every hedge can be a risk position.
In particular the interest rate options in foxed mortgages are pretty expensive and it only hedges the cost of a particular house not housing in general.
Housing cost is correlated with local incomes so in some ways it's doubling down. In particular recessions are deflationary in the immediate aftermath.
Uhhhh where are you getting that $2500 a month to invest? That’s your landlord’s money, dawg. And they’re gonna expect at LEAST another $100 year over year if you don’t want to move.
Leverage is great when prices are increasing, but not when prices are moving in the opposite direction. The recent 40-year trend of decreasing interest rates lulled a lot of people into the belief that real estate leverage is an unalloyed good.
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k.
Well yeah, in the last 20 to 30 years in most countries the story has been the same. My parents bought a house in Brazil in the early 90's for 30k and we're now selling it for 400k. My relatives in Australia bought a house in Adelaide for 400k around 5 years ago. Prices exploded there and it's now around 700k. They got 300k dollars in a few years while actually earning less than that in salaries over the same period.
On the other hand, me, in Europe, managed to lose money on a house I bought 10 years ago because I overpaid (at the time it was really hard to buy as competition was huge) and after COVID, prices in my region fell 20% and never recovered... Also, I invested too much on a new building in the property which people in this country don't actually value a lot, so the investment did not pay off.
But before that I had made 60k on an apartment in just 2 years. So, while I know too well that the housing market can be unpredictable, I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.
> I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.
I think they have. As mentioned above, the past 40 year trend of declining interest rates appears to be at an end. It was the most significant factor in rising prices in my opinion.
You also have to factor out inflation over those periods of time, as often it turns out the return is relatively anemic, but the time periods are long.
>> Leverage is great when prices are increasing, but not when prices are moving in the opposite direction.
This.
I worked for a medium sized company in the early aughts. It was a family owned business. The eldest brother was the owner and we often had lunch and he would tell me that once I make x amount, then I should buy this kind of real estate. When you get to this xx amount, then buy this kind of real estate. Fuck the stock market, only real estate goes up in value every year like clockwork. At the time he had several rental properties and three or four houses located all over the country.
That was until 2008.
Its funny, I ran into him at an architecture conference a few years back and one of the first things he said to me was, "Remember that real estate advice I was giving you? You can completely ignore that now!" and we both had a good laugh about how drastically the market had changed since 08'.
Sounds like your friend did something wrong with his investments. I had rentals before 2008, and bought more during the crash in South Florida for pennies on the dollar. It was a great time to buy.
In some states (California being one) the original mortgage on a house purchase is non-recourse. This means that the bank cannot come after your personal assets in the event of default. Yes your credit gets dinged but the leverage of a home loan is fundamentally different than a margin loan in the stock market.
This is only relevant when rates are low. Rates are currently higher than the growth you can expect in housing prices.
I have done repeated financial models of this over the last 15 years and it has never made sense to buy a house for me.
When rates were low, if I had bought a house and then stayed in it a long enough time to counteract transaction costs, it could have been ok, but in expectation, basically everyone buying a house would have been better off investing the money from their downpayment & repayments into the stock market.
Transaction costs are killer and never factored in correctly, I’ve found.
> most people cannot go to a bank and borrow $500k
Unless they can get admitted to a private university and a professional school.
The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.
Neighbors of owned-properties:
This is a HUGE part of the psychological benefit you refer to of buying.Notably this is equally applicable to any occupant-owned property (e.g. condos > apartments).
Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.
HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.
As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.
> HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.
You don’t need a potentially abusive and/or rent-seeking HOA for this. My locality controls for all of these potential issues through local ordinances.
Sure, but you don't need to buy in an abusive HOA community.
I live in a "town" (Reston, VA) that has a notoriously strict HOA. But, it mostly applies to buying/selling and home additions. And it's very consistent. Each subdivision within Reston also has its own HOA that's run by the owners and in charge of regular community upkeep. It works out, as long as you perform due diligence up front and know what you're buying. I don't know anybody who would claim it was abusive or rent-seeking - just mildly annoying sometimes.
Genuine question: how can you know ahead of time? I could imagine you could have an HOA that seems reasonable until you get to know them.
As the sibling comment said, you start by reading the HOA covenants. If there are rules in place that you can’t abide by you simply don’t buy the house.
All the stories of people who bought in HOA areas and then got fined for having a work truck… I have little sympathy for them because that would’ve been in the HOA docs which were provided during contract negotiation.
The next step would be looking around the neighborhood to ensure that the rules are actually being fairly enforced. If the covenant say no work trucks, but there are work trucks parked at every third home then that’s indicative of a problem may or may not be an issue to you depending on your line of work, but it’s something to keep in line.
There are other things you can check as well. For example, ask for the HOA finances. Are they doing regular capital projects and do the budget seem reasonable? Do they have enough money in the bank for unforeseen capital expenses? Again not always a dealbreaker, but those are things you need to know and people frequently don’t bother asking about.
You get a copy of the HOA bylaws before you close/finish buying. Read those bylaws to find out what rules exist. Some, like no having junker cars in your front yard, are going to be agreeable. Others, like the HOA gets to judge and prohibit certain flags, or the color of the paint on your house, are going to be vaguely worded, giving room for the HOA to be unreasonable. Additional bylaws can be introduced later, but usually reading the bylaws will you give your an idea of what you might be getting into.
Exterior paint color is a good example. In my little cluster of townhomes, there are about six colors that we are allowed to pick from. And no two homes next to each other can be the same color. My house is currently a light green and in theory, I could paint it to be a blue or a tan, but not a grey because of one of my neighbors. I don’t find it to be particularly vague or onerous, but if I really wanted a pink house, I would’ve seen that in the HOA documentation upfront and not bought here.
Though it could also be a case with a HOA, a government employee is much more likely to not give any fucks about local ordinances than the board of HOA, composed of people who are directly affected by violations.
I understand benefits of HOA, but I would like to live with one that allows me to just grow middle length grass or local flower and grasses.
Can attest to this, living on a street which each year sees houses sold off to landlords, and now there are very few of us occupying-owners left.
The renters all have rubbish in their front and back yard, have more pets that they let bark and poo everywhere, smoke weed etc.
This has more to do with how the neighborhood is going (literally “to the dogs”) than it does with renting - you’d be surprised at the houses that look owner occupied but are actually rentals.
This can be good, but can also be quite bad if points #1 and #2 manifest in Karen form...
Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.
There are tax advantages that favor owning (in the US), for a primary resident and not an arbitrageur - mortgage interest and capital gains when you sell are not taxed, while capital gains in a non-retirement account are.
You can gain by appreciation and leverage, of course - but you can just as easily not, you don't know if your city is going to be the next high-flying Austin or Boulder, or run-down Detroit. My own house has been flat in estimated value for four years in an area that I thought would continue to rise.
There's significant personal financial benefits to renting, too, in that many local areas are dominated by one firm or industry as a major employer, so your employment prospects can be highly correlated with the local housing market. You do not want your investments to be correlated with your employment if at all reasonable. Detroit in particular was hard hit by this in the '08 financial crisis, iirc - the automotive industry had huge layoffs and a simultaneous residential real estate market collapse, and many newly laid-off workers were underwater on their home and practically unable to sell to move for better job prospects.
This is something that is hard for people to factor in when decision making. Optimism will blind us from considering such a tragedy since not only was there buy-in on the home, there was buy-in on the future trajectory of the company you decided to work for.
The liquidity problem with homeownership as well is that it's a lump sum.
If you own $400k of stocks, you can sell any increment of dollars you want over time. You can take profit, you can take money out to cover needs, etc.
With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back.
It's like having a $400k position in your companies stock that you can only sell all at once with a 10% round trip transaction fee.
> With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back.
Do you expect to be able to take out a loan on your house and not have to pay it back? Want to have your cake and eat it too, literally?
But the same argument applies to landlords too. Why are they willingly losing money?
I’m a landlord. I’m losing money because the Seattle market went to shit and nobody will buy this place.
I bought for $850k in 2017. Selling now asking $899k and no-one’s buying. Think of my ARR with inflation and opportunity cost here. I sold Facebook shares to get this. I have made zero return from rents overall. I’d likely have earned $1M if I hadn’t sold those shares.
That's pretty contingent. If you had Snapchat shares instead you'd be ahead.
Even selling up and putting the money into the S&P500 would've done a lot better than that[0], so I think it's a reasonable claim.
[0] https://investment-estimator.com/s&p-500-calculator says $850k in 2017 would be $2.8M by 2026.
Can I ask why you're selling?
Do you happen to be a young person looking to move for better prospects (economic migrant)?
A landlord is unlikely to have the same cost basis as someone buying on a new mortgage. I know many landlords that own their rentals outright. The ability to make a profit renting for less than you'd pay in interest charges alone changes the financial calculation.
That said, landlords don't always have a choice to not lose money. These are investments, there is inherent risk.
A lot of small mom-and-pop landlords are certainly losing money. Especially when they buy properties as their own residence but later converted to a rental. The majority of the Bay Area housing market has basically zero properties that would make a landlord profitable; you only need to compare the market value of a house against the market rent.
And this is really no different from the majority of stock pickers or day traders. They just lose money.
I get what you’re saying, but the housing market is actually a really subtle issue in my opinion.
Just one example, owning a home protects you against price shocks. As others have pointed out, this can sometimes be a bad thing, because when prices decrease you are also leveraged.
But it’s pretty important to a lot of middle class people that they are protected against forced relocation due to 5x housing price increases.
Of course, there’s other reasons to not own a home.
My point is that localized housing markets have all sorts of factors that are perfectly explainable by economic theory but aren’t just “Econ 101, run the supply and demand” curve.
This.
Our household income is 300k, and I took a big risk purchasing a home in Socal where mortgage is 50% of our take home income. In a space of 1 year or so, we went from saving two out of four paychecks each month, to sinking two into mortgage each month.
For me, we have one kid and we plan to stay put for at least 10 years. It's a good school district. The quality of life is excellent considering the weather, outdoors, cultural diversity, things to do, and proximity to international airport. We have friends and family here.
But to me what mattered most is that I am 40, our income is going to plateau. Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. On the other hand, I can refinance now and bring my mortgage down to what I was paying for rent previously, and in 10-15 years be mortgage free at a place with all the benefits I mentioned above.
Maintaining your own home is a great hobby for guys 40 years old and older. The house may age, but your engagement and knowledge of your house steadily grows. Even contracting out the work has its interesting elements. Keeps you active as you age, both mentally and physically.
The key for older homeowners is finding your querencia, the place of your heart. If where you live is your querencia, then countless options open up for you. Simply living in your home and community becomes a joy. Your community becomes an extension of your home and your heart and you become a vital part of that community. In your golden years, that community provides deep meaning and grounding when your work life quickly fades. Building that connection takes time and energy…plopping yourself somewhere else in your 60s, you may not find it. Building it now and in your 50s guarantees it’s there when you want it.
> Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy.
You don't know if you will get priced out. You don't know how housing prices will evolve in your area. They could as well go flat or fall. That uncertainty about local affordability can suffice as an argument for buying. Just don't confuse it with certainty about your future ability to afford the local area.
Totally agree with all of this. When I was younger I'd heard that owning a home was financially a no-brainer so many times I took it as fact. Boy was I in for a surprise when the reality of actually owning a home kicked in. It's not just the less obvious overall costs that add up, it's also the variance. At any point you can be hit with a sudden expenditure of thousands or tens of thousands of dollars for a major repair.
Owning does give you a lot more control over your life in certain ways, which some will find a lot of value in. If you're someone who likes doing home improvements then buying a house makes a lot of sense.
Whether or not you plan to stay in the area for a while is probably the biggest factor. Buying a house makes it a lot harder to move in the future, but it also means you can't be forced to move. I had a horrible rental experience where I suddenly found out I had to move on short notice. It happened right after starting a stressful new job. Combining those two stressors made for some rough months.
I know a lot of other folks with similar stories of having to scramble out of a property on short notice. Maybe the rent gets jacked up to an unaffordable level, or maybe the landlord who said they were renewing the lease suddenly changes their mind.
> You don't have to worry about rent increases
I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.
And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school Gets better, prices increase, and you have to move and your kids have to move school.
Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.
Depends where you live. Any sensible municipality will tax land at it's value, so your costs should rise according to value. Of course most municipalities are failures when it comes to taxation, so probably it's a better deal to own land in those places.
Depends where you live. CA has prop 13 but other places you are reassessed regularly and plenty of homeowners are surprised to get priced out of their homes.
One term for this is "price-to-rent ratio" which is as simple as it sounds.
The ratio has a wide range from city to city.
Full financial analysis gets complicated quickly because you have to consider mortgage rates, inflation, opportunity cost of the invested money, and how long you're keeping the house. It's possible to pick the more financially optimal decision using today's numbers and then have your perfect plan clobbered by a collapsing housing market, extreme swings in interest rates, or being forced to move early.
> But don't do it for financial reasons.
I think I disagree on this front, but that’s probably because I ended up buying a home due to a mix of FOMO, bad landlords and rent not being too far from mortgage.
Plus from a psychological perspective it’s hard to say don’t do it for financial reasons when anyone who bought a home in the last 10 years (forget 20+) has seen insane appreciation. I’m jealous of everyone who got practically free money (2-3% mortgages) on an asset that has increased at least 50%. Life probably doesn’t get better than that and makes me wish for such nice things.
At least my “rent” is “set” for the next 29 years (I just bought last year) so hopefully at some point my mortgage would be something to be envious of.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
You won't - you got to account for real inflation which is about 7% in US and taxes.
Note that in both cases investing (simple investing like S&P500) vs owning a house you loose. It's just that overall loses will generally be lesser if you purchase and then sell a house. I will need you to to show me figures on yearly basis if you want to tell me otherwise.
Yep, it sucks to be at a landlord's mercy to determine how nice the place you live remains over time. Things will wear out. If you own the place, yes, it's expensive to fix that stuff up. But if you don't own the place, you may very well just be stuck with it.
From time to time I drive by the place I rented for quite a few years almost a decade ago now. All the visible stuff that needed maintenance when I lived there is still just as it was when I moved out. Maybe they've fixed up the (worse) interior issues, but probably not.
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
Everywhere here rent has rapidly outpaced the mortgage payments and the down payment also pushed down my monthly payments significantly so it's not like nothing comes out of that.
To top it off my home is far more spacious.
Maybe it could work out if you went for the cheapest rent and invested the difference and happened to be that rare case that avoids a market crash. But then you'd also be living in a small appartment for at least 2 decades.
There are plenty of psychological drawbacks as well. Consider for example that the fence between your house and your neighbor has become dilapidated. But your neighbor thinks it is fine and will not pay for a replacement. What do you do? Replace the fence without cost sharing? Argue with your neighbor on the condition of the fence? Or even after your neighbor has agreed, the act of selecting a mutually acceptable contractor to carry out the work? A lot of this feels like being a project manager, and if your day job is a project manager or even a senior engineer who sometimes wears the hat of a project manager, this could feel like a second part-time job.
Instead you rent, and your landlord agrees that it is fine.
So now you look at a shitty fence. Which you could have done when owning the house too
Well no. If you have home insurance, your insurance provider can deny you coverage based on the dilapidated appearance of the house. If you have renter’s insurance, it only covers your own belongings and won’t be affected. And as a renter you can use it as a tool to negotiate for a lower rent; good luck negotiating a lower mortgage payment or property tax.
Furthermore if neighbor relations deteriorate you can always move; as a homeowner you are still stuck with an expensive asset with large transaction costs after you move.
This isn't really true in many HCOL areas, a mortgage payment + amortization can be cheaper than renting an equivalent property. On top of that the amortization of your loan doesn't incur capital gains tax.
Even if your property doesn't appreciate more than inflation you can still profit massively from owning just through the loan amortization. Only being forced to sell during a market crash could realistically cause a big downside, but the upside is substantial compared to the risk.
It is also the safest leverage investment most people can do and the cheapest way to diversify away from stock market.
In fact paying off your mortgage is usually better risk/profit calculation than buying bonds as mortgage interest is usually higher than bond interests[1]. If you hold any significant amount on bonds you are better off using that money for a downpayment.
Everyone here is doing the cold hard math on 100% stocks when every financial advisor says you should diversify to reduce risks. Of course if you go 100% stocks and assume average returns will keep going forever (and not, you know, go full 90s Japan) the math will say stocks. But if you add any sort of risk lowering diversification a mortgage is usually the best one you can get.
[1]: I live in Sweden where almost everyone has floating interest rates for mortgages, I know US people can lock in their interest at low or high rates for decades which can skew the calculations
In the US, there's a pretty significant capital gains tax exclusion on the sale of primary residence too.
In Sweden 30% of interest payments on mortgages is tax deductible.
When I sold my old flat and even though it only appreciated like 10% over 4 years (about the same as inflation) I still got a lot of money when I got the loan settled. 4 years of amortization at 2% per year is 8% of the original value of the apartment, tax free. And my mortgage+HOA fee was actually lower than my rent was before even before the interest tax deduction.
So after sales fees (also tax deductible), moving costs, capital gains, etc I think I saved around 15% after-tax of the total value of the apartment compared to renting over a span of 4 years. Given my downpayment was 15% I roughly doubled my downpayment money in 4 years.
That is a return of ~22.5% compounding per year _after tax_, which is much better than the average stock market returns. Of course I got there is some luck involved (my apartment didn't go down in value, I didn't need to do any renovations, etc), but I could potentially have profited even more if it had appreciated more. And that is on top of the real estate risk diversification benefits compared to stocks.
In the US, 100% of mortgage interest (for the first 750k of loan) and property tax (up to 40k combined w/ other state/local taxes) is deductible. Property ownership gets such favorable tax treatment that it’s kind of ridiculous.
I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait until you're 60 years old to spend it!
> I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k.
https://www.macrotrends.net/3072/us-house-price-index (~3x in the past 30 years, about 3.7% return per year)
https://www.macrotrends.net/2324/sp-500-historical-chart-dat... (~15x in the past 30 years, about 9.3% return per year)
This is in line with conventional wisdom on return rates for these asset classes: https://awealthofcommonsense.com/2024/01/what-is-the-histori...
Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.
You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning.
It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.
The borrowed money isn't free from interest. There's no numerical sense in borrowing money at 5%+ interest to fund an investment appreciating at 3%. Some schemes might advantage it further (such as leveraging your mortgage with your retirement funds) but then we might as well also discuss further disadvantages compared to renting, such as upkeep and property taxes.
Back around 2020 when mortgage rates very briefly dipped below 3%, there could have been an argument. But such is no longer the case and not likely to return soon.
This guy breaks down the analysis very cleanly to a first-order approximation, using 2019 figures: https://www.youtube.com/watch?v=Uwl3-jBNEd4
> It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.
Just to drive the point home: It would be $100k in stocks appreciating at 9% and monthly rent subtracted, or $1m in housing appreciating at 3% and a $900k debt growing at 5%+ interest.
I agree with your points. You have to take risks in either case, but some risks are easier to do the math on. And yes, fewer home investment opportunities exist as the interest rates go higher. There may be opportunities for higher gain with stocks, but there are also greater risks for loss. At least if you lose some value in a home, it's practical -- you still have a roof over your head or make money by renting it.
Fair point!
The problem with leveraged investments is that they can put you deep underwater.
Many people in Seattle that bought $1M leveraged with $100k now own a $800k asset. They've lost twice as much as they invested. They would have been much better off investing that in stocks without leverage.
Multiple people in this thread have mentioned the Seattle real estate market going to shit (for sellers) - is that related to tech layoffs or is something else going on? San Francisco's market is just as crazy as ever.
Seattle real estate has been trending downward for a couple years now. It isn't a single factor but the confluence of several. Initially it was only in some market segments but seems to have spread to most of them now.
The inventory of housing currently on the market is anomalously high and there are relatively few buyers. I know a few people that will be lucky to sell for as much as they paid a decade ago. People who bought during the COVID bubble are underwater.
This feels more like the beginning of a macro trend than a temporary blip.
Yeah, but rent doesn’t seem to go down that much though. Opportunity cost of moving is real, security deposits are sizable. I wanted to rent for as long as possible but there’s no rent cap and the apartments keep jacking up the rent.
At least now they have some sense to cap the rental raise percent but I’ve had to deal with 15-20% increases before, and not to mention the cost of parking in an apartment.
I probably made a mistake buying but I couldn’t take the bullshit from landlords and all the headaches that come with people wanting more money.
I don't think the data supports this at all.
Home prices have doubled here since 2014. We are having a modest dip right now.
I think some of it is due to the lay off, some of it due to the supply situation not being as bad as SF (though construction has slowed recently), and a lot of it due to interest rates making "effective prices" much higher.
Yeah, but they still have a place to live. If the landlord is losing money on their asset, what's one place they could make up the difference?
The landlord isn't losing money. Totally different cost basis. The landlord rarely has a carrying cost that is equivalent to the renter buying the same property with a mortgage. It is frequently half that or less.
I've sold a home I lived in to rent something equivalent because the rental rate was a fraction of my carrying costs. Saving the difference in costs added more to my net worth than the appreciation on the property.
My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.
Well, not historically because for a lot of the last few decades, house prices have gone up dramatically more than average investments. But it does seem like that is coming to and end and of course you can't make decisions based on the future.
Even so, there's still a benefit to owning which is that you aren't paying the agency fees, elevated maintenance fees, and landlord profit, which are all non-zero.
In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)
This!
As someone who moved 6 times in 8 years (admittedly, some of those were for work), and every time, I relied on moving things myself/with friends, I was just tired any more!
For the last move, I hired movers since I was already married by then and our stuff tripled (yes, mine was a very small portion).
The fact that I don't have to move for a while now gives me a lot of peace!
Yeah this. But some additional flavor to emphasize the 'don't do it for financial reasons' aspect.
In the late 90's I, like a number of my married friends, 'owned' a house in the Bay Area. Dot coms were going crazy, the economy was insane, and people who got big equity payouts were buying places with their stock. At the height of all that, my Sun stock holdings were enough to pay off the remainder of my mortgage but I got the "opportunity cost" talk from my financial advisor about how tech stocks were returning 15 to 20% and more, so what I should really do, is refinance, and put my equity into tech stock! I didn't do that but at least two people I knew did. And when the crash came, the friends that had refinanced ended up selling their houses an moving out of the area, and I was left with the dread associated of being an "older" engineer when tech jobs were on the way out. But I still had a mortgage and kids to support. Had I paid the house off I would be in a position to take a job with much lower pay than my last job and still stay in my house (with just the tax,insurance,utilities and maintenance costs). The psychological cost of 'uncertainty' is especially burdensome on me (which, I suppose, is why I make a good operations person).
I told my wife that if I ever had a chance to pay off the mortgage again (prior to paying it off the old fashioned way of making payments for 30 years :-)) I would. In California, you are required by law to be able to make a payment larger than you requested payment and any excess goes toward the principal. So we started making bigger payments, and between that and some bonuses and stock recovery we managed to pay it off. I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.
Now that story works because I knew that I wanted to stay in the Bay Area, there were jobs that I would be interested in (even if they didn't pay what I would prefer) and that was important to me. A relative who was more management in retail (started at Sears) found owning was a problem because it made relocation harder. As a result, even though they owned now and then, they lost money during the mortgage crisis (needed to move with their house underwater) and didn't get the advantage of just staying in one place.
My wife's parents simply rented out their place and moved to a new place and bought a new house there. They ended up collecting a few properties which were their retirement plan, being sold off over time to pay for expenses when they could no longer work. That was more 'investment like' in my mind. But it was also a lot of accounting work with property managers etc.
Buying a home works really well if you are married and you both have salaries (and initially no kids). The US tax system is set up to 'reward' that behavior with a better rate for married filing jointly and a mortgage deduction for owning a house. It cuts out a lot of uncertainty. But it also means moving is a bigger deal. In today's market, if you bought a house with an < 6% mortgage and are looking at buying with on >9% then they feel a bit locked in.
Thank you for sharing!
> I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.
Seems to me that she is the one hurting more because your choice undermined her commission lol
Not really, she does fine. She really does think I am over conservative in my risk tolerance. Sadly you don't get to re-run the experiment if you don't like the outcome (that being my risk intolerance speaking).
Yeah, no. Fuck renting. It may be ok for 5 maybe 10 years, while you're figuring yourself out, but after that it's just wasted money.
If you buy property it will be yours, forever. You will pass it down, you will be forever part of the community, and your children, and so on.
Both my parents come from big farmer families, and lots of poverty. When my grandparents managed to end serfdom in the late 50's and their rented farm became their it was a huge deal: that became the family home. Like our own castle of sorts.
But i guess it's a different culture, my country has the higher percentage of home owners in europe for a reason, whereas most of northern europe housing marked is dominated by speculation and renting agencies, among the worst sort of leeches that have ever lived.
Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass.
Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.
Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.
Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.
Instructions in the will: 1) sell the house via real estate agency and let them handle the optimal price with view on selling within 6 months (so no surface for arguments when one of heirs want to maximize gain even if it takes 10 years to sell); 2) split what comes back proportionally
It doesn't have to be that hard
I probably should have put a big caveat in my comment: In the USA. Other countries are a whole other puzzle.
the large majority of people do not keep their property until death.
On the other hand, buying a home reduces mobility since selling is difficult. Always pros and cons
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.
You'd actually end up in a much better place historically, homes were never a particularly good investment in the US, but there are very few people who can pull it off and actually invest the difference and not just spend it.
Even psychologically, i don't get it. you're still renting, except insurance and property taxes replace your rent, even if you pay it off fully.
Insurance and property taxes will never decide to occupy the house and force you to move from your home despite being willing and able to pay.
they can and do, if you're past eviction notice.
Maybe read the whole sentence?
apologies for misunderstanding, I think you were being sarcastic and agreeing with me?
most of these articles neglect to mention families. so I downvote for simple lack of completeness.
Yes the benefit is psychological but I think there's more to it as well.
Firstly within investing, I am assuming that a person has safety net amount of money before properly investing. This is something that I have heard some people don't exactly do.
As such, what happens is that, they might lose a job and have to pay rent and might have to sell the stocks or any index fund/investments that they had within the market (which depends on if the market is doing good or bad too) and overall snatches opportunity for money to actually grow for years.
I recommend having a safety net but I must admit that there is still some psychological stress overall due to multitude of factors, as such, if possible, buying a house feels like it might be overall decent choice and the differences might not be so much.
that being said, I do think that it depends upon the land prices and many other things overall too.
Also, this is tangential but I used to be a boglehead, still am but with recent cases of Nasdaq[0] & I think S&P bending towards SpaceX and AI IPO's by literally bending rules, it does feel like the investment markets might be more shaky given other factors
(Not a financial advice at all) but I recommend looking towards dimensional index funds which do just a very bit more than index funds if the addition of floaty investments like SpaceX and other IPO's make you fear similar to me.
But the thing is that the downstream effects of it will still be visible, for example, just imagining if SpaceX gets added to IPO and then quickly added to Nasdaq/S&P and then it falls substantially for any reason. The thing is that the market itself would be spooked and other funds would be impacted too.
I have belied in the market efficiency hypothesis but a lot of it feels like private equity trying to raise evaluations to then push it to index funds (by in this case, asking nasdaq to bend the rules to force passive investors to buy and hold the bags basically impacting retirement accounts too and perhaps even govt bailouts but basically it becomes privatization of gains and socialization of losses and becoming too big to fail.
I must say that it feels a bit of blatant corruption in some instances like the one for SpaceX and this removes my confidence within markets.
I do recommend overall diversification for world stocks and also housing if affordable.
I wish to still invest in markets but with a bit more caution rather than blind optimism. Also no, active investing doesn't quite work either reading john bogle books and other resources and passive investing is still superior to active investing overall but just with more caution. That's all.
[0]: https://www.thestreet.com/latest-news/new-nasdaq-rules-open-...
for what it's worth for VTI OAI, Anthropic, and SpaceX combined would comprise 0.3% of the index based on float. I was concerned about this at first but running the numbers it doesn't seem like a big issue risk-wise - I agree it's a worry trend to see changes to policy and don't want retail liquidity to cash out privileged investors. Some type of delay where the stock finds its market value before entering the fund is ideal.
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Beyond the financials, the psychological impact of both being able to make greater-than-superficial changes, and having extremely predictable payments for years without worrying about substantial rent increases, is substantial.
I redid/improved the bathroom to exactly what I wanted. I renovated the kitchen. I added paneling to the walls. I added a few outlets to rooms that needed more. I wouldn't do these things in an apartment, because rent could go up any year and exploit me for liking my home. Property value has gone up by 50% in the years since I bought.
There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
And while I agree that it’s nice to customize things to your preferences, this has a downside in that it’s easy to get carried away and overspend. Might as well get the nicer finishes when you are remodeling, right? After all you’re paying so much for labor anyway. And you can’t have just your kitchen nice, now you need to upgrade the flooring in the whole house. And soon your small $30k improvement is $150k
> Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix
Most landlords I've dealt with are an absolute pain to deal with when something breaks. It's often not that easy, maybe in high-cost / luxury rentals. Arguing over what is normal wear-and-tear, while knowing you cannot afford decent legal advice, and you also can't pay for the "unexpected repair" is just as bad.
> And you can’t have just your kitchen nice, now you need to upgrade the flooring
Yes you can. There is no need to have everything perfect...
Edit:
> You never have an unexpected $20k repair show up.
If this was even close to coming even with the added cost on rent, no one would be a landlord. It's obviously a lot less than rental overhead. So people could just set that aside (or get insurance).
I've dealt with two kinds of landlords.
The good one(s) acted like their job was providing the service of housing. They had a budget and paid themselves a salary, and if there was money left in the repair budget at the end of the year they used it for improvements to the properties.
The bad ones treated it as an investment. My rent money went into their own pocket, and any expenses -- repairs, taxes, mortgage payments -- had to come out of their own pockets, and they did their best to not pay for any of them.
My wife and I have a few rental properties that I manage. They are investments, chosen based on return on investment and equity (ROI/ROE). Maintenance costs were factored into those calculations. We take care of repairs not because our job is "providing the service of housing", but because we are honest and would not sign a lease (or any contract) in bad faith. When the lease says the property includes appliances, then we ensure broken appliances are fixed or replaced promptly. If/when we can't make a reasonable ROE on a rental property, we don't cut corners to squeeze a bit more profit out of it, we sell it and invest the money elsewhere.
Sounds like two different ways of saying the same thing. Each is planning on certain expected return which will have allocated costs for maintenance accounted for as part of the agreement to provide the housing service (which is what the contract will describe in detail).
I've found that it's pretty much split between if I have a landlord that's just a guy with a few houses vs a property management company. When I lived in a complex (cheaper than my current rent by a mile because it was in NC), maintenance would be over in a matter of hours. When I've had a single guy, it's often days (unless it's a truly urgent issue).
I'm under a guy that just manages 20 or so doors now and he's a good dude, but I have to wait a longer time, generally, like when my heat wasn't working at the beginning of the winter and his plumber had the flu. Luckily it wasn't bad weather yet, but I definitely felt the potential for strain.
There's an uncanny valley between "I own three properties in a 1mi radius and live in one of the units and will swing by after work" and "the company has fulltime maintenance employees" where maintenance is the worst.
You hit the nail right on the head.
As a renter, you are stuck between a rock and a hard place.
Contacting your landlord to get something resolved is a nightmare. Majority of the the time they will refuse to cover it and refuse to send someone out.
Majority of the time they will also not let someone come fix it, without approval, because you aren't not allowed to make modifications to someones property.
We had a fan which died upstairs in a bedroom. The downstairs had an aircon although it was a living room. We requested the fan get replaced multiple times, 13 months late (two different rent increases later) the fan was still not replaced. A third price increase without the fan being replaced and we moved.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
I've never understood why people argue that the model of appealing to a landlord to perform house work is psychologically superior to doing that same work yourself. As a tenant, you have an inherently somewhat adversarial relationship with your landlord - they want to minimize costs, and they aren't the ones directly living with the household problem. You are living in their property and are bound to what they replace or repair, and how, and to some degree on what schedule.
Not being able to make my own decisions about what constitutes a household problem and what should be done about it is the single biggest annoyance of renting for me. It's the main reason I would like to live in an owned home; and this intangible facet of living is more important to me than any financial argument about the costs of renting vs owning.
You illustrate this nicely.
Just something as simple as "that ceiling fan doesn't work so well, and squeaks once in a while when on high" can easily be remedied yourself when owning the house by just going buying and installing a new ceiling fan.
Regardless of how handy one is, with a landlord that's generally not allowed without permission, the landlord often won't install as nice of one as you might like, etc.
This goes for every fixture that's not part of the rental. Major appliances, flooring, even door knobs... Like if you suddenly want an electronic keypad on your deadbolt.
Of course, this flexibility has to be something you care about. Not everyone does, but for those of us that do...
If you live somewhere long enough and under a negligent enough landlord, you can just do a lot of those upgrades anyway and either take them with you when you leave or just chalk them up to practice for when you own a place.
I've lived in my current apartment for 9 years and I've never met the guy who owns it now (it was sold). I'm also not getting my deposit back, so that doesn't matter.
It's the big stuff that's annoying. Can't install A/C or an exhaust fan in the bathroom, for example, simply because I can't afford it. I'd totally feel comfortable upgrading the stove/fridge and tossing theirs or putting it in the basement. They're not going to find out until I move out anyway.
> They're not going to find out until I move out anyway.
Maybe. Probably, given what you've described. But you're still relying on an assumption and the behavior of someone else. It could be sold again tomorrow to an owner who has a real problem with those sorts of changes and it would be out of your control.
> I've never understood why people argue that the model of appealing to a landlord to perform house work is psychologically superior to doing that same work yourself.
Because I have less than 0 interest in doing that work myself. If I have to email 5 days in a row to get something fixed, that is a cost I’ll happily pay.
I want to spend 0 of my time on home maintenance of any kind. I’d rather be reading a book, watching tv, shopping online, going out to eat, sitting quietly, etc.
It’s not particularly complicated, we just see the world in different ways.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
"Rent is the most you'll pay for housing, but mortgage and property taxes is the least amount."
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
Not my experience, at all. All landlords I've had were lazy assholes who did the bare minimum, but never forgot to increase rent on the 1st of January, every single year.
Paying someone else for no other reason than to have the right to a roof is Middle Ages shit, that future generations will no doubt liken to serfdom.
To be fair, there's piles of sh*tty renters too, who abuse the system and ruin the experience for everyone. If you have ever been a landlord, especially in certain market areas, it pays to be that "lazy asshole", otherwise you'll lose your shirt (and more). Ask me how I know....
I bought a house shortly before unexpectedly relocating to SoCal. It didn't make any sense to sell, so we rented it out while we were there. The renters never seemed like a problem. Payments kept coming in as expected. They moved out and we took the place back over and found out they had converted one of the bedrooms to an indoor pet bathroom. Literally let their dogs shit and piss all over the floor. I always got annoyed trying to find a rental that would accept pets because our children have always done far more "wear and tear" on the house than our pets have. But after that mess we were left with it makes a lot more sense.
Where should housing come from if not by paying someone for it (either by the month [renting] or for an eternity [buying])?
My uncle built his own house; it took him ages (and still hundreds of thousands of dollars to buy the materials and land).
If you treat renting as a longer term hotel it’s fine. If you move to a city and want o know where to live you probably want somewhere short term for a year or two.
It’s when you are looking at long term living that there’s a problem.
My experience is that getting a landlord to fix things is a nightmare. They say "oh I'll send someone over" and then when there is a no-show you have no idea what happened and its days of back and forth to get somebody out to fix things.
I don't think I have ever once had a positive "hey this is broken let me call the landlord and they'll fix it quickly" experience.
This is a personality difference. People who notice their surroundings and seek to improve them. People who are content with the way they are. People who are more type-A, DIY, etc. People who don't know the difference btwn a phillips vs flathead,etc.
> There’s also a psychological benefit of not having to worry about most problems. Sink broke? Call landlord to fix. Roof leaking? Call landlord to fix. And so on. You never have an unexpected $20k repair show up.
Hah. Or you get letters from the water utility about a suspected leak, you call the PM the landlord contracts with and (great blame diffusion) they "refuse" to authorize a plumber to come look, in just the right way so you can't take it into your own hands for months, meanwhile you're getting calls, not just letters now, and your water bill is $800/month that you still have to pay, but because the home still has water flowing to it it's not considered a habitability "must remediate" issue. Dealt with that one for months.
Or "appliances as-is". Dishwasher breaks. "As is, remember?" You pull out the broken dishwasher, install your own and then have to fight for your deposit back in small claims because the landlord withheld it because in his eyes "the home came with a dishwasher when you started the lease, it needs a dishwasher at the end of the lease" and somehow "as-is" means, to him, "tenant shall repair and replace".
Or when a shitty (hah) weird hybrid septic system fails (home goes to septic, but then to city sewer) and the owners have to pay $15K to fix it, they start denying and stalling on everything after that point because "we just HAD to pay thousands of dollars FOR YOU".
But sure, "call landlord to fix". "Never have to worry about most problems".
I have lived/rented in many states and still rent. The overwhelming majority of landlords are cheap af. I had the ceiling collapse in an office due to clogged ac drain only to have it happen again because the land lord was too cheap to hire a professional contractor. The pro had the ac clog fixed in 15 minutes.
The current place has this stupid thing where the dishwasher is attached to a circuit that has ac on it so if you run both it flips. I have to flip the breaker everytime i use the dishwasher.
You can pretty much always finance a repair that size and amortize the expense so that it works out ok.
> I redid/improved...
We are extending the fence in our backyard.
However, getting rid of the parking means the project will likely detract from the value of the home. But since we don't have a car, let alone two, it makes sense for us to do the project anyway. Despite the warning of our realtor when we purchased the home.
I've noticed a lot of folks are afraid to personalize their homes because of concern about the value when they eventually sell.
Once upon a time I had a car, a daily driver. I kept it clean, vacuum/wash/polish with crazy waxes and the works. Stressed out about people riding with dirty shoes, drinks, etc., and when I asked myself why, the usual self-justification was "ah it's for the resale value." Hearing relatives get charged various fees at lease returns just fed that attitude, even though I owned the car outright. One day it was time to replace the car, so I brought it to the dealer as tradein. They scanned the VIN, looked in their computer, and just quoted me a price without ever looking at the car, either cosmetics or mechanicals. That was the day I decided that I own the cars, not the other way around, and this attitude slowly expanded to real estate too ;). So now there is a clover field in our front yard and I ripped out the irrigation too. When we eventually sell this home in 2060 the buyers can take it or leave it
Of course, you should never sell the car to the dealer and should always make the effort to sell private party, which will often get you 50% or more greater than the dealers best offer.
50% is a stretch. 20% maybe, depending on the vehicle.
But here is another consideration. Sales tax. If I buy a car and trade one in, the sale price that I pay taxes on is the price of the vehicle I am buying minus the trade in.
For instance, if I buy a new car for $30,000 and trade in a vehicle and they give me $15k for it, I pay sales tax only on $15k. That saves me about $1k in my area in sales tax. If I could have sold the used car for over $16k, then I would technically be money ahead. But your time is also worth something. For it to be worth it to me, I would need to be able to get at least $17k for the used vehicle to make it worth the effort.
Yes there are all those arguments. But it's a lot more work for still a pitiful amount of money.
Then on top of that after COVID dealer gave me $5k tradein for an Ecoboost car with a leaking cylinder wall, check engine light, missing parts, etc. where KBB was less than that. I really don't get it.
> But it's a lot more work for still a pitiful amount of money
It’s really not a lot of work and if $2000+ for a few hours work is pitiful, I envy your financial position. List on Craigslist at bottom market prices (you’ll still come out way ahead of the dealer), aggressively filter out tire kickers, sell it within 3-4 showings.
The law is very favorable to people being allowed to sell their personal vehicle without jumping through additional regulatory hoops.
The amount of people who refuse to do private party sales and who insist on losing money by trading into the dealer is mind boggling.
Americans really get extremely stupid when car related anything comes up.
The sales tax deduction makes up most of the difference between private party and dealer resale. For a lot of people getting that last little bit of equity isn't worth the time, hassle and fraud risk
Time is money, and it's easier to negotiate with a dealer from whom you're buying a car than to coordinate many meetings with randos on Craigslist.
Yeah, I agree with this. We have one car and no kids and every time we talk about some remodel. For example, we're talking about remodeling our kitchen and getting rid of our wildly oversized (read "normal American") appliances in exchange for more storage, counter, and floor space but the first thing friends and family talk about is resale value.
Firstly, my home isn't principally an investment vehicle.
Secondly, I'm pretty sure I can find a buyer who can conceive of popping over to the grocery store around the corner a couple times a week rather than pretending like they're living off the grid and have to drive 100 miles to the nearest town to buy their monthly provisions for a family of 13. :)
There was quite a funny reddit thread where the OP was afraid to put up shelves because of property value.
Everyone has a landlord inside them apparently!
I absolutely don't see these as benefits... Living in the Netherlands, apartments owners typically have to pay "VVE" (service fee for the ongoing upkeep of the building where your apartment is), while house owners typically pay out of their pocket for any repairs they have to do.
This was my first time living in a house as opposed to an apartment. It's been three years of bitter regret, and I'm very eager to sell the damn thing and leave the nightmare behind. In the last three years, I had to re-paint the roof, replace the garden fence and a bunch of related stuff in the garden, replace the water boiler. I had to climb on the roof of the house to rake the leaves at least twice a year (not expensive, just scary). I had to repaint areas of the house because the previous owner did a crappy job painting them.
But, most importantly, it's a piece of junk. It's a typical front brick wall with the rest of the house made of wood covered in dry wall. Its foundation is going to skew and sink because... that's the general condition of everything in the Netherlands: the ground water is too close to the surface, so the foundation is too shallow. I can't hang anything heavy on the wall because the wall can't support it. Every wall is crooked and bent and so is the ceiling, so, for example, it's not possible to put a curtain railing on the ceiling...
Everything is made of perishable materials which will last five to ten years tops, and then everything needs to be torn down and redone. Looking at how my neighbors are spending their lives on the hamster wheel of infinite repairs... I want absolutely none of this. Some people enjoy sinking their time and finances into this black hole, but I'd rather just buy hard drugs for the same price all the way until I die. It's just an arduous and unrewarding toil.
I agree with this, but there's also the psychological impact of being able to easily move when you get a new job or when your state government allows agriculture/industry to poison your water or whatever the case may be. You may also buy a property only to find out you have a certifiably insane neighbor and you can't easily move out because said neighbor has created a dispute that requires disclosure to prospective buyers and you are under water (as is the case for a friend of mine). While this is admittedly a niche case, there are millions of such things that can happen where you are suddenly under water (including a mortgage crisis) and flexibility becomes an advantage. I don't think there's a clear psychological winner between renting and buying.
> I redid/improved
I said it this way to my GF this weekend: "If I own the home, I can choose to do irrational things like demolishing things that are perfectly fine".
She was like "Perhaps you should rent, LOL."
This depends on what country you live in, but in the UK renting is (even after recent changes) quite precarious. The landlord can kick you out with a few months notice. They can require regular inspections. They can send workers around to "fix stuff" without you really agreeing to it. Even if you never renovate your bathroom, the security and privacy of owning your own place without landlords bothering you is worth every penny.
> Beyond the financials, the psychological impact of both being able to make greater-than-superficial changes, and having extremely predictable payments for years without worrying about substantial rent increases, is substantial.
As a renter in a place that protects renters from radical increases year over year, I'd argue the only compelling sense of stability would be trading the risk of being evicted for that of losing the house
> I redid/improved the bathroom to exactly what I wanted. I renovated the kitchen. I added panelling to the walls. I added a few outlets to rooms that needed more.
I think this is an interesting differentiation that would either be very compelling for a hobbyist or carpenter, or someone who works on cars, but it's also crazy to me if I frame homeownership this way. I don't think a condo would really provide the surface area for such customization *if* I were a person to be interested in doing it, nor would a townhouse or duplex. It seems that at least in my city, the premium to be able to do something as common as paint the exterior of your home, is like $2.5m CAD, or $1m more than a newish townhome, or $1.5m more than modest condo, or $10000/m more (just on the mortgage) than renting a sufficiently sized place.
That's partly because the kind of place I can rent is dramatically smaller than the minimum size of a place that has a modifiable exterior, and it's one of the most expensive cities. I guess it's sort of a framing that makes clear how dystopian the class divide is; I don't have any interest in painting my house, but if I did, I'll never be able to, and if I could (at the current rates), I'd have to be incredibly unimaginative to allocate that much to the house that could hypothetically be painted.
I guess people who value the concept of a home in that way more than anything else would simply move someone where they can buy one, but I value so many other things more than hacking away on the walls that it's an absolute no-brainer to continue renting where I want to live despite the ambient sense that I have no sense of permanence secured by land
“Extremely predictable payments” - I don’t own a home, so I don’t know about this - I have heard mostly horror stories about HOA. Can they hike maintenance fees arbitrarily? Also, what about insurance? Last I read, at least in FL, insurance cost is out of control, is that still true?
Don’t buy a home in an HOA and avoid living in a place with extreme high risk of property destruction. Neither are requirements of owning a home.
HOA complaints typically are about control not really cost, and the terms are disclosed before purchase so not unpredictable at all, you are allowed to see the full financials and can see the financial health of the organization before committing. Insurance costs are directly correlated to risk, the costs are only as out of control as the risks (which are well known in Florida). E.g. if insurance expects to have to replace a roof every 5 years on average, and to replace a house every 30 years, expect to pay for 1/5th of a roof and 1/30th of a house in your insurance bill, on top of all the other risks.
It really depends where you live. Around here every home built since ~1970 has an HOA. The cities have demanded them, because they can push some of the work like re-paving streets onto the HOA as part of the founding documents.
A HOA on a house never made sense to me. There are no amenities they provide worth what you pay. Condos in are different story. You're using shared resources in a limited space. Condos in a bustling urban core are great. A condo in the middle of the suburbs makes no sense.
Real estate tax is also somewhat unpredictable year to year (except that it rarely goes down), and can be a large part of your monthly payment. We got hit with a 21% increase in taxes this year because the town voted to rebuild the high school and the main road.
Luckily, at least, we don't have an HOA. Well, actually, we technically do, because we have a shared driveway with three houses on it, and legally here shared driveways are required to have an HOA. But all three of us despise HOAs, so it doesn't have any money, rules, meetings, or do anything. It's just on paper only. We have informal meetings to sort it out when the driveway needs maintenance. After just a couple meetings we figured out that meeting first, alcohol second is the correct order.
As others said, try to avoid HOAs if you can. But if you can't (in my area it's hard to do), our realtor gave us good advice when we were in the process of buying our current home. The HOA bylaws are a legally binding document as to what the association can and can't do, so if you're going to purchase a home in an HOA neighborhood, read the bylaws. That will give you confidence as to whether some of the situations you mention can occur.
HOAs can be very tricky, the money comes to maintain some shared amenities. Usually it is not too bad, but in case of condos HOAs maintain much more and sometimes the board makes very questionable decisions and can end up short on cash when big things are required, and that can hike the payments a lot.
As for the insurance, the best advice is just to avoid high-risk areas like flooding zones.
HOAs can be a big variable cost, yes, especially in the case of underfunded condos associations with a lot of delayed maintenance. Insurance can vary a lot, but is usually a much smaller amount than your mortgage payment (though I only have experience with the PNW).
But yeah, for a single family home in a not-too-flood-prone area it'll be very predictable.
I dunno about the USA, but for much of the world the answer is really simple: don't buy in places that have HOAs
>says local homeowner, 2007
I was in middle school in 2007
> and having extremely predictable payments for years
I’d argue rental is more predictable. Housing has a huge amount of upkeep — $10k ac, $5k water heater, $20k roof…
American homes are weird that roof costs are something that occurs.
Last house I owned in the U.K. was 60 years old, original roof. Was advised it might need $10k of work if I wanted to out 10kWp of solar on it to the weight of the tiles.
$180 a year into a “roof fund” doesn’t seem extreme to me.
If you don't have cash savings as a homeowner, you can leverage a home equity loan or line of credit to cover those emergency bills. In times of extreme low interest rates, it may even be beneficial to do that vs. paying with cash.
If your household is a typical HN high earner, and you are early in your mortgage's amortization schedule, the tax money you save by deducting interest can fund a $10k emergency repair fund too. Maybe even in less than a year.
Predictable for a year or two, yes. I know how much I'll be paying a decade from now, exempting property tax and insurance fluctuations.
On the other hand, renting comes with hidden (and some not so hidden) costs too.
The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowing that you might need to go through the hell of apartment hunting and moving annually is awful.
It’s been much nicer to have a mortgage with more or less locked in monthly payment, even with the maintenance costs that come with the territory. It’s more predictable and frees up mental bandwidth for other things.
I would argue against this. I'm not sure owning is that much better. At the very least it's just as bad as renting if you bought in the past few years... I bought my home in 2023 and since then my monthly HOA payments doubled, my insurance premiums (nearly) tripled and my property taxes have gone up about $1000. Homeownership went from 35% to 45% of my monthly income. If you bought in the past few years, owning has absolutely been nothing short of a liability.
Buying into an HOA means you're effectively renting a portion of your living arrangements. And if the dues doubled in just three years then you bought into a mismanaged HOA, which makes it worse. There's not much you can do about insurance premiums (assuming you've shopped around for better rates) and property taxes, but definitely check the financial situation of the HOA before you buy, or avoid them entirely.
> And if the dues doubled in just three years then you bought into a mismanaged HOA, which makes it worse.
Not necessarily true. Our HOA fees doubled precisely because of drastic insurance premium hikes. There wasn't much that could be done by them to avoid that, and in fact they worked hard to reduce some of those premiums the following year, which resulted in a lower monthly fee for everyone.
I own single family homes in a few different states. None of them are seeing the HOA + Insurance + Tax increases you are describing in the last 2 years.
I'm guessing you bought in a place that is seeing a rapid increase in property values, which I saw in 2020-2022 by owning in a zoom town. That would explain why insurance and taxes are increasing.
It's probably Florida or some other gulf state with weather risk. Could be California with wildfire risk but then they wouldn't have tax increases. In both of these states insurance is going crazy without the property value cause you mention. If it's a condo then insurance can single handedly explain HOA rates (since they buy insurance too) as well as HO insurance rates.
Florida's median property tax is about $2,500, so it's unlikely to go up $1000/yr. Places with high property values within the state of Florida like Miami Beach are mostly seeing decreasing or flat home values in the last couple of years.
I don't want to speculate too much on this poster's property, and I'm not super familiar with gulf real estate. I just wanted to highlight that I have a very different experience even though the post made it sound like their experience was the overwhelming popular one.
Comes down to area and luck. I bought in 2021 and while there have been increases, they’ve been modest. Certainly much less than I would’ve had to deal with had I continued to rent.
For context, property values have gone up 40-50% since 2021. Additional expenses are much easier to digest when you're not already paying an arm and a leg for a house at much higher mortgage rates.
If the market can bear it, those increased costs typically get passed down to renters too. Landlords are usually averse to covering expenses that don't go towards equity. If they can get away with it, they want to charge rent greater than mortgage interest + insurance + maintenance + taxes.
Basically, if you can rent in a place that landlords start suffering, you’re going to do well.
And if you buy in a place where renters start suffering, you’ll do well.
Every decision is easy when you have the future data now, which you never have.
Rule number one is always don’t buy into a HOA. They’re trouble. Always.
The HOA is something I could fight, but mine is currently cheap. The taxes, however, are infuriating. I’m getting taxed on unrealized gains after having paid taxes when buying the home. There is nothing I can do about the taxes, and if I do not pay my home will be taken. Essentially, I cannot own my home in any meaningful sense.
The road, water, sewer, and various other public services that make your house valuable are not free.
I would familiarize yourself with your city’s municipal budget before complaining about paying taxes. You’re likely being subsidized by urban dwellers if you live outside the city center.
I pay water, sewer, gas, and power to those utilities directly. The taxes to my county don’t pay for roads as that’s handled by the state DOT. The bulk goes to county police, fire, and schools. Yet, these haven’t seen increased costs, the people in those jobs haven’t received pay raises (which, my God, why not?) and overall, I can’t see why my taxes then got raised.
Your water bill almost certainly is not pricing in the replacement cost of the infrastructure it relies on.
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Buying a house with or without a mortgage is definitely a hedge against inflation. I have a couple of siblings in their 60s who are renting and the rents are going up much faster than their social security. Now in both of their cases the rent is about $300/mo higher than their social security. Adding in food, utilities and other expenses they're blowing through their meager savings.
I'm the UK at least, it's also common for the renter to pay council tax, which is analogous to property taxes in other countries.
I imagine this is also likely passed through in the cost of rent in other places.
That said, it's totally possible to have a legal and fiscal framework that makes renting affordable and safe.
The government, particularly in Western countries with insane pressure on the rental market, needs to act as a homebuilder and landlord of the last resort. It keeps supply up, prices and risk down.
We've had a couple of generations locked into the housing market as an investment, and it's causing demand crunches which have artificially inflated prices and are choking and dividing our societies.
I'd happily spend my life in a rental if it was affordable and safe, and part of a considerably more fair society.
The government should build simple cheap houses, and “rent to own” them to people, thereby instilling a baseline.
I prefer corporate rentals precisely because there is less idiosyncratic risk. They boringly have a strong incentive to keep you renting the same place as long as possible.
The cost of owning absolutely does increase over time. The mortgage payment is just one part of the fully burdened cost. Furthermore, there is a real risk of an unexpected $20k expense that you have to pay for. Owning is less predictable than renting because the liability and risk surface area is much larger.
You can buy home repair insurance if you want to transform unexpected repair expenses into predictable monthly payments. It's a bad idea for exactly the same reasons renting is worse:
Someone else has to approve repairs and contract the labor.
My experience with corporate landlords is that they're incentivized to maximize income, which is emphatically not the same as keeping you renting the place as long as possible. Realpage for example optimizes for higher income at the cost of turnover and lower occupancy.
The sweet spot is a landlord who used to live in the house and still considers it “theirs” and trusts you as a steward, so they repair quickly (or even trust you to get the repairs done and send them the bill) and don’t want to deal with vacancies.
They’re more common than you’d think.
> You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things.
Absolutely. I had three landlords in a row promise all manner of things. "We're never coming back, moving to the country" (followed by "my wife hates it, we're moving back"). "We're looking to do other investments, we'd happily sign a 5 year lease with you if we could" (WA law limits residential lease lengths. Just as well for them because they decided "the property market is so hot it'd be irresponsible of us not to sell").
Being forced to move in the middle of the school year because the owner want to sell the house kind of sucks, though 5 years of a month-to-month was a bad idea. More landlords are asswipes than not, being able to control your own destiny has advantages. After all, you are paying all of the costs plus a premium for the rental, and you don't even get the paint or floor covering you want, let alone nice things.
that's the nice thing about renting in germany. there this would not work, the owner can sell the house but they can't kick out the tenant. so whoever is buying is taking over the tenant. and while you can ask a tenant to move out if you need the house for yourself, that too has to consider the needs of the tenant. if they have kids in school it is almost impossible to remove them unless you go out of your way to help them find a new place and they are not forced to switch schools.
That’s a very nice theory. Decent real estate first buyer will not even consider rented property. But there are enough unscrupulous shady people who will buy the property at a great discount and get the tenants out. You will be right according the law, but still mistreated. Will you enjoy abuse waiting 3 years for a court? Probably not. It’s not their first rodeo.
most rented property in germany is owned by large firms who make renting out homes their business. for them, that is not an issue. most homes that people buy for themselves are not even available on the rental market. as you say, people who want to buy a home for themselves will not consider rented property. i believe that is true in germany too. if it happens then it is a rare edgecase, and they will be able to find out in advance if the tenant is willing/able to move out.
When you inherit property, it comes however it comes. I've been displaced twice by heirs. A lot of rental houses in the Bay Area are second/empty nests.
Is the landlord obligated to renew the lease at the end in perpetuity? Or does the landlord just need to wait for the lease to expire and then choose to not renew?
in germany by law every lease for private homes is always in perpetuity. the concept of renewal does not even exist. it is always month to month until the tenant decides to move out. you can't not renew a lease. you can raise the rent, but only in small steps. exceptions are if the tenant fails to pay for a few months, damages the property or misbehaves in other ways.
That sounds like a really awful law, TBH. I would never rent to someone if it meant that I was powerless to decide to end the relationship. I'm all for protecting tenants to some extent, but that law strikes me as abusive of the landowner.
see my other comment: https://news.ycombinator.com/item?id=48286641
i don't agree that it is abuse of the landowner, but you also have to consider that in germany private landowners renting out are extremely rare. always have been. maintaining rental properties was always a business.
as an individual home owner i would also not want to rent out either unless there are exceptional circumstances. but german cities do not have suburbs like in the US, and any popular area will build up multi tenant apartment blocks. people owning their own house are out in the countryside where noone wants to rent anyways. and any multitenant building is by definition a business. and that's the majority of all rental properties in germany.
you have to keep in mind that germany has the highest ratio of people renting vs owning. renting has become our culture. with so many people renting, laws have to be strict, otherwise we would have chaos. austria is similar. my mother in vienna lives in an apartment that has been rented by someone in our family since 150 years ago.
> any multitenant building is by definition a business
Not inherently so, at least in the US. Lots of multi-family structures in the US have multiple independent owners of their own spaces. Townhouses, condos, and the like are often a collection of individually owned spaces with their own deeds and property rights. There is usually a shared organization, such as an HOA, that is in charge of the management of the joint property. This isn't really a "business" though, it doesn't look to make a profit and is chaired by residents.
For instance:
https://www.zillow.com/homedetails/211-Autumn-Pass-211-San-A...
https://www.zillow.com/homedetails/6205-Thomas-Dr-UNIT-F2-Pa...
https://www.zillow.com/homedetails/121-121-Beach-St-803-Bost...
As an American it just seems strange to me to have people paying a corporation for the same home for 150 years and still have no real ownership stake in it. Like, over 150 years, wouldn't your family have paid many, many times the actual value of the property?
Or you need to have decent tenant protection laws.
In SF, you can’t evict tenants because you sell the house, and you can’t evict tenants with kids during the school year (without a just cause).
If the buyer wants to move in, isn’t that a just cause for eviction? If the new buyer just wants it as a rental, sure, carry on.
"Oh no!!! but this is communism!!!!!"
Said by the same people who asks: "Why the young are not having children?"
Most folks rent before they buy, and so they are aware of the hazards of renting.
An important qualification: if you rented as a kid, and now your kids are old enough to rent, your maybe-not-horrible experience is dated and probably no longer applicable. Apartments have largely gone corporate, and I assume also been taken over by private equity. Even cell-phone companies could learn a thing or two from their tactics.
I have had very good experiences with corporate apartments. They tend to have their shit together. Compared to renting from some random old guy that wants to “fix things himself”
Corporate apartments raise their rents in lockstep with the market, whereas at least some randos will leave it stable for some years in a row.
Also, if you're a marginal renter, e.g. can't make 3x the rent from a W2 and don't have a co-signer, credit issues, etc. then the randos are more likely to work with you.
My sister was a sex worker for a while when she was younger, and trying to do things like rent was difficult because her income fluctuated a lot (always enough to cover rent, but she'd save during good months for poor ones) and she was technically self-employed. Or if you're on any form of disability, or if you had a medical issue that trashed your credit, etc. People getting out of prison, and so on.
If you stray from the happy path, woe unto you when dealing with large companies.
Helped my daughter find housing recently and we ran into lots of these issues (also, nobody we talked to was willing to allow a co-signer).
We ended up finding a friend-of-a-friend who had a bedroom to rent, but she will not (at least in the near-term) be able to rent an apartment.
I'm only in my place because when I moved in, it was owned by a friend of my aunt's.
At the time, I was legally limited in the amount of money I could make because I was relying on Medicaid and subject to income limits. I have MS and not having access to MS drugs is very, very bad and risks permanent consequences. The drugs also are ridiculously expensive (I think my monthly medication is about $30k/dose).
I had money, it was just all earned under the table on the grey market. Not a situation a corporate landlord is going to deal with, but I never missed a rent payment and I'm a very good tenant (clean, report issues promptly, read and adhere to the lease, etc).
I'm no longer subject to those income limits and I have a W2 job now and could qualify for an apartment based on that, but for a long time that wasn't true. On the margins, you end up having to look for the small time landlords, employers, etc. because if you're decent and you can talk to them, you can get a shot.
That's interesting. I suppose you can't run that kind of thing in an S-corp and pay yourself the regular salary. It's what I do. You have a W-2 and everything. But I'm doing the other kind of SW: software.
You probably could, but a 22 year old bipolar sex worker isn't going to.
If you have that level of acumen, you likely don't have to be a sex worker.
I had that experience with the last house we rented before we bought.
We were quiet, predictable, don't-rock-the-boat tenants, and the rando owner mentioned that they valued that enough that raising rents wasn't worth the potential risk of new tenants who might cause them more hassle.
I live in an apartment owned by a larger company, the rent raises really slowly in my experience, Like 3% per year. I have been at my unit for 15 years now, never had any problem or regret anything about it.
Owning a house is a hedge against risk. You are paying a premium to have certainty, like insurance.
If that premium is too high though, you can be worse off than accepting the risk of variable costs.
If I could design society, we’d all live in RVs or other trailer type things, own the structure and rent/buy land as appropriate. But I’m aware this is an unusual opinion.
It just seems nice to be able to customize the structure without being tied to a particular location.
This is not universally true, my lease is indefinite and we have stayed here through ownership changes. My neighbor has rented the same apartment for close to 50 years. Vote for a better government who cares about you and provides you with proper rights.
Why not just sign a longer term lease? Most landlords would love that.
It depends on the landlord and type of place. A long-term lease comes with additional considerations for the landlord, mostly in terms of a long-term lease often requiring slightly different legals and a loss of optionality.
While I've had landlords that were not prepared for a long-term lease, I've never had an issue getting one anywhere I've rented. I've also had this work against me i.e. rents actually decreased halfway through the contract.
Because as soon as you sign that longer lease, the landlord will only ever do the absolute minimum repairs because you're stuck in that lease. We have been reporting our leaking roof for years...
It adds inflexibility with few benefits, and one doesn’t know that they’ll want to stay at any given place until they’ve lived there for a while.
I have never lived somewhere that allowed longer than a 14-month lease.
If you rent from an apartment complex (corporate owned), how big is the risk of being kicked out if you pay your rent?
They tend to just keep increasing it until you leave then just dial it back a little and get someone else in. Far worse than individual landlord that if you're a good easy tenant is gonna prefer you to an unknown, corporate don't care about that.
Yep. This was exactly my experience. You have to leave eventually just to keep monthly rent under control.
Sounds exactly like car insurance. If you don't "move around", they keep pricing it higher every year until you wake up...
the property can always be sold to a new owner that has a different use in mind.
Another drawback, you're likely to have less negotiating power with a corporate-owned rental.
There's not much else a new owner is going to do with an apartment complex other than continue to rent out the units, other than possibly tear it down and rebuild if it's very old.
You lease remains in force even with a change in ownership. So in most cases there will be no immediate impact to tenants.
If you stay long enough, you might be forced to move to another unit for a renovation.
Rent only goes up.
Inflation means pretty much all prices always go up. This statement is not very informative on its own since we care about relative prices.
Mortgage is locked in for 30years
Taxes goes up, insurance goes up, repair costs goes up, and with a 30 year mortgage you lose like 50% the value of the home in interest payments.
Those are all rolled into rent too.
> with a 30 year mortgage you lose like 50% the value of the home in interest payments.
You don't lose anything. The interest is the price you pay for the time value of the loan given to you.
You also get a tax break on at least 200k in "profit" (really more like inflation) when you sell the home.
Money spent that isn’t transformed into equity is considered lost.
???? Do you know how mortgages work?
"February 2026 Rental Report: National Median Asking Rents Hit Four-Year Low" according to https://www.realtor.com/research/february-2026-rent/
Now extrapolate that over 3 decades (30 year mortgage) and not 4 years.
Ben Felix, a Canadian portfolio manager that does personal finance videos and podcast, has been arguing for years that rent versus buy is often a wash financially, and that you should make the decision for non-financial resasons.
* recent 2026 video: https://www.youtube.com/watch?v=aU7v87EhDBI
* 2025a: https://www.youtube.com/watch?v=j4H9LL7A-nQ
* 2025b: https://www.youtube.com/watch?v=lBG-g1CKfgs
* 2021: https://www.youtube.com/watch?v=q9Golcxjpi8
* 2019: https://www.youtube.com/watch?v=Uwl3-jBNEd4
The 2019 video goes over a handy "5% rule of thumb": start with the purchase price of home, take 5% of that: if your rent is less than that, better numbers-wise to continue renting (and investing the difference); if your rent is more, probably better numbers-wise to buy/own.
The company he works for created a tool to examine the numbers:
* https://research-tools.pwlcapital.com/research/rent-vs-buy
In a perfectly efficient market that's what one would expect. It's pretty likely that the housing market has plenty of inefficiencies but it probably varies by region and people would need to compare rent and sale prices in their area.
If you can buy low and sell high it’s worth it. Especially if you’re positioned to buy when you can lock in low mortgage rates. Above 6% you might be better off putting your down payment into the stock market and renting.
It’s also more likely that you’ll feel good about spending money to improve the home if you think you can get the money back when you sell. (And then you get to live in a more pleasant place for years)
> Especially if you’re positioned to buy when you can lock in low mortgage rates. Above 6% you might be better off putting your down payment into the stock market and renting.
"Locking in" a rate for multiple decades is mostly (only?) an American thing:
* https://www.tandfonline.com/doi/full/10.1080/15214842.2020.1...
* https://www.investopedia.com/why-your-30-year-mortgage-exist...
* https://www.cnbc.com/2024/05/07/why-the-30-year-fixed-rate-m...
* https://www.deeded.ca/blog/why-canada-doesnt-have-30-year-fi...
While a ≥20 year amortization period is common, the mortgage term is generally shorter (2-5, 10 years) is most other places.
In italy not only you can lock it, you are allowed to change bank for lower rates (surroga) without any penalty
Also true in the US, the term of art here is "refinancing". Just about every homeowner I knew during Covid refinanced and now has a rock-bottom interest rate on their mortgage.
The downside of doing that is you end up "locked in" to the property too. They now have a strong disincentive to sell, because they'll lose that sweet sweet interest rate and relatively low payment. I'm unsure what the broader effect is on the market.
It's okay to do things that don't maximize your return.
Everybody is so obsessed with squeezing out the maximum amount of money from everything, it's exhausting.
Squeezing out the expected amount of money, making it even more exhausting.
Guessing what your yearly house-owning costs will be, and what the market will be when you sell, is in the realm of crystal ball scrying. Sure, you might be able to guess "reasonable" estimates, but individual instances aren't necessarily near the mean value.
> If you can buy low and sell high it’s worth it.
Or, hear me out: buy low and rent high.
Is the 5% rule for total rent per year?
>"renting is just throwing your money away"
Unless you think landlords are running a charity, some part of your mortgage is going to them as profit (over a large enough sample of renters anyways), and some percentage of your rent is covering 'bad tenants' (which you're not, right?).
Their entire improvement section is also something renters tend to not think about. It's a weird situation when renting that you aren't incentivized in any way to make improvements to where you live. You might not even be allowed to.
With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add. Though you also get the luxury of being able to ignore the value add if you just really want to paint that room neon pink for some reason.
> Unless you think landlords are running a charity, some part of your mortgage is going to them as profit (over a large enough sample of renters anyways), and some percentage of your rent is covering 'bad tenants' (which you're not, right?).
You can make the same argument about a bank not being a charity and making a profit from selling you a mortgage (both are true but are not helpful indicators about rent vs buying). Similarly the interest you pay is insuring the bank against bad debtors, which you presumably will not be.
> With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add.
You can improve your living situation in a number of ways when renting. If you want a new kitchen or bathroom, rent somewhere new with those things. Renting also affords you the freedom to leave when things go from good to bad (crime, noise, building ammenities, etc.).
> You can make the same argument about a bank not being a charity and making a profit from selling you a mortgage
So when you rent you have to cover the landlord's profit/risk and the bank's profit/risk because the landlord probably has a mortgage.
> interest you pay is insuring the bank against bad debtors
I thought that was the govt:
> Loans securitized by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac continue to dominate the market, comprising around 52 percent of all balances at roughly $6.5 trillion. Government-backed loans, such as those insured by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), account for 19 percent or $2.5 trillion. FHA loans are designed for first-time and lower-income buyers and make up 12 percent of balances, while VA loans that are available to U.S. military veterans comprise 8 percent.
https://libertystreeteconomics.newyorkfed.org/2025/08/a-chec...
Absolutely true if you're renting a home, but I feel like people never address that most people are renting apartments. These have substantially lower operating costs.
Home buying/rental is a totally fair comparison, but I know several people whose main justification for buying a home, rather than continuing living in an apartment, was that they wanted to, "stop throwing their money away". Totally ignoring how home ownership is actually more costly than renting a suitable apartment.
Of course, I fully recognize their are a lot of advantages to home ownership. Some of which you already called out. However, I doubt those advantages are actually sufficient to justify a small, but significant, portion of home purchases.
I think, in many places, landlords aim to break even with rent covering house expenses and interest on borrowing. The profit comes from capital gains. This works especially "well" when you keep buying places because with rent covering the interest you need very little capital so you can keep buying creating a demand that raises house prices that gives you your profit.
This works great until people are priced out of the market dropping house prices a bit and then you've just got a lot of debt and houses worth less, you go bankrupt and someone _really_ wealthy pick up all your houses at a discount.
You can at least hope that the really wealthy guy didn't get that way selling a "get rich in the property market" book.
> Unless you think landlords are running a charity, some part of your mortgage is going to them as profit
This isn't true due to market dynamics.
If a homeowners mortgage is say 4k/month and they list the property at 4.5k/month and receive no renters they can only do this for so long before they are forced to down the price.
Of course, what actually happens is that they list it for 5k/month because other properties are renting for that amount and that's the market price. But if supply increases in the area or demand decreases then prices will go down possibly below the owner's mortgage cost because uh getting 3.5k/month is better than 0k/month.
Maybe OP is saying when you buy from a landlord, they still get their profit (you pay them the NPV of the expected future rents - it's neutral from their perspective).
In cases like your example, what forces landlords to lower the rent? Usually only a) cost of credit, as you said b) opportunity cost, and c) government intervention [land tax, property tax].
a) not all landowners have mortgages! many own outright. they make pure profit b) the game theory of this case is frequently misunderstood, landowners are a monopoly and are strongly incentivized to act as a cartel. same principle as walmart destroying old stock.
Landownership is one of the most lucrative and profitable enterprises in (American) history, so you might want to question the logic which has convinced you that market dynamics is so effective in taking its profits.
> a) not all landowners have mortgages! many own outright. they make pure profit
I mean they don't. They have expenses like taxes and maintenance regardless of the properties vacancy. Nominally this is more profit than somebody with additional expenses (mortgage) but not always more than somebody who has additional income from say stock returns (the whole buy-vs-rent argument).
While your entire post has been directly about homeowners, (a) is also a crucial point about investment rentals. Other commenters have pointed that many commercial loans allow you to tack onto the end of the loan periods of vacancy. So during a bull market you can refinance and draw out your initial investment so that only the bank's money is backing the mortgage and then during a bear market when you have vacancies you just tack onto the end of the loan.
> b) the game theory of this case is frequently misunderstood
It's not misunderstood. It's exactly market dynamics. You don't list your property for rent at 3.5k when you have a 4k mortgage; you live in it yourself!
The reason people get 4k/month mortgages to rent out a property for 5k/month is exactly because the current market demand is 5k/month. They didn't buy a house first and then decide to price it at 5k/month because it's higher than their mortgage; they saw the market demand first and then bought the house.
> Landownership is one of the most lucrative and profitable enterprises in (American) history, so you might want to question the logic which has convinced you that market dynamics is so effective in taking its profits.
If you have an item of limited supply and demand increases since you obtained that item then you're going to have an (on paper) profit according to market dynamics.
I'm not really sure what you're trying to add, so here's a few questions and examples of my points. Have you read much economics?
a) Firstly, I said landowners, not home buyers. Are you claiming that nobody owns land without a mortgage? Most land value is in residential real estate these days, but not all of it. Much of that value is owned outright - either by homeowners or investors. This varies regionally but could be about 25-50% of the land. What do you think happens when a mortgage is paid off? What about a mortgage on an investment property? What about all the boomers who paid of their loans 20 years ago? While I did list taxes in my original comment, landowners do not necessarily need to pay significant maintenance, for example in the case of undeveloped land, or the case where the value of the house is very low relative to the value of the land.
b) Yes, market dynamics are frequently misunderstood. Do you deny that it is misunderstood, or are you implying it is misunderstood by me? As a case in point, your own example is actually simplified to the point of being wrong - investors frequently buy land with a loan such that the mortgage payment is greater than the (rental, business, etc) return. They do this on the expectation that future yields will make up for the losses. In most jurisdictions this strategy is actually incentivized by the tax system - money lost on the interest payments can be offset against taxable income from your other assets. Are you claiming this doesn't happen? Likewise, in my city, many commercial properties are unleased, but the asking rent is not reduced to the point that they get tenants. This is a 'feature, not a bug' of market dynamics - a fact which is frequently misunderstood by laypeople.
c) Again, what are you adding here? You are saying that the profits are not realised? This is simply untrue - property investors do realise their profits, typically via rent. Are you saying landownership is not profitable or it is not more profitable than other enterprises?
> With home ownership though, things like a modern kitchen, a shed, new laundry machines not only better your life today but also (likely) have some value add.
Just beware that it's usually much less than you put in though. We bought our house for £25k more than the next door neighbours even though they're cookie cutter houses sold within 4 months of each other. Our house was thoroughly modernised, new kitchen, all old windows replaced with double glazed windows, garage converted into home office and a bunch of other stuff. We definitely can't do all this work for £25k.
My understanding is that it does raise the value of the house, but less than you put in. I do find it strange, because personally I'd hate living in a building site or dealing with contractors, so if someone already did an extension/loft conversion that I would've wanted to do, I'd pay a premium. Apparently people want it done 'their way', which I can appreciate, up to a point.
You also basically have to assume any and all repairs and upgrades were done crappy, the absolute opposite of what you’d want, and probably didn’t fix anything, either.
Which means that good deals are out there, if you’re willing to search and adapt
You are also not a charity and need to pay _yourself_ profits on the home you own yourself. Otherwise you're no different from a landlord offering below-market rent.
I am a DIY-er by nature with construction experience, I enjoy it, so when we wanted a bit more outdoor space, we moved from a suburban cul-de-sac to a slightly more rural property on some acreage, and chose an aged luxury home, feeling comfortable generally in my ability to be able to rehab it over time. After all, we're not in any sort of rush, and wanted the kids to experience putting work into the place where they live.
I misjudged the scale. Going from .5 acre to 10 I feel like the amount of time I spent on home and property maintenance before could all be allocated to just one bucket titled "nature." Mowing, whether it's lawn, meadows, trails, tree line, all on different schedules. Trees die, they fall, hang up. The volume of brush, invasive species, pulling it, burning it. When we bought it, I made a mental note: "we'll have to replace the driveway." That driveway is asphalt, and 1000 feet long. The quotes for that alone are in price territory of a luxury vehicle. Irrigation, 12 zones, repairing, winterizing. Septic is another ticking clock. When that goes, you're in for 5 digits. Don't have a suitable secondary location? Engineered system, multiply everything by like 3.
So remove that time from my schedule, that's what I have left for home improvement work.
We're deep into it and really enjoy aspects of it. But if I could talk to my pre-purchase self, I would advise that the scale difference is huge, and consider the amount of time that goes into baseline maintenance when deciding how much of a "fixer upper" to take on, especially when acreage is involved.
I think this really depends on your expectations. Let the driveway go to gravel. Only mow near near the house. Hardscape instead of 12 irrigation zones.
If you expect the whole place to be manicured like a city lot, yeah, that's a huge amount of work.
We maintain the areas around our house. The rest is just oak woodlands. Looks like nature because it is nature.
Unless you live in an HOA, theres no real value/use in maintaining your full lot. Just let it grow, or have landscapers come in a few times a year and keep things trimmed. Forget irrigation.
Absolutely do not let cleared land brush/forest over because you (or the next guy) will need to incur expensive environmental permits to clear it and your land value will reflect that.
Likewise never reduce your paved or roof covered square footage. Even if you don't want that parking space or patio or falling down barn the developer who might be your next buyer is factoring that in.
Hate to admit it but it is self imposed what you are doing. You don't actually need a brand new driveway. You don't have to manage all 10 acres. You can keep up a little half acre of it same as you used to, and let the rest go to woods and whatever wants to grow. Maybe you can get goats and chickens to help manage the brush. Or lease land to someone keeping goats and chickens.
> Septic is another ticking clock. When that goes, you're in for 5 digits.
But for the length they last it is less than my city sewer bill. Though if my septic fails I'll connect to the city system was the quote I got to do that was about what a new septic costs.
>> Though if my septic fails I'll connect to the city system was the quote I got to do that was about what a new septic costs.
But that's the quote just for the connection. Then you get to pay a sewer bill every month.
One more reason I'm sticking with my current system for as long as possible. Though if my neighbor pays to bring the pipe the rest of the way to my house on the way to theirs I'll re-evaluate.
We did similar within the last couple of years, moving from quarter-acre to 25+. And there is no season you get off. Forgo irrigation in our climate and things flat-out die or you would be full-time watering things.
I would love to go back to myself 10 years ago when I was griping about the hassle of netting 5 small fruit trees, or cost of landscaping, and insist that I appreciate the scale and cost of that moment. Now we are dealing with a kilometre of vineyard netting, pruning hundreds of trees and vines, etc. Replacing all our nets back then would've been $200. Now it would be $5000+. I wouldn't give it up though.
It is suggested to set aside 1%-3% of your home's overall value for repairs every year.
Most people do not do this, and many homes thus slowly degrade in value. It is a fast track way to destroy potential generational wealth.
Home repair issues also tend to be bursty (rule of three...). You'll have a few years of nothing that'll lull you into a false sense of security, then suddenly three major issues will come up. So far this year I've had nearly 10K in random expenses pop up (!!) and based on the life expectancy of my HVAC system I expect I'll have some more major expenses next year.
If there is one near to you, join a tool library. It is a huge savings over buying specialized tools for one off jobs. Tool libraries are an amazing community resource.
Find a good reliable handy man, even if you know how to do things yourself. Hopefully one you can trust with your door code so if your neighbors report running water while you are away on a trip you have someone you can call who you know will take care of it.
> and many homes thus slowly degrade in value
Except in my experience the lack of upkeep doesn't actually affect the value all that much. In many places the vast majority of the price is the land and people seem less interested in valuing based on the condition of the structure. It may affect time to sell, but that seems about it. Sure some credits might be offered during escrow for some repairs, but again often the money is insufficient or the seller simply says no.
That depends on the market and how much deferred maintenance we're talking about.
In some places buyers will bulldoze perfectly good homes just to build a different one, just because the land is so valuable.
In other places, there are abandoned homes that municipalities can't even give away because the cost to bulldoze is more than the land is worth.
If the place you're in looks more like the former, maintenance doesn't matter as much. If it looks more like the latter, maintenance is going to be more important to your sale price.
At least where I'm from, the cost of a property with a burned-out unusable house on it is always a shit-ton more than land value, since running utilities to a house site, dealing with the paperwork, etc. is way more expensive and precarious than the cost to bulldoze. If there was a house there you can just raze to foundation and rebuild it without having to trigger a clusterfuck with the utility company or septic re-evaluation.
Also if the house is at least mortgagable by someone then buyers will still bid the price up to infinity on debt even if the house is only usable for bulldozing. The land value itself is also way lower for places without a house since the land value is loanable in one case and not the other.
This. Most value is location location location. It does not cost that much relative to price to reno when you want to sell. Space is the premium, not trendy open concepts.
A friend of mine had an interesting point there. It was more on a personal note that either of us had a hard time spending money on nice things for ourselves. Like, do you need better headphones, do you need this, do you really need that? Better not buy anything nice or fun.
A fairly unintuitive resolution to this is to setup a "fun and nonsense" budget and force yourself to spend it every half year, or to make a conscious plan on how to spend it over the year. If you plan the budget right, it won't hurt you, but it will force you to make your life better.
Maintenance, especially of owned property, seems similar to me. You should be saving up for the real "oh shit" situations, and you should accumulate a budget to just do things continuously. 6 months of routine maintenance budget saved up, what do we spend it on actively, before it becomes a mess?
> It is suggested to set aside 1%-3% of your home's overall value for repairs every year.
Rob Carrick, a now (semi-)retired personanl finance writer in Canada, observed that owning a home tends to not be a forced saving plan but rather a forced spending plan:
* https://www.instagram.com/reel/DWG223bPjvf/
* https://thewealthybarber.com/video/owning-a-home-is-so-expen...
Full interview on The Wealthy Barber podcast:
* https://www.youtube.com/watch?v=V8OwBbm5OXc
My parents sure figured out how to not participate in the spending plan, and in the 20 years they’ve owned the home it’s almost tripled in value.
I wouldn’t buy it, but it’s super easy to not take care of a home, live in it, and have it appreciate in value.
> Most people do not do this, and many homes thus slowly degrade in value
I agree with the first part, people absolutely do shoddy work or none at all but the value doesn't seem to go down. My mother bought a house had it inspected beforehand but massive issues with the foundation and the roof showed up the following spring when there was heavy rain. Sure, all that can be fought with attorneys and insurance (both cost time and money) but it doesn't feel very good psychologically or physically to be dealing with so much paperwork and house repairs.
Sorry to rant, I think your comment is spot on... owning a house is expensive.
This has been us the past few years: * Fall 2024: we had to get star bolts[1] installed to reinforce our front wall - $24k * Spring 2025: our (finished) basement flooded, requiring a French drain to be installed and the basement restored - $18k * Ongoing repairs to our roof to address leaks - $8k
Just a seemingly never ending stream of major repairs, which is taking up money we could have used on actual improvements (HVAC upgrades/mini split installation, reinforcing insulation, kitchen upgrades, etc.) that might actually raise the value of the home. Instead, I'm just hoping the repairs will keep us from losing money on the house when we sell.
[1] https://99percentinvisible.org/article/tying-architecture-to...
I feel you. That's been my life for a few years too.
I’ve found 1% to be a wild overestimate on required home repairs if you DIY. 3% is crazy, that’s half a mortgage. On my $500k home I’ve spent only ~$3k total on necessary maintenance over 5 years (0.1%/yr), and that includes resealing a leaking flat roof, some furnace repairs, a new dishwasher, some electrical that went bad, cabinets that came off the wall, rotting fence posts, and a separate section of fence that fell down. Insurance is always there for true catastrophes like a tree falling on you or flooding.
But it’s also a small home in an urban area, so more expensive to its size than most. My take on the rule would be to save your square footage in dollars each year.
Now, I’ve spent a lot more that that on the house, but the rest have been cosmetic or quality of life upgrades. I struggle to think of any single realistic necessary repair that would cost more than $2k in materials to do myself.
The trick if own can pull it off is to mortgage in an area with cost of living a step or two down from where one had previously been renting. This was easiest during the proliferation of remote work but can still happen with some persistence.
This way one’s housing costs feel like a bargain and savings (including repair reserves) quickly rack up unless the individual in question has serious problems holding onto money.
I just paid 120 000 USD for replacing the exterior drainage system. I knew it was expensive, but not that expensive.
Damn, at 3k a month, that's like 3 years of rent right there.
Most home repairs give warning. My roof is old but it wasn't hard to inspect it and conclude it is good for another year. If I have to replace it soon insurance will cover it.
I would really recommend getting a Home Warranty. I probably saved myself $7-$8K just in the last year fixing all kinds of electrical, plumbing and HVAC issues.
Maybe, if your home warranty actually has competent providers in its network. When I had one, it was always pulling teeth to get a provider to come out; and most of the providers who are willing to drive 3-4 hours to come out on a home warranty contract aren't the best. And yes, they did replace some things, but at least for me, I'd rather have paid out of pocket to get things fixed or replaced in a timely manner, rather than f**ing around for 3-5 months to get my air handler replaced or my oven almost replaced and then just get a check because their selected oven didn't actually fit. Of course, the check didn't really cover an oven that would fit; but maybe if you have a less fancy house their part selection would work out.
Your rent payments now, may be quite different in a few months. If you rent an apartment in a desirable location, which is far easier than owning a house in a desirable location, then rent payments are huge.
And comparable or worse than owning a house in farther out.
Your luck with landlords can wary a lot, and your rent payments may increase substantially with little notice. The landlord may also sell the building with either different management or repurpose it for something else and you will have to find a different apartment.
You may also suddenly have unpleasant neighbors. That is true with a house as well, but the distance between you and them is closer in an apartment.
As a dog lover, If you wish to have a big dog your may not be allowed to. If you want a yard to kids to play, you cant. If you want chickens you cant. (I know many in Denver who do) If you wish to install extra cooling /AC/heatpump you probably cant.
None of that negates your arguments fully, but the case is far from as black and white as you make it.
> You may also suddenly have unpleasant neighbors. That is true with a house as well, but the distance between you and them is closer in an apartment.
Not all, but a lot of the debate between renting and owning include something like this, but you can rent a home, and you can buy an apartment.
very weird how so many people are using apartments vs single family homes as a variable in discussing renting vs buying
I think it's because there's only a tenuous sense of control with things in-between, and to some extent SFHs that have strict HOAs. I mentioned in another comment that although in theory (in the US & Canada anyway) you can buy an apartment or duplex or townhouse, but as far as I'm aware you only gain marginal control over what you can do to modify it if you wanted to, and the advantage to owning largely comes down to owing the bank vs owing a landlord, but otherwise (sometimes even with SFHs without HOAs) you are beholden to the local bureaucracy if you want to make any significant changes condo strata and/or city permits). Seems like buying a non-SFH for any significant amount more than renting the same place is just trading the fear of eviction for the burden of debt, and buying a SFH is just debt+burden but you get a garden or something.
It's not weird, since 99% of rentals are apartments, right?
Source? In my neighborhood on the outskirts of downtown (about a 10 minute drive out) at least 25% of the houses are rentals, maybe more like 33%. Lots of investment properties people scooped up when mortgages were 2%.
I got my mortgage at 2.5% interest. The mortgage was about equal to all of the cash I had before buying, and I'm pretty sure I could (and should) have gotten a much larger mortgage before buying. Mortgages are essentially the only way for ordinary people to access that kind of credit. That's why buying a house is such a good deal. No one's lending an ordinary 30-year-old hundreds of thousands of dollars at 2.5% interest to plow into the S&P 500.
Of course, this kind of credit is _incredibly_ risky. People don't think of it this way, but a mortgage is essentially a massively leveraged bet on your local housing market. Which is already gives your risk profile an incredible lack of diversity. The most valuable thing you "own" in the time of your life when you buy a house is usually your future earnings potential, and your house will be the second most valuable thing you own. The thing is, both of these things are highly correlated with your local economy, so buying a house doubles down on your already high exposure to local economic conditions. People think of owning a home as a kind of boring, safe, low risk/low reward investment, but it's really exactly the opposite.
A lot of discussion of the cons without discussion of the pros. For example: 1) your home is a hedge against inflation, your $2000 to interest sounds terrible when rent is $2500, but doesn't sound so bad if rent rises to $3500. If you live in your home for long enough, this is all but guaranteed. 2) your home is a leveraged investment. You may only be getting 4% per year in appreciation, but that's 4% gains on the total value of your home, not just your equity. If you have a 500,000 home that appreciates by 4%, that's 20,000 that you get directly, not the bank.
Interest rates sure have made it less of a good deal than it was ~5-10 years ago, but it's usually still worth it in the long run.
> Interest rates sure have made it less of a good deal than it was ~5-10 years ago, but it's usually still worth it in the long run.
Not only that, but when interest rates come down it's usually pretty easy to refinance
The biggest advantage of buying a house is that it forces people to actually put money into a giant savings account which is not easily accessible. Otherwise people just spend the vast majority of the money they have. As an investment, houses are historically mediocre outside of some hot areas.
Why is that good? That is horrible for economic development and employment. It is worse for a country than being nuked.
But it is good for the individual.
You do have a point that in the long run, the health and growth of the overall economy impacts the quality of life of individuals, but the interests of individuals must be balanced against the interests of a country as as a whole.
Consider that people immediately spending all their salary at the beginning of every month and being broke and hungry for the rest of the month is good for the economy, but is obviously not what we want if we care about human well-being.
But that is an argument for banning everything and forcing people into a Matrix style pod at birth, since some people otherwise will be irresponsible.
And if you're talking about people who go broke and hungry waiting for the next pay check, in most cases it is because they have to spend so much on their rent or mortgage. Being "house-poor", as they call it.
I'd also like an answer to why it's good, but also to why it's horrible or "worse than being nuked". I admit I know nothing. :)
Well, at least if you're nuked, you might be able to redevelop that land before the nimby's emerge from their shelters.
Contrary to popular belief, people spending all their money buying pointless shit is not good for the economy.
If all the money of a country is not locked up in real estate of the olds, then that money could be invested in small and large businesses, in infrastructure, in young workers being able to create a family, and even useful products and useful services.
But it seems that the entire world has decided that everything except real estate - even the continuation of the species through children - is just "pointless shit". Better to have a very expensive tomb to haunt.
It seems like we're just a few years away from when the elderly start demanding to be buried in their houses and have them sealed off for all future.
> your home is a leveraged investment
Which means the potential losses are leveraged too. Plenty of people have ended up in that position. It isn't all upside.
All investments inherently have risk. Looking at historical data the average return is 4% per year on houses in the US. This average includes the '08 housing market crash. If you hold for long enough, your risk is drastically mitigated. Whereas with rent you're basically guaranteed for prices to go up year over year, unless we are in a deflationary market which is quite rare.
> If you hold for long enough
You are improperly accounting for risk. People don't own a diversified portfolio of houses, they typical own one house. The "if you hold it long enough" is to some extent disqualifying. Many people never see any real return over multiple decades.
Where I live rents won't cover the interest payment on a new mortgage. The return on renting is insanely good here in addition to the increased optionality and reduced risk. I've owned many homes, I'm just not emotionally attached to the idea of owning one nor deluded about the rate of return.
I'm not saying you need a diversified portfolio, I'm just saying that the actual rate of return will regress to the mean of 4% given enough time. Obviously we don't know if that regime will hold forever but that's the nature of investing, predicting the future is very difficult.
I agree though that this is a very location-dependent thing to consider. Local renting rates vs property values is hugely important when determining if it makes sense economically or not. In your area you'd probably be taking a loss compared to renting until rents rise enough to make your mortgage look appealing and appreciation offsets those early losses, which could be a long time depending on the situation. And you may not want to do that at all even if the math looks ok depending on your risk appetite!
My original comment was just address shortcomings in the original post omitting benefits to home ownership, it's certainly not a cut-and-dry issue which is why I had problems with the post originally.
The argument is that rate of return only regresses to the mean if you diversify. It's like saying "I hold stock in a single company, so if I hold long enough, my return will average the return of the S&P 500". Your returns will look like the mean only if you diversify across investments, not over time.
The general problem with leverage is a margin call though.
You largely will not get margin called over your house. The bank doesn't want it. And also the house largely won't get re-assessed in value so you can launder the volatility through bad markets.
However, if you take out a $1M stock position and it drops down to $0.5M the broker absolutely will re-assesse your position based on market prices and then take liquidate you to ensure they're whole.
Generally prices go up if the location doesnt tank. There are other benefits in itemization that for higher earners make it even more compelling.
For sure though, there are real risks esp if you shop at the edge of your affordability
Relevant: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
If you're just looking at the numbers, it's worth doing the math. Obviously many things will be estimates.
Most people don't do apples to oranges comparisons, because a 2-bedroom, 1.5 bathroom you're living in is not comparable to a 3-bedroom, 2 bathroom, quarter acre house on a lot you're considering buying.
So it's obviously not just math, but also preference, or need.
Local house prices, tax rates, utility rates, services for maintenance and upgrade... they'll all vary greatly depending on the area. And if you're moving from an urban apartment to a suburban house, you're changing how much you'll drive, maybe even need an additional car. But maybe you turn in your rail pass, and decide to cook at home more, and eat out less.
If you think you can decide this based on a formula (or some folk wisdom), well you probably can, for yourself. But of course there's no one universal right answer that applies to most people, because there are too many variables and too many options.
I think 1% per year is insufficient for repairs. Even a paint job will cost more than that these days.
There's also a potential HOA fee, even in many neighborhoods with freestanding homes.
But there are tax benefits of home ownership too. The interest deduction used to very significant, although less now since they raised the standard deduction. There's also a $250K/500K non-taxable capital gains benefit when you sell a house for more than you paid.
There are years where I don't have to spend that much and sometimes there a year here or there where I do a major project (roof, new patio, etc) that goes way over, but an average of 1% per year seems right to me.
Some people get lucky. I'm not lucky and I've probably spent more like 2.5% on average.
There's always a loud minority that love to boast that all they had to do was replace a washer back in '86 for 50c
Seriously. My experience with 15 years of home ownership is probably more like 3% per year. I don't think I've ever had even a single year where 1% was accurate.
I've heard a guideline of 3% of the value of the structure plus 0.5% of the value of the land.
35 years, .75% per year, newish home when bought, high desert
Painting is one of the home improvment tasks that most people can do without hiring out, especially since it is typically a discretionary.
It’s fairly unpleasant at least in my opinion. I don’t want to spend hours breathing fumes. Also it’s boring and repetitive. And finally, IME professional painting is far higher quality (especially if you are texturing or have any complex shapes to paint around).
It sounds like the parent is referring to exterior, and you're referring to interior?
With a mortgage, you are forced to save money. In other words you have no way around being disciplined. So yes in theory you could probably make more money with aggressive investing, but chances are most people would risk too much and lose a lot and never have the mental discipline of saving the excess they have no matter what happens in their life.
Only on paper.
You can borrow from your property’s value by neglecting maintenance, and that is sometimes even harder to notice than dollars in a bank account.
This is one of the ways condo ownership can bite you.
And then hope you're not one of the ~1/3 that end in a divorce at which point your house gets firesold to first low-balling flipper. House can be really bad anytime it's multiple people liquidating it -- I watched some other family members inherit a house and it sold for about half it's value because some family members weren't willing to wait more than a millisecond for the inheritance payout.
All you need is to invest into the index funds tracking some sort of the total market and you are golden. Not sure if I would describe that as aggressive.
But I fully agree that mortgage forces people to actually save money, most people would just spend it all.
I made plenty of money (and still do) holding US treasuries and other safe investments. You don't need to gamble on stocks to have income from cash which offsets rent.
For most of my life, fixed income was outperformed by inflation. Indexed funds returned double fixed income over that entire period. Either you are in your 20s or you aren't nearly as good at investing as you think.
I'm fine with keeping most of my post-tax cash pile in cash equivalents. I don't think you understand investing if your only measuring stick is returns. You do sound like a finance bro though given you took time out of your day to trash talk someone for something they didn't even claim.
If your investment return is less than the rate of inflation, you are literally getting poorer. Sort of defeats the purpose of an investment. It isn't much better than literally keeping it in your mattress. Just because you don't understand that, doesn't make it not true. And software I wrote probably has managed or touched your money at some point.
Ok, and? You don't manage money. You don't seem to understand risk tolerance and opportunity cost. You're also comparing near-inflation returns with cash at zero pct return.
I can see why you only write software and don't actually get to touch other folks' money. Good luck buddy.
IMO most childless people would be better off renting (kids change the whole set of incentives). Exceptions would be people with hobbies that require a lot of space or a yard, and light sleepers.
A house means a better standard of living, but you definitely pay for it. I spent $25k replacing a fence at my house this year, and I'll need to spend another $20k to replace the air within the next few. The roof, another $30k, is coming up too. Where I live you can rent for quite awhile with $75k.
While it's true rent goes up over time, if you take the money you're not putting into a house and invest it, your investments will go up over time as well.
Theoretically these capital expenses like fence replacement or roof replacement should have been deducted from the market value of a house when you buy it: a theoretically rational buyer would take into account the present value of future capital projects. And this just goes to show how much the market value of a house is now much higher than the present value of all future rent. In simpler words, the market is frothy. Buyers just hope the market remains frothy when they sell.
Oh, all this stuff was fine when I bought the place fifteen years ago. But eventually everything in a house will wear out right down to the foundation. And that was my point -- these are normal expenses you need to account for as a homeowner. Forget the price; I'm just trying to keep the house livable because I live here.
I don't follow this logic. Homebuyers do deduct these costs - I certainly did. House price is still tightly coupled to NPV of rent - expenses. People are a) predicting higher growth in rent over time (there are sound economic reasons to do so, though AI is a curveball) and b) use different discounting rates due to access to credit, etc.
If you were renting, you would still be paying for the fence, utilities, roof, etc (quoted prices for fence/hvac are very high btw).
If every renter on the street had significant free money to invest, why wouldn't the landlords increase rent? The only thing stopping them is the availability of other land / houses to buy, which acts as leverage for the renters. As land gets bought up over time, zoning becomes more restrictive, etc and this source of leverage dries up.
The result is that while some high-income earners benefit from renting, it is mathematically impossible for the average person to do so. 'Anyone can win the race but not everyone' principle.
Usually when you're renting you're not in a detached dwelling, which is more expensive. On a per-unit basis, it's a lot cheaper for the landlord to maintain your unit than it is for you to maintain a separate house.
Renting a house just makes no sense, IMO, unless you have a family and you know you're going to be moving soon.
Also, rents don't increase just because you have extra money. People take the cost of living into account when they decide where to live, so there's a natural cap on what people will pay for rent if they can commute.
Where I live, people do indeed rent houses in large numbers. This is typically not because they wouldn't prefer to buy - it is because they can't afford to. This would describe such a large number of people globally that I'm shocked you aren't aware of this.
'Rents don't increase just because you have extra money'. Could you elaborate? Also, I said if everyone has more money, rent increases
Absent government interference, rent is based on supply and demand. Why would you spend extra on a place even if you had the money?
While this is true, you're not actually contradicting what I'm saying. In economics, supply/demand is a curve (not a scalar quantity). If everybody's wage increases, then the demand does go up (the tail of the curve goes up).
But this is pointless abstraction really. If a magic fairy started putting 100 USD in the pocket of every renter each week, what do you think would happen to rent? Would the landowners be obliged to sell them land/houses at the current market rate? Or could the landowners simply refuse to sell and instead ask for higher rents?
As another thought experiment, imagine a law passes so that every renter is forced to eat soylent green and can't get a wasteful car loan or a netflix subscription. Every renter is now 100 USD a week better off (against their will). What happens to rents? Have the supply or demand curves changed?
You can’t compare buy house with rent a flat. You need to compare same property style/type. Otherwise you just lying you yourself.
My friend said: I can rent this 3 bed room for 6k. But if I buy a 1 bed I need to pay 2k. So it’s 3 times cheaper to buy.
Lying to myself in what way?
If you read up a bit you'll see I'm talking about single people, for whom that is the normal progression, at least, here in the US. You rent an apartment and save your money until you can buy a house. In the US the vast majority of houses have at least three bedrooms, which is two more than you need as a single person, but if you buy something smaller you'll have trouble selling it. So you buy the three bedroom place, you fill one room with junk and make the other into a guest bedroom.
The point was you're better off staying in the apartment, financially speaking, if you take the extra money that would have gone to a house payment and invest it.
Renting won't match home ownership for few reasons.
First one already mentioned in the comments is you can be kicked out at any time within your rental agreement. I was "lucky" enough to get our rental sold two years ago and then again this year. Packing and looking for another rental with 2 months notice is not fun (and boxes smell).
Another difference is location and place itself. You'll have much fewer rentals in a very nice neighborhood, and even those that are rented out, are the worst - corner lots (3x gardening cost/effort), facing major roads or other things that make life less comfortable.
Rental condition is not under your control. At least in Seattle area owners I rented from didn't keep the house well maintained, which resulted in:
* roof leak (no moss treatment performed, grew and lifted shingles).
* 25 yo furnace "worked" until one midnight my family had to evacuate and call fire fighters due to CO alarms getting off. Four days without heating after that (owner offered to reimburse for the cheapest hotel nearby).
* Appliances are not replaced until they break. I looked at one property few weeks ago that had original once white appliances. I asked if owner is willing to upgrade them, the agent laughed at told us they will fix it if something doesn't work after we move in.
I pay only 650/mo for rent though. My friends with homes around me pay about what I pay in rent in their home property taxes alone... Or especially once you add in some utilities, like my heat is included in my rent and I can have my place at like 75F all winter if I want.
Also yes they replaced the dish washer and refrigerator with new ones before they broke or died while I've been there.
But you rent a studio and they have a 4 bed house. You compare apples and oranges
Great article, love that you enumerated all the costs in buying a home. I don't like how renters romanticize home ownership and fail to understand how many costs are involved.
> You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on.
However, this statement doesn't exist in a vacuum. You need some place to live, and you have to compare the cost of renting to the cost of owning.
To give an example, the typical rent in Toronto is $1000~2000/month, and the typical home ownership cost (including principal, interest, taxes, and maintenance) is $2000~3000/mo. We can just pretend that both are around $2000/mo.
If owning is still $2000/mo but suddenly rent is $500/mo, then renting suddenly becomes a great deal - even though you are still literally "throwing money away". You can use that differential $1500/mo to invest in a savings account, stocks, etc.
And speaking of that, I realized that the biggest cost in owning a home isn't the mortgage (and you correctly pointed out that paying down the principal doesn't change your net worth). The biggest cost is the opportunity cost of the down payment, when you could have instead invested in the stock market at 7~10%/year.
Continuing with the Toronto example, if you bought a home for $500k with 20% down, then the counterfactual if you had continued renting is that the $100k chunk of money could've generated $7000~10000/year = $580~$830/mo, which is a substantial fraction of the $2000/mo rent.
Shoutout to this article again: "You Are Naturally Short Housing" https://thezikomoletter.wordpress.com/2012/12/10/you-are-nat...
> No, the statement is completely true
Why don't we say this about other expenditures? Am I throwing my money away when I buy dinner and not a cow? Did I throw my money away by buying a carrot and not farmland? I don't think the statement is true or false, it's just meaningless.
You somehow missed the second part of that sentence: "No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on."
The oft-repeated statement that "renting is throwing your money" is an implicit contrast to owning a home, where the mortgage payment "builds equity" in your asset that can be sold later.
"Throwing money away" means you don't get to own something that can be sold for money later on. That's why we "throw money away" on gasoline, but not "throw money away" in a savings account.
The second part of my argument is that throwing money away isn't necessarily a bad thing, because the alternative (such as paying to own something) can end up being more expensive and being a worse deal financially.
No, I read that part of the sentence. I don't know why you'd assume I didn't. Should I claim you didn't even read my entire response?
I've never heard someone claim I am throwing away money when I buy something consumable except rent. It's a stupid statement that doesn't convey any useful information.
OMG...the phrase probably comes from some real estate agent. Truth is, 50 years ago investing in US real estate was such a good investment that if you could own you did. Today, so much "value" has been squeezed out of the housing market that owning is very very difficult. Most people under 40 who own, are now all in on an investment in both the housing and interest rate markets that could either crush them or be their best lifetime investment. Its very hard to argue at this point that making such bets is a good idea for most people. The worst part is that this was all unnecessarily engineered by people who believed Disney movies accurately portrayed public policy.
That’s not what that expression means though. Wikitionary has it as “To spend money foolishly or indiscriminately; to waste money without regard of the consequences.” Which sounds about right.
How is it foolish to spend money on housing?
I'm not sure that your definition of "throwing money away" corresponds to the OP's.
OP uses that phrase to imply the (un)worthiness of spend. You're using it to mean that it doesn't build or maintain equity, which is true almost tautologically but wouldn't be very meaningful unless your audience doesn't understand what it means to rent something.
Buying is cheaper than renting in most of the country, it's only in coastal markets with exceptionally high home prices that this isn't true. There's a basic formula you can use called "price-to-rent" that helps you calculate this for your area. Where I currently live I was able to buy a house for $285k that would cost $2500/mo to rent in the current market, which is an extremely favorable price-to-rent ratio. If the ratio is not over 20, it's better to buy in your market.
While it may not be well known to many, there are mid-sized cities all across the middle of the country where you can buy houses as cheaply as $150k in this year of our lord 2026, but rent generally will be no less than $1000/mo. Private equity and software like RealPage have had a nationwide impact of driving up rental costs, but this hasn't necessarily caused housing prices to skyrocket in places in middle America where there aren't a lot of natural reasons to want to move there.
So sure, owning a home might cost more than renting on paper in California, but that's not true in a lot of parts of the country. Even then, the financial aspects aren't the only parts that matter.
> My 1983 home had been used as a rental for years, so much of the maintenance had been neglected.
The author is acknowledging a reality without acknowledging it, also. Rentals are not well cared for. Most landlords do not keep up with repairs, maintenance, and improvements, and you are going to get to deal with the poor quality of living situation as a renter as a consequence. You get to control this when you own your home, and while it is an expense, it's a fair expense you can manage yourself.
> You can save a lot of money in maintenance and repairs by doing your own work whenever possible.
True. But even if you have the physical ability, skills, tools, and equipment handy - you can spend a lot of time on maintenance & repairs. Just ask anyone who's done yard work for a few years, or has repainted a house, or ...
That maintenance has to happen one way or another, hiring someone to do it can add quite a multiplier to the price. For example, I was recently looking at water heaters and called 4 different plumbers to get a quote. All of them came in around $5,000 for the job. The water heater they quoted costs $1,000 retail at Lowes. If you know what you are doing it isn't even difficult to install.
That said a layperson probably won't know the new code requirements in their jurisdiction and if you sell your house you'll have the inspector tut-tutting the work for one reason or another.
Hah, although, admittedly, when my AC died here I was looking at quotes for $17K for replacement (although I did also do the furnace at the same time, since both were early 1980s and basic models even then). "Why? I could buy the AC for $4K".
"Surely it wouldn't be too hard to undo/redo piping etc." But yeah, different refrigerant, different code requirements for vents and exhausts and drains. 4 people working for 16 hours, I saw where the money went.
> If you know what you are doing it isn't even difficult to install.
How much time does it take to acquire & refresh the skills and code knowledge, and how many water heaters can you amortize that over during your life?
The skill is in being able to solder pipes together, something that is useful to learn as a general skill. It doesn't even need specialized equipment, just a torch, some flux, and a spool of plumbing solder. There is also a tiny bit of electrical work, but that's literally just matching the colors and using a couple of wire nuts.
The building code stuff is more of a bugbear.
> The skill is in being able to ...
Admitting that one of my grandfathers was a blacksmith and the other a farmer, that my own father could have built a house from the ground down (I helped him dig and pour a foundation once) and then up, etc. - most modern Americans just don't have the backgrounds/aptitudes/comfort levels needed to try and succeed at such tasks.
I spent my 30s playing "this old house" when I could have made significant amounts of money just working more consulting hours. Yeah, I enjoy some home improvement and maintenance tasks, but I also enjoy financial security and pain-free joints. The tools and things required to maintain a home also take space you could use for hobbies or simply downsize. Home maintenance makes sense for folks with lower value skills and less means to side hustle though.
I learned very fast after purchasing my home that hiring out to a contractor made so much more sense. They can get done in a day what would take me a month+ of weekends.
Yeah I was surprised not to see the opportunity cost angle in this article. For high income tech workers the opportunity cost can be huge
Depending on the job, you can also do it better yourself than what you can reasonably pay for.
I built a custom shelf for my closet. It'd have costed me an arm and a leg to have someone else do that, even with a tech worker's salary.
I also built a custom walk-in closet. It took me a day, saved me over 2k and I got a better quality closet out of it. (You find find built yourself a walk-in-closet kits that are easy to assemble, it really isn't that hard, just don't get the home depot level quality ones.)
It definitely depends on the job. Enjoyment is certainly a factor too.
There is that famous study from a few years back where people value IKEA furniture they put together themselves more highly than pre-built stuff of a better quality.
Depends if you would be getting paid during the time spent doing these projects. People with flexible vacation time might even be getting paid while doing the work. But otherwise weekends and evenings are great times for smaller home projects.
There are other opportunity costs other than direct monetary income.
For example, to mow your lawn, you have to find a time to do it every couple of weeks when the weather cooperates, be at home at that time, store and maintain the equipment, have a pair of "grass shoes", clean up afterwards, etc.
This might be worth the effort if you don't have much disposable income. But if you have money to blow, hiring someone to mow your lawn can give you more time to do something else you'd rather do.
You come out ahead with home ownership if you buy the right-sized home and stay there. Homes almost always offer more space and utility for less than rent would, assuming the rental even allows you to do what you want to do with your home or at your home.
Staying put reduces the time and money you spend on borrowing, closing and moving, but most importantly, it keeps you from lifestyle inflation that is the biggest financial risk to homeowners or renters.
These are the dynamics in most of the United States in the broadest age range. They only break down a bit at the extreme low end (rooming with a bunch of people) and in the most expensive and house-constrained cities.
> Homes almost always offer more space and utility for less than rent would
1. you can rent a single family house so the space and utility are the same
2. if interest rates recently increased very rapidly, the owner can afford to charge rent much lower than the current mortgage would be because they are locked into a lower interest rate.
I don't think so.
A rental house is almost always more expensive if it's an apples-to-apples space, or the renter's use of it is significantly restricted even though it looks similar. Sometimes both.
There can be temporary mispricings of rent vs mortgages, but they correct, and they go in both directions. There are always small mispricings in housing markets that let individuals do exceptionally well (or be ripped off.)
>I don't think so.
this isnt a valid response. you are just wrong. https://constructioncoverage.com/research/cities-where-its-c...
For the most part, those aren't like-for-like comparisons. In much of the US, where the average mortgage price is higher, it's because people are buying more than what they would rent.
There are a few distorted markets where that's not the case.
Didn't mean to offend with the preface before the rest of my comment.
> I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Any half-competent realtor will tell you that if you aren't going to stay in a house for 3+ years you will probably lose money on closing costs/fees.
Contrast this with my house, I stayed in it for ~6 years and the house went up ~$100K in value. During that time I put ~$50k into it (AC, Insulation, Pest, replaced some pipes).
But most importantly, it was mine. I did have to manage my own maintenance but I've lived through almost a decade of renting at differently places and the "included" maintenance is dog shit. At one point I had water in my kitchen floor such that as you'd walk water would come up through the seems in the vinyl for well over a month... on the 16th floor. I also had long streches where the elevators weren't working and every year they increased rent $50-$100/mo. Right as I was moving out they wanted to add a $25/mo pet fee and the removed our cable modems and made everyone use wifi-only (limit 10 devices). Yes, some of those could be avoid renting a house not an apartment but I've lived that life as well and it ain't all roses either.
TANSTAAFL. Maybe renting and owning come out about even for most people in most situations, but a lot of the "perks" of renting really sucked IMHO and I greatly preferred being in control of my own destiny, never having to ask permission, not feeling like a second-class citizen, not having the owners stop by or want to show off my unit to a prospective customer.
I have zero desire to go back to renting until it's time for nursing home/assisted living-type place for me.
We've been in our home for about 5 years now, but we bought down the interest rate as far as we could so our break-even point is still a year or so out, not counting appreciation. Our realtor told us over and over again than if there was any doubt we'd be in the house for 5 years we would very likely lose money selling it.
There will always be people who break even after 15 years, just like there will be people who hit the lottery and sell for 5x while the ink on their mortgage application is still wet. But 5-ish years on a standard 20% down no points 30 year mortgage seems like a good rule of thumb outside of VHCOL areas.
> the "included" maintenance is dog shit
In my experience it usually is.
> Right as I was moving out they wanted to add a $25/mo pet fee
If my landlord did that, I'd be quite surprised as he obviously knew I have 2 small dogs when I moved in and they haven't done any damage. Is your landlord managing lots of properties, not just your own? It's the type of added fee I'd expect from a faceless company, not a person I've had a relationship with for a while.
> they removed our cable modems and made everyone use wifi-only (limit 10 devices)
That would've driven me mad.
The place in question for the pet fee was a corporate place. I’ve paid deposits for having a pet before but never a flat rate added fee to every month.
As for the WiFi, yeah, they told me they could raise it to 20 and didn’t understand that I had multiple devices that I didn’t want on WiFi or literally didn’t have WiFi (a handful of servers). The WiFi was the captive portal BS so it was hell to try and get anything headless connected to it. I was so glad to get out of that apartment.
Awful. I consider myself lucky to have never had the need to deal with these kinds of setups. At first I assumed "WiFi" was used to mean "broadband internet", as opposed to cellular, as I've seen Americans call it that, but it actually is just WiFi, nothing wired?
I've never had to deal with "X devices max", either.
What did you try to get around the limitation? What about a laptop that would serve as a proxy or a router or something?
The "X devices max" is so dumb, anyway. Shouldn't it be the total throughput that matters? It's like those electrical advices that say not to daisy chain power strips as it's dangerous, yet I've had 7-8 power strips daisy chained for decades with no issues. Obviously the issue is not to overload a single socket with too much power, but if you have 50 low-powered devices it's OK. Imagine if our electric company had a "X devices max" policy.
Yeah, to be clear, there were no wires available (I asked, and then begged). Thankfully I was in the middle of buying my house when they made this change and I just dragged my feet until I moved out and never turned in my old cable modem so that I could continue on as I had before for the last month or so I was there.
The device limit was so stupid and for all I know they raised/removed it after I left. Even at 20 devices, it wouldn't have been enough [0]. Had I stayed I probably would have needed to do a wifi->wifi or wifi->ethernet bridge so I could get around the limit and provide internet to the non-wifi devices. Also, just to provide some more info, this was in 2019 so it wasn't like it was the dawn of WiFi and people didn't have lot of wifi devices.
> The "X devices max" is so dumb, anyway. Shouldn't it be the total throughput that matters?
It should be, but that would require some level of critical thinking and the owners of that apartment building had long-since proven they possessed neither the ability or will to think about anything they did, WiFi or otherwise.
[0] Between my partner and I we had: 2x phones, 2x tablets, 2x laptops, 2x Smart watch, 3x servers (not even wifi-supported), smart home hub, smart scale, Xbox, 2x Apple TV, 3x Echo Dots, 3-4 smart plug wifi devices, and then I had a work laptop and a few work testing devices (phones/tablets) so I blew past the ( raised for me) 20-device limit without even trying. And I'm probably forgetting a few devices.
For my twenties, the biggest cost would have been opportunity. I was able to switch jobs multiple times in different states before meeting my fiancee. Renting allowed me to be far more adventurous than I would have been.
This. So this.
When you're 20 something and you can pack your 1 bedroom apartment worth of Ikea furniture into the smallest U-Haul, or just sell it on Craig's list and start over at the next place, renting is awesome.
When you have a house full of crap you've collected over 20 years and live somewhere you carefully picked for your kids to have a good school, the whole equation flips and you're willing to accept the downsides the author calls out, to give your family stability.
This is a super-useful article, and there are many cases where the cost of buying, owning, and selling a home is higher than that of renting. But sometimes ownership costs less than renting, and often—generally when you stay long enough—it can cost a lot less. One place in this article that hints why is when he says that in 2011 his mortgage was $2,329.92, whereas now 15 years later it's $2,440.48. That is a tiny crawl upward, nowhere near the rate of inflation. If he'd been paying $2,329.92 monthly in rent in 2011, he'd now be paying about $4,100. Inflation hits renters much harder than homeowners. Appreciation (a form of inflation) tends to help homeowners more than hurt them. Nerdwallet's rent vs buy calculator is quite sophisticated and can help you reason about your own situation. https://www.nerdwallet.com/mortgages/calculators/rent-vs-buy...
These own-vs-buy comparisons always compare an idealized rental situation vs a concrete ownership situation. Its never realistic (although this article does acknowledge it: "My 1983 home had been used as a rental for years, so much of the maintenance had been neglected".
Specifically: people think about maintenance costs as a "con" in owenership, but its not like in the alternative (renting) you'll get all of those things for free. The owner just won't do any maintenance beside the bare minimum required by law.
And when you invest in something because the landlord won't do it, then move to another rental for some reason, you may have to do it all over again. Especially for upgrades. When you own the logic is "I'll pay X for this and it will hold for ~Y years". When you rent it's "I'll pay X for this and if I leave before ~Y, I'll have overpaid on a per-year basis".
I really like this analysis. Considering this is written for america, a lot of these points somewhat apply to germany. Over here homeownership is pretty difficult. I put that decision away until I'm 35 or 40 and absolutely have to stay in one place because of kids and so on. I feel like I have more psychological safety when I rent and can move away whenever I want to, have a pile of cash and investments that pay the rent for a decade. I can't wrap my head around pulling most of your savings into a loan and then paying more or equal monthly than what you would pay for rent...
I feel like renting your first 1-3 flats in different cities is a valuable learning experience. You will learn where you want to live, what is important in a flat, its layout and its utilities and materials. It will save you a ton of money longterm if you know how thick the walls, well isolated the windows, locality of things and many other facets have to be...
Is Germany more like the US? In the Netherlands, before 2020, the cost of getting the loan was negligible. For a while earlier, it was zero - all transaction and notary costs could be included in the mortage. You could literally buy a house with €0 in your bank account, as long as you had the necessary income.
These days it's not so easy, prices have risen by 50%+, but you still pay less on a mortage than the equivalent rent, by a large margin. Renting (if you can buy) is pretty much throwing your money away.
The article details costs and leaves two big ones out. First, opportunity cost: lot of folks rent instead of own on the basis of keeping assets in higher-performing market sectors. Second (and perhaps actually an expression of the first), anything that prevents a working professional from changing cities can exert downward pressure on future economic opportunity.
Maybe 1% of renters do that. The rest can't afford a house.
Changing cities? Sell or rent out your house. Not harder than moving apartments.
Not harder than moving apartments?!?!
Even easier than moving apartments if you just sell your house "as is". Depending on your rental contract you might have to do paint it etc before returning it.
I grew up in Puerto Rico where houses are made of concrete or concrete blocks. Maintenance was lower because there were not much issues with termites, water damage, shingles, etc. My house made it through a category 5 hurricane with minor damage to the windows and some flooding. Now I live in a house made of wood in Georgia. I’m exhausted from all the maintenance and the extreme nickel and dime-ing from everyone. I bought new five years ago and the house now needs to be fully painted, a new A/C evaporator, and some other minor stuff. So, about $20K worth of “maintenance”. This plus the stress of having to live with the hopes that a hail storm does not hit and ruins my shingle roof. I’m hoping to sell it and rent until I move back to the island and live in a proper solid home. I would build a house here with concrete but code does not allow it.
OP seems to disregard the fact that equity in the house is basically a pile of cash you can live inside of. If you're renting you're paying some premium for the landlord to pay their mortgage interest and pay down their own principal. The cash flow is lumpier for ownership (fewer, bigger expenses) and your risk concentration is greater (you're committed to a single asset). But ultimately that stuff is all priced into rent, plus a premium for your landlord to have "passive income".
If you're able to own a rental property in today's economy it feels like you'd have to be stupid to not be able to make above-market returns
The long-term promise of buying a house isn't necessarily "number go up" but "after 25 years you own it outright".
It seems like public (REIT) landlords haven't really been making an above market return. Admittedly they have constraints that private landlords don't, but they also own a metric shitload of rentals.
For me, the biggest 'cost' seems to be peace of mind. I rent my place, and even thinking about all this home owner sh!te gives me a headache.
To each their own, and I'm probably pissing money away, but I want to live with the feeling that I can quit this 'housing subscription' (that's what it is, just another subscription) within a month and not even have to think about it.
Meanwhile italian subscriptions have on average 6 months notice in advance for quitting it...
And be homeless, if you are truly not thinking (and assuredly acting) about it. It’s not “just another subscription” in many ways. The idea of renting being the “peace of mind” choice rings false with me.
Having your own home and property where no one on earth can tell you how to live: priceless.
Maybe home ownership is becoming a luxury, but humans don't exist in financial spreadsheets. The intagibles of SFH ownership are worth literally everything to me after a lifetime of renting.
It's also absolutely a class differentiator in the US. If you're behind on your rent and getting evicted, that's seen as a personal moral failure. If you're behind on your mortgage and getting foreclosed, it's considered a tragedy, and there are many options for support like forebearance. Just look at what happened during COVID; red state renters were getting knocked on by the sheriff within 90 days, while it can take years for someone to lose their house.
>Having your own home and property where no one on earth can tell you how to live: priceless.
Whatever you do don't read your local zoning code.
If you really want motivation to browse large bulldozers on Facebook Marketplace look into the legal doctrines that underpin these codes. It's pretty mind boggling.
You've never had a HOA have you
Nope, never would.
A big reason why people believe one should own their own home (or that it is prudent to do so) is due to the historical fact that land has gone up in value in many countries with strong population growth (such as the United States).
As the population of the US starts decreasing (due to lower immigration, and historically low birth rates) and the urbanization trend completes, it's unclear why the value of land should go up, and therefore why real estate should increase in value.
The rest of the debate is very dependent on things like tax treatment (e.g. SALT and property taxes), personal preference (stability of fixed rent vs right to stay forever/customize), and transaction costs.
The buy/rent decision is quite complex for many reasons, but two overlooked factors are:
1) When a bank loans you $1e6 to buy a house, they are effectively deputizing you to act as a money manager: they allow you to make an investment that will hopefully appreciate more quickly than the interest rate. There are many other investments that have this property (e.g. the stock market), but banks won't loan to you to invest in them!
2) A mortgage acts as a forced savings rate: you pay the bank every month, and when you're done after 30 years, you have a large asset. So a large mortgage is (for some people) a good psychological commitment mechanism that imposes financial discipline.
Owning a home is as much responsibility as having infant which never grows up, can never be potty trained. There are thousands of things that need to continuously monitored and maintained. Time, money, mindspace and the stress are the huge operational costs of owning a home. Property taxes, insurance and repairs/maintenance, these three are increasing YoY will cost 3X the initial cost over a 30 year mortgage.
There is no incentive for homebuilders to build better homes, once they sell, they don't deal with the ongoing costs in multiple dimensions.
Having owned a house for two decades (well two houses because we moved) and having two children, I would say that owning a home feels like a doddle in comparison :-)
I haven't done the sums to compare expenses, but when they are young childcare/lost earnings is definitely more than insurance/repair/maintenance costs (and tax, although in my country you pay tax as a tenant too).
I'm not sure that's true. I own a flat in London and a couple in Spain. With the Spanish ones I have to do something every few years. I gather infants require more maintenance than that.
Completely missed the tech-heavy features of owning your own home:
Wire your network however you like. Those walls are yours.
Invest in as much solar power as you want. The only limit is the sun itself.
Want to be a Ham? Be a ham. The antenna goes wherever you want.
Charge your EV as long as you want. The EV charger is yours and only yours.
Also, do you want a cat? A dog? A massive tree? Just get it. Nobody can say no.
Depends very much on the region/country/jurisdiction/county you're living in.
Walls are your's? Not when it falls under some heritage laws/building codes which forbid too much deviation from the original.
As much solar as you want? Again, very much depends on not disturbing someone elses view, or the 'general character' of the surrounding landscape. OFC again dependent on jurisdiction.
Big bad antenna? See above. Cats 'n dogs, again dependent on country/county. The same for tree.
All of this applies to some regions only, where your next neighbour is far away, out of sight, usually.
And even then you can have shit like 'water rights', like in Colorado.
For virtually all new construction in USA, HOAs influence a lot of your freedom in these items
Gonna disagree with you on this one. For the ham antennas, sure. For everything else though? I've never seen an HoA that stops you from having pets (they may have some rule if you have 100 cats or a rooster, but "normal" variets are not an issue). I've also never seen an HoA give two hoots about network wiring inside your house. EV chargers are also yours to install as you please everywhere I've seen.
Maybe in a condo or something where you don't own the walls, but they are community property? But for single residence, the HoA is usually just a "mow your grass buddy!" nag machine.
You must not live in California. A lot of these are actually regulated by the state.
Last summer I was reminded of the dichotomy of owning vs renting during the crazy heat wave in NY.
Both my coworker and I had AC issues. For him, he called his landlord and that was it in terms of hassle. He then went after his landlord for a rent reduction due to the AC being an issue for a week.
I instead had to buy a portable unit as a stopgap while I dealt with finding contractors to give me quotes on a new central air system which cost 5 figures and probably 20 hours of time.
I had a towel bar fall out of the wall. I realized that that small repair would take a trip to home depot, buying plaster, paint, a paint brush, and probably some other crap. There are of course a million types of paint and brushes to get there. I'd have to research what makes sense. Something cheap but decent, I guess. I have no garage so what I do with the rest of the paint? Drive to the hazardous waste disposal in my city, which has limited hours. So maybe 3-4 hours of my time including watching youtube videos if I don't screw things up, and $50 of stuff.
I then sent a maintenance request to my landlord and they came the next day and fixed it in 15 minutes.
> Both my coworker and I had AC issues. For him, he called his landlord and that was it in terms of hassle. He then went after his landlord for a rent reduction due to the AC being an issue for a week.
This is the best case outcome. All too often, especially with mom and pop small landlords, the repairs are delayed or done incompetently, or there is no local ordinance offering recompense to the renter, or both.
You are also reminded of the same dichotomy when you (the renter) get a letter from your landlord asking you to leave the premises you’ve liked a lot for the past few years.
I was half expecting/hoping this would talk about the opportunity cost of owning a home. More precisely, owning a primary residence.
There are quite a few studies about this, but it is something which is not discussed broadly enough. But there is a inverse relationship between home ownership and income.
Because for most regions across the globe, once someone buys a home, they start looking for work that's in geographic proximity to their primary residence. And in most parts of the world, incomes generally tend to stagnate since higher paying jobs are almost always away from where people live.
Now a lot of people believe that they will pick the higher income, but the amount of logistics which goes into thinking about selling your home or renting it even often dissuades people from trying to look for a job which pays significantly more.
Interestingly, some multinational companies that I know of facilitate the entire transaction for their executives and senior managers when they need to move cities or countries because of this effect.
Owning a home for the purpose of investment and not living is a different matter, and the same effect isn't seen there.
> the total settlement costs were about 3% of the value of the home
> That's $12,777.92 to get the loan.
This is something I don't quite understand when people talk about homes: they just bought a $425,930 home. If they're getting a 30-year mortgage with a 20% down payment they will pay a total of $902k at current mortgage rates. The closing costs are such a tiny fraction of what you're spending. You wouldn't go into a store and refuse to buy a $40 item when you realize you need to pay $3 in sales tax, why would you be bothered by having to pay 3% of the home's value or 1.4% of what you will end up paying in the end?
Same thing with property taxes: my home-owning friends complain about property taxes like they're some huge imposition. OP is paying $515/month in property taxes. My rent has gone up by more than that in the past 3 years that I've been in my current apartment.
That being said, I appreciate this post for the breakdown of all the expenses. I'm considering becoming part of the land-owning elite, so this is useful.
Some of these numbers need federal limits/maximums on them, at least in some categories of 'home'.
In California, property tax can only go up 2% every year based on the original purchase price (prop 13). For my neighbor who bought their house in the 60s, this must be peanuts.
> Same thing with property taxes
Without high property taxes, more homes would appreciate in real terms.
People act like owning a home and coming out financially ahead is an inviolable law of physics. It is not. Buying a house is like purchasing an option to have something at a set price in the future. That option can be overpriced to the point where it is not profitable.
This isn't to say that there are not emotional aspects to owning, but that is a separate discussion.
It depends on a lot on your timing with the market. This guy (from TFA) sold in 2007; I bought my first house as a (fairly dire) fixer-upper in 2008. I sold it in 2016, after it had more than doubled in value (partly due to improvements we'd made, partly due to market improvements). I bought the next house as a (cosmetic) fixer-upper in 2016, and sold it in 2020, after the pandemic had multiplied its value by 1.5x. Now I own outright, pay no mortgage, and my property tax is less than 1% where I live. Yes I got lucky on timing on both ends of the 12 years, but not selling into a down market (if you can help it, of course), buying with an eye to potential increase in value, and being willing to take advantage of market conditions are all things that can work in your favor.
There should also be a counter article titled the real cost of NOT owning a home. At least in the macro sense, there are consequences for a generation spanning the global that is willing but unable to afford to purchase a home.
In the US, median homeowner tenure is about 12 years. If the local price-to-rent ratio is high, (greater NYC metro for example) then you may have to stay 20 years to come out ahead financially. In a case like that, renting can be a very attractive strategy for building wealth.
It's more complicated than that. If you sell-to-buy then the tenure only affects the costs related to the purchase itself. I suspect many homeowners live in a house they own for much more than 20 years. I've owned since 2007, but my mean tenure is less than 12 years since I moved.
I don’t think we should be discouraging people from buying homes. In a healthy market, the goal should be more households owning the homes they live in, not more homes being accumulated by investors and non-owner-occupant buyers.
The mistake is not buying a home. The mistake is buying too much home, stretching the term too far, and ignoring maintenance.
A cheaper house, shorter loan term, and realistic repair/addition budget change the math a lot.
Own what you can actually afford to maintain.
Financially, in very few cases renting actually makes sense.
Assuming of course you make an informed purchase of a home given your particular circumstances.
Most homes in the US appreciate in value, unless you live in rural Pennsylvania.
I also believe buying early forces you to be more financially responsible and makes purchasing your first family home later in life a lot easier.
So I always recommend young people to make the sacrifice and buy a place.
Your first home doesn’t need to be your dream home.
My first place was 700 sqf in a very shady area of the city, but it came with sweet tax abatements for several years and the area improved a lot but the time I sold.
There are always opportunities like that in almost every city in America, even in today’s market.
If you take away the "always increasing" price of homes.
Is that true.
Homes for the majority of human history have not been something that "always appreciates", the condition of the domicile might actually be worth less than the components it was constructed with.
At some point, nobody who isn't already on the ladder can afford to buy, then you've hit your market saturation. Then it's about how much more can you squeeze them for.
If interest rates rise, house prices fall, because most people buy at the edge of their affordability -- and soon there'll be no homes that they can afford at all, or: the house prices must stabilise and not "forever appreciate".. they can't both be true.
All those costs are baked into your rent by your landlord (who had/has to pay them).
The difference is that after 30 years you can own the house and have a low-cost place to live in your old age (not free, you still have prop taxes, repairs, etc.), whereas with rent you have nothing. That is significant.
But really, the biggest benefit of paying a mortgage is related to the value of money.
Over 30 years your rent will increase substantially in then-current dollars, while your mortgage remains fixed. Which means that it essentially gets cheaper over time.
Consider that the US national average rent in the US was ~$550-$600 30 years ago, and is ~$1700-$1800 today.
Exactly — it doesn’t matter how many “hidden” costs he finds to adds to the cost of owning for the article — the renter pays them all, plus the owner’s profit.
That's the cost of renting money (mortgage), not owning a home. I saved up cash and bought my home in cash. I did not have closing costs. Only the seller did. My closing cost was the price of the home.
I don't plan to sell. I'm not "investing" in the house. I'm living in it. Essentially, my home eliminates the biggest portion of my monthly expenses. I hope my home value goes down, a lot. Then I pay less on the one expense I do have associated with it: property taxes.
I'm old enough to have owned a number of homes in a number of jurisdictions, so I'd caution that these numbers will differ significantly depending on where you live. For example, insurance is hugely influenced by fire risk, so a rural or semi-rural home can easily cost 4-5x as much to insure (and some insurers will give you "please go away" quotes, so it's important to shop around).
Similarly, taxes will depend on the locality, loan costs depend on the lender and the loan amount. Utility costs in SFBA can be easily 4-5x higher than elsewhere in the US, etc. So your totals could be easily 30% or 300% of what's outlined in the article.
The one important point that the article makes is that your ongoing costs will also vary dramatically depending on how much work you're willing to do yourself, especially in high-regulation, high-labor-cost areas such as SFBA. A basic job, such as replacing a leaky flush valve, can be hundreds of dollars in plumber costs, or $19.95 if you go to Home Depot. Hiring a painting contractor can cost thousands. Etc, etc.
I've also seen several homeowners outright taken advantage of. My main example in the US are various "mold remediation" contractors, who can help you in some really bad situations, but they're just as happy to charge you $20,000 to do nothing of value based on vague fears.
Aren't quite a few of these concerns alleviated by owning a condo?
Condos may, and quite often do, have enormously expensive maintenance issues that the condo owners are quite unaware of until the last moment and will have to shell out for via special assessment from the condo association. Example from personal experience: very soon after moving into my condo, cracks were discovered on the other side of the building. They were investigated and it turned out that the building was made from substandard concrete. All exterior facing concrete needed to be replaced or the building would fall down. To pay for the fix, there was a special assessment that I needed to pay into, and to add insult to injury, for 2 years I could not use my theoretically beautiful view from the balcony and windows - it was all jackhammering and concrete dust.
Which ones? Mortgage, real estate costs, repairs, maintenance are all still there with a condo.
My gut feeling is that repairs and maintenance cost more with condos than if you own a home and you're handy to fix minor stuff and know how to find good contractors for bigger jobs. I imagine condo jobs becomes more difficult and contractors charge more for those jobs. But I don't have data to back my hunch. Condo has extra issues in dealing with neighbor problems (issues with garbage, pets, unpaid fees, noise, etc...) and you have to maintain shared spaces (hallways, elevators, etc...) and you end up paying for that via your condo fees.
"Finding good contractors" can be pretty challenging, especially finding good contractors at a good price.
Condos can also benefit from efficiencies of scale - e.g. there are plenty of small jobs on myself that I do myself, but between the time spent on research, and expenses/trips to pick up supplies and tools, I'm spending multiple hours of my time/money on things that someone experienced/equipped could bang out in 20 minutes - but any decent handyman is going to charge their call out rate of $100 + materials for a 20 minute job. vs at appropriate scale a condo corp can effectively just have/share a full-time handyman and save a pile of overhead.
A condo will have an HOA which is responsible for things like fixing the roof.
However, not all HOAs are actually financially responsible. So they might raise monthly fees, issue “special assessments” (lump-sum charges that can be $10k+) or take on loans. And they decide when they will do that.
Condos basically just force you to pay for the ongoing maintenance that the author mentioned, but with the downside of not actually having any control over the quality of the work or the decision making process at all unless you're on the condo board.
Condos are generally the worst of both worlds, because you have almost all the responsibilities of homeownership combined with nearly all of the restrictions of renting an apartment.
There's a reason they appreciate significantly less than other types of property.
You can always go join your condo board meetings though. In my experience most HOA boards are filled with people who have seen horror stories of HOAs and don't want to live in a place with a bad one.
Sure sometimes they do make bad decisions, but you're welcome to just show up to their board meeting and give them some advice.
And the worst of another world: hyperlocal politics.
Owning a condo can be quite scary financially. If the building itself needs expensive repairs, the condo board can pass those costs down to the tenants.
You may own your condo, but the condo board can also hit you with a 6-figure bill for building repairs and aggregate maintenance. Enough to force you to get a new loan, even when you might still be paying your mortgage.
And if the tenants take issue with these kinds of bills (they frequently do), they can tie things up while things get worse and more expensive to repair.
This was actively a problem for the tenants at the center of the Surfside condominium collapse, with maintenance needs directly related to the problems that resulted in the collapse.
Condos come with another problem: you don't own the land. The condo itself is a depreciating asset unless maintained and money is put into the unit and the building. You're also exposed to the risk of the area becoming less desirable, newer condos being built nearby, general economic trends, mismanagment of the property, etc.
Other than "mismanagement of the property", most of these exposures apply to non-condos as well.
Right, owning a condo has many of the downsides of owning a home without the upside of owning the land, which is the primary thing that appreciates. Not saying it's never a good idea to buy a condo, but it's not as dependable an investment vehicle.
Yes, but so are some of the advantages (e.g. "More space and a quieter environment"). It's somewhere in between home ownership and apartment renting on the spectrum of living situations.
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Over short term windows it’s very possible for renting to make more sense. Over the long term it’s very difficult for renting to come out ahead. If you’re talking about the same town over say 20 years then the chances of renting coming out ahead is near zero.
In the US at least the tax system is also heavily setup to favor home ownership. Mortgage interest and real estate taxes (which are baked into rent) are tax deductible for the home owner and not for the renter. That’s another big difference that adds up over time.
I have been renting the same unit for 15 years now. It was 400/mo when I moved in 15 years ago, and it's 650/mo now, 15 years later.
I have paid about 90K in rent now over the last 15 years and this also includes water and heat.
My friends with houses in my area pay about that much in property taxes plus heat that I pay for rent...
I pay this small amount and make 6 figures and I put the majority of my income into index funds. I am fairly sure that I am coming out way ahead of a house. Plus how do you put a value on the time sink for maintenance and upkeep? Mowing, shoveling, etc.
Again, you are truly blessed. I've lived in multiple places (California) where the rent increases by the maximum allowed amount every year ($100-$200). None of your friends refer to their houses as "units", do they? You can't compare your situation with theirs lol
Why shouldn't I compare though? I have looked at buying a house multiple times and I can't make it make sense personally. It's so much more expensive and more work. I just need a place to cook and sleep and keep my things.
650/month is incredible. My mortgage payment is almost eight thousand dollars.
I really only need a small apartment, anything more would be a waste for me. I just need a place to cook/eat and sleep, and keep my things.
I bought my house about 10 years ago and it has appreciated around 50% since then. That might sound good but the market is up massively and meanwhile all the price increase on paper means is that I pay more property tax. Since I have no plans to sell there is no actual benefit to me from the price increasing.
I calculated it recently and in retrospect I would have been vastly better off renting and buying VOO with my equity stake. It doesn’t help that taxes + maintenance have cost almost the same as rent even if you don’t count the actual purchase price.
“ the price increase on paper means is that I pay more property tax”
In almost all jurisdictions that’s not how property tax works. You’d only pay proportionally more if your home went up more in value than your neighbors. Also, property tax goes up on rentals too, it’s just baked into the rent vs something a separate charge. In the US the homeowner gets to deduct all or part of that tax from their income taxes while the renter must pay that with after tax dollars.
Only if you really stay. You never know when you will lose your job and the only thing to find requires on site in a different city.
Renting and buying tends to work out the same in the long run if renters invest the difference on the early years - but which they rarely do
Owning a home is like paying into a bank account made from bricks, but it increases in value. Yes it requires upkeep and maintenance, because entropy wants it to be a decaying pile of rubble. The land will always have a value, so maintenance is kind of optional-ish.
The people trying to convince you to keep renting are, sometimes, rental investors stealing from your children's inheritance. Renting is paying a property investors mortgage in return for a home you don't have to/cannot directly maintain but you are still paying for the maintenance on a weekly/monthly basis at an agreed rate with annual increases.
On the other hand if you're not going to have kids it's bit like Brewsters Millions where you try to spend everything you make without acquiring assets and without running out of money while you still need it.
You can always sell and go back to renting, but if you rent for 30 yrs you will put at least a couple of homes worth of your earnings into renting over that period.
> After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Don't tell that to real estate permabulls, even the idea of a landlord making money for a month or two between them paying banks for homes is a whole diatribe.
Money in the toilet! They surmise, as if trading equities wasn't an option, or any other way to make money faster wasn't an option. As if other leveraged investments don't exist. As if leveraged investments that can optionally generate cash flow don't exist. As if they aren't such poor traders that they need the extremely slow collateral calls of real estate to survive.
Because one of the dozen middlemen fumbled the bag, the real estate flipper had to pay rent for a month! Woe! They couldn't live in yet another suboptimally located suburb far away from stimulation or economic center, instead of using some of that that capital to rent somewhere in the middle of where people would actually want to live while putting the rest in equities or a productive business
The decision to buy vs. rent is completely dependent & goal dependent. If you're in the bay area, buying really only makes sense if you have kids and want them to be in a good public school district. Otherwise, many houses are oversized and have extremely high repair costs. Finding a good rent controlled unit could be better, especially if you find a landlord who will repair things.
And anybody who is saying their property value went up, so it was worth it, you really couldn't know that at the time. It wasn't a given (tbf neither is the market going up). Also, it's not like the property actual increased in value due to some quality upgrade, it's due to artificial scarcity. If the political winds change to encourage more housing, that trend could reverse.
There are arguments that you can customize a house you own more and that's true, but that's not a financial argument. I don't think a lot of big renovations pencil out anymore the way people expect. Paying X to renovate a kitchen doesn't increase the value of the house significantly over X anymore because the costs are so high and the high inflation erodes your dollar value much more quickly than in the past.
Yikes! I know that this is "normal" here in the U.S., but the guy paid over $26K just to sell his home. We sold our home with a "quit-claim deed" and only paid a lawyer $600 to write it up and make it kosher. Buyer was THRILLED not to have to pay all the ridiculous fees a normal sale entails... (and yes, I know that a bank might have a hard time creating a loan for that type of sale, but it worked for us)
There are lots of often overlooked costs to own a home. I have been 15 years in my place, and now I get some advantages e.g. my loan is fixed so the monthly cost is roughly the same as 15 years ago... in a place like San Francisco, it is nice.
The property tax goes up slightly every year, but not faster than inflation.
There are recurring things to maintain (repaint every ~10 years), the roof has been patched about 10 years ago, might need a new coat eventually.
When I was a homeowner (I recently exited), I found it incredibly discouraging how every vendor who came over for this or that looked at you like a walking sack of dollar bills after driving up to your home in a brand new pickup truck. When you do hire them, the owner never even shows up for a final inspection. There's a large part of the economy who knows their customers will treat their equity like a bank and prices accordingly.
Famous article by JL Collins: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...
Another thing to keep in mind is the lumpy nature of costs, meaning you need to have access to cash to pay for multiple major maintenance projects in one year. My largest single-year expenditure for maintenance was 25k in a LCOL area pre-pandemic. That would probably translate to 50k today. If you have to dump that on a credit card, good luck digging yourself out of that hole.
It's common to hear that renting means you might need to move at the end of any 12-month period. Well, that cuts both ways. You have the option to move away at the end of any 12-month period too. Lots of folks had to turn down job offers in the aftermath of the housing crisis because of their homes.
Not surprised ownership is not cheap in the US.
West EU here, bought a new, architecturally wrong (yikes) house in 2012. I knew its conception would spell trouble, and sadly I was not disappointed on this part almost right off the bat. But the location and the price (right on the aftermath of the 2008 financial crisis and economical fallout / market bottom) were good.
After 14 years it cost an average of $130 per month on maintenance, mainly to correct on multiple occasion the conception issues aformentioned after the 10y warranty. Utilities are about $170 per month. And taxes are now about $1700 per year (rise 3-4% every year)
This $250k purchase must have cost less than $2k in fees, the credit was... well no credit. Spent almost 100% of my savings except some cash for my business. On the overall this house cost me less than $500 per month so far. Not really surprising for a new house, certainly.
And its market value rose by 60% in 14 years.
Yep, ownership is (was ?) very profitable in the west EU, mind the location.
There are places in the US that are cheap still. Midwest you can still get 150-250k homes today, decent ones at that too. Large american style, 4 beds with 2 car garage sort of thing.
> You can save a lot of money in maintenance and repairs by doing your own work whenever possible. I replaced the drain pump in my dishwasher, replaced a leaking kitchen faucet, replaced the control board on my HVAC system, do all my own yard work, etc.
This is where the margins of home ownership open up. Doing your own yard work also has added benefit of giving you routine awareness of potential issues around your property before things become much more expensive. Irrigation and drainage issues are usually obvious when you are standing right on top of them. I would argue that if you aren't willing to push a mower around your property, you might not want to own that property.
Also, DIY yard work also forces you to maintain various tools and skills that are extremely useful for adjacent applications. For example, lawnmowers and standby generators tend to have similar principles of operation. The tool and knowledge I use to gap the spark plugs for my mower works just as well for the generac.
It's also really nice to just do some work outside instead of staring at a screen . I really enjoy mowing my huge lawn, doing some light landscaping stuff. My wife and daughter pick weeds for hours and it really centers them.
> I bought this house new, and didn't live there very long
End of story. That's the entire conversation right there.
Note how much money he made on the house he lived in for a decent amount of time... (~330k, minus minor investments on repairs)
Renting is better than buying if you're not going to live in the house for any real duration (real meaning 5+ years).
Otherwise... at least in the US... the financials around 30 year mortgages and a target inflation rate mean buying is going to work in your favor.
Will this blow up at some point? Meh, maybe? But for now, owning is FAR better assuming you actually hold onto the property. The longer you hold, the better it gets.
> Otherwise... at least in the US... the financials around 30 year mortgages and a target inflation rate mean buying is going to work in your favor.
Yeah, subsidized mortgages (via government insurance and mortgage interest deductibility) tilt the market towards home ownership in most of the USA.
Most of the rest of the world doesn't intervene in its housing market as much and the ROI on owning vs renting can shift. Switzerland will tax your home on the potential rental income of your home, whether you rent it out or not (I think this recently changed, though). The home ownership rate is historically between 30-40%. Basically farmers and the upper quartile of income earners are the majority of owners. The result is that most Swiss have their wealth in more liquid assets and are also highly mobile for work.
> Will this blow up at some point? Meh, maybe?
Owning is also turning into a problem for many Americans. Some people are trapped in their homes because moving means resetting locked in low interest rates. Insurance has made home ownership extremely expensive in much of the states that were fastest growing over the past decade. I'm sure solutions (good and bad) will come, but sometimes it's nice to just be able to hand in notice and walk away.
> I think this recently changed, though
Yes, it will take effect in 2028. Although that's unfortunate, it was a good tax to equalise tax treatment of owners vs renters.
The Swiss market is also different in many ways: no capital gains taxes except on real estate, which really shifts the invest against house appreciation towards renting.
> Basically farmers and the upper quartile of income earners are the majority of owners.
I'm not certain the second part is very true. Of course, given how prices are you need to be rich to buy, but I think the bias is a lot more towards age than income: those that own are overwhelmingly those that bought a long time ago or inherited.
Finally, rent control results in some crazy price to rent ratios in the big cities: Zürich is around 35. But as usual with rent control, it's if you can find the right place.
Buying a home is a hedge against inflation.
Renting has no similar protections. Your choices are, "Pay the (increased) rent" or "Move"
There are cheaper ways to hedge inflation. Also, people with careers don’t really need to hedge inflation especially.
In 1960 rent was about 10% of median income. Today it’s more like 30%. This might sound bad but in 1960 food was 30% of median income and today it’s around 10%. Prices are always relative, it’s impossible for everything to get cheaper. There’s no reason to assume rent is especially prone to this except that it has been over a certain period. Other periods it has been the opposite.
"people with careers don’t really need to hedge inflation especially"
This is like saying, "you don't need to hedge inflation as long as everything goes right"
You don't need to hedge inflation ... until you do.
Rent control changes the math on this. Obviously location dependent but it can have a significant effect.
The markets with rent control have astronomical increases in rent when compared to markets without rent control. Also, you lose supply when there is a unit that it doesn't make sense to renovate because the future rent won't be high enough to cover it. So it remains unrented instead.
Sure, but from the perspective of the individual renter (who arguably doesn't have the power to change rent control law anyway), their point stands.
I mean, I would argue that's why rent control exists in the first place: Because there is a market with astronomical increases in rent (not the other way around, like you are suggesting)
Rent control causes other problems, such as lack of supply and lack of maintenance.
Absolutely.
Other things that change the math:
- Only allowing individuals to rent living spaces (no corporations)
- Only allowing individuals to buy houses (no corporations)
- Not allowing corporations to buy influence in Washington DC
Anything that puts the focus back on what's the ethically and morally right thing to do for humans changes the math.
And don't get me wrong: I'm a capitalist. But for some reason, some capitalists really get upset with this kind of language.
I wonder why?
>You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.
If you take literally anything away from this article, this opening line is it. People who say this bought their house decades ago and have no clue what the present situation is.
I don't know who is telling you this, but the people who gave me that line lived through several recessions including '08 and are still making money buying rental properties to this day. They know more about the present situation than you do.
My sub-3% loan from 2020 says otherwise.
I pay as much as I did for rent in 2019 for my house now (and until 2050). And my house is over 3x larger.
You're still paying a mortgage if you rent it's just someone else's mortgage.
Someone else's risk. Someone else's liability. I can end my lease and walk away without penalties or obligations. If anything happens to the property, it isn't my problem. I just need <$200/year renter's insurance, and my landlord is literally responsible for everything else, including things like my washer and dryer.
I can move on a whim, and the worst-case costs will be a modest lease termination fee and literal moving costs.
You also never see any of that money ever again, with a mortgage a % of the money spent a money gets converted into the best asset for retaining wealth there is.
Worst possible situation you can get in with a house: not being able to just walk away, difficulty to sell if the area has gone bad, even with all these the worst thing you can do is just walk away from the house and even then you're just back to the same position you'd be in if you had rented, you'd have nothing.
I don't know. I get a reminder of what housing inflation looks like every year when the annual tax assessment goes up another 6-8%.
I say that, and I bought my house less than a decade ago. So you're making a generalization that isn't true.
I'm not from the US but I find some of these numbers ridiculous.
$515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else?
> Cut down trees that were too close to the house: $2,800
I could've likely flown to the US, cut down your trees for a few hundred and flown back home for that much money. Why so expensive? I'm beginning to question the other numbers.
> Replaced leaking faucet: $185
Can't you do it for like 5-10 $ yourself? If you don't have any tools, maybe spend 20 $ for tools? The author even says he replaced his own faucet - I don't get it at all. Or are we talking about a fancy top of the line faucet?
I realize repairmen cost a lot but that seems like a LOT. And I get that in the US you have to have lots of insurance and inspections and whatnot, but... it still seems high.
Cost of labor quite higher here. Especially house work. Any licensed person to work in your house you're looking at paying $200 minimum just to walk in the door. At least in the major metro areas.
Why would you care if they're licensed if they're doing yard work or replacing faucets or cutting down trees? I understand wanting some assurance for whoever will wire your whole house or will make major plumbing repairs but not for small jobs. Yes, trees can fall, but it's easy to make sure the person cutting them knows what they're doing - I've cut trees myself.
For small repairs (light switches, blown fuses, faucets, installing water heaters, cutting down trees, cleaning gutters), before I started doing them myself, I called friends who knew what they were doing, usually 50-something year old men who were jack of all trades.
yeah of course. theres no license for most of these things. just clarifying
Contractor costs are insane, our recent experience. Gas heater wouldn't start:
-- diagnosis: $180 flat fee
-- quote for replacing a failed igniter: plus $300, one week waiting for parts
-- I found the part on eBay and replaced it myself for $20, delivered in 2 days
Trimming an (admittedly large) tree in the backyard: $2,500. One guy in the tree with a chainsaw, 3 guys carrying branches to a wood chipper truck.
It's $515/mo on a $757,000 house. This comes out to 0.82%/year, which is pretty typical by US standards.
What kind of expenses are covered by that? I can only think of garbage collection and collapses of the street that affect your property.
Where I live I pay rent on a relatively small ~150000 $ house and have no idea how much the property taxes are as the landlord pays them but if they were ~1/5th of 500 $/month, I'm sure my rent would've been higher than what it is now.
Police, fire, schools.
> What does this cover - garbage collection, what else?
That's the fun part, it doesn't even cover garbage!
Jokes aside, property tax in the US typically go towards safety net funding for your community. So a lot to schools, public safety, roads/infrastructure, etc. There are definitely some places where garbage is covered in that, but a lot of places garbage collection is privatized in the US.
Sometimes hearing about how much it costs to cut down trees makes me want to quit my job. I think a lot of that is probably for liability insurance though? Both for worker injury risk and for risk of property damage. It will cost a lot to fix a house that has a tree fall through it. But also since those are market rates, it's still a very good idea to ensure they have legit insurance. You are usually SOL if they don't.
Interesting, I assumed most regular taxes (like another comment said - police, fire, schools) would be from income taxes or other taxes collected from businesses.
> but a lot of places garbage collection is privatized in the US.
Closed housing complexes, like the suburb ones with gates where you have HOAs and your own security? Or just random parts of a city?
I really kind of want to move to the US to cut down your trees now. I'd be willing to yolo it without injury insurance for a while if that's allowed. If I cut the trees from top to bottom there's very little risk for the house. But I guess the clients would expect me to have such insurance? The whole thing is kind of foreign to me, as if I was incapable of cutting down my own trees I'd just hire some company, likely a small one recommended to me by someone I know, and never question what kind of insurance they have or whether they're licensed or not.
>$515.50 per month for property taxes? That seems soo high.
Where I live (Texas), there is no state income tax. They make it up by having high property taxes. It's something like $20,000/year per $1MM of property value. $515.50 would be so nice...
> What does this cover - garbage collection, what else?
Here, none of that (Garbage is billed by use as a utility, like electricity. You're charged by how big of a bin you get).
It funds all the things the state and local government does - schools, roads, parks, police, fire, social services, anything tax would normally fund.
> Where I live (Texas), there is no state income tax. They make it up by having high property taxes.
I guess that makes some calculations quite different, like what rent should be, how much you can view a property as an investment, what types of businesses you can start there, and so on, compared to other states?
> You're charged by how big of a bin you get).
Are there no communal bins? Or is that for a closed community as opposed to a city? What would you do if you had to throw something out while you were walking around?
I've never been to the US so it's a bit of a culture shock.
In general, rent in Texas is higher than some places but lower than say, the Bay Area in California, because there is much more supply.
I live in a neighborhood of single family homes that are on big lots and spaced out (perhaps 20-30 meters between homes). There is no community trash bins. There also is very little foot traffic, aside from people who live in the neighborhood. In more urban areas, there would be public trash cans.
> $515.50 per month for property taxes? That seems soo high. What does this cover - garbage collection, what else?
I agree, but the what else is that property taxes are often the largest source of income for a city budget, if not the sole source, so everything that goes into running a city; road maintenance and police usually make the top.
> Can't you do it for like 5-10 $ yourself? If you don't have any tools, maybe spend 20 $ for tools? The author even says he replaced his own faucet - I don't get it at all.
Labour would be free as long as you can't spend that time earning more money or doing something you'd prefer instead of replacing a faucet, but like any other product they can be anywhere between $0 and much more than $185. I personally don't value faucets that much, but if I were replacing one, I don't see why I'd get a crappy one.
> I could've likely flown to the US, cut down your trees for a few hundred and flown back home for that much money. Why so expensive? I'm beginning to question the other numbers.
There's not enough information to make a coherent judgment, but assuming the tree is a rather large one, why would you? If someone said to me "I'll give you $400 to fly to Europe and cut down a large tree that's too close to someone's house without causing any damage and you must bring your own equipment, dispose of the tree, etc.." I sure as hell would not take that offer, especially if I knew how.
The surprising amounts are the point of the article; home ownership is excessively expensive, and if you don't value these things highly enough to either DIY or hire someone to take care of it, it's probably not worth buying one. That's why I'm happy to rent, I don't give a damn shit about any of that and would rather light my hair on fire than volunteer for these burdens, unless I was rich enough to not need to be concerned at all. The same could be said about the house itself; in my city, a house like this would cost around $2m USD just for the privilege of doing all this other bullshit for eons.
That said, your line of reasoning seems akin to the old "why spend thousands on a macbook, I could build a PC for half (which isn't true anymore)" or stubbornly using some ancient piece of trash for your whole career even though you can afford something good. Quality work and good/better tools are worth investing in if you value them or their output. I could use a garden hose and a bucket to shower everyday and live in a cave too. Luxuries are when you get into pointless spending territory, where you're just spending wild amounts more than necessary to achieve the outcomes you want in the timeframe you want.
> property taxes are often the largest source of income for a city budget
Hadn't considered that, thanks. :)
> I personally don't value faucets that much, but if I were replacing one, I don't see why I'd get a crappy one.
I realize I don't know how faucets cost in the US so 185 could be close to what one would pay even to DIY it.
> If someone said to me "I'll give you $400 to fly to Europe and cut down a large tree that's too close to someone's house without causing any damage and you must bring your own equipment, dispose of the tree, etc.." I sure as hell would not take that offer, especially if I knew how.
I'm not sure I'd literally fly over with equipment to cut down one tree, but from what I've seen (admittedly, not a lot), damage occurs when people are careless (want to do it quickly, don't secure bigger branches properly or are negligent in general) or try to cut from the base like a lumberjack in the movies. Of course anything could happen no matter how careful one is - I've broken lots of cups and plates - but it doesn't seem especially risky compared to other jobs. But again, I'm not a professional tree cutter - I've cut a few trees. I took my time to do it and was careful but they weren't huge trees right over someone's mansion.
> Quality work and good/better tools are worth investing in if you value them or their output.
Definitely. I regularly pay experts lots of money, like a week's salary, for a few hours of their time, and it's worth it. And when I'm looking to buy a new tool, I almost always select one with good specs from a reputable brand. Unless it's for a one-time job where I just buy whatever's cheapest (within reason). Not surprisingly, I have had to use such tools multiple times shortly after that "first and only" job was done. Yet surprisingly, the cheap tool usually does the job. But there's a big difference between using a tool 10 times a year and 10 times a day.
> Unless it's for a one-time job where I just buy whatever's cheapest (within reason). Not surprisingly, I have had to use such tools multiple times shortly after that "first and only" job was done. Yet surprisingly, the cheap tool usually does the job.
This tends to be how I approach tool investments, especially on the hobby side side of things. If I'm trying out a new interest, I'll get something on the cheaper end, and if I find myself continually pursuing the hobby, then I'll upgrade. Same for work, I'll use the minimum viable tool until it starts getting in my way, or I know I'd just enjoy the process more by spending more. Growing up poor makes every actual investment quite painful.
Last year, I reached my breaking point with my old computer; running Docker containers was just not serviceable anymore, so I upgraded substantially.
Right now, I know I need to get a bike stand and a wheel truing stand. Technically I don't actually need them, I could do it some other way or pay a professional (what I normally do), but the set of good tools will encourage me to keep trying it myself.
For the tools, I had a friend years ago who worked part time as a repairman and he said he always buys cheap as even expensive tools break. He viewed his tools as consumables, almost as disposables. He had a few of each type and said he didn't care when one broke. Not your philosophy or mine (buy expensive when you need to use it a lot) but it seemed to work for him.
I tried to DIY a bike stand. I wanted to make a truing wheel, too. I made something a very basic bike stand with spare materials lying around in less than an hour - just 2 metal desk legs bolted onto a piece of wood, as well as a couple of smaller pieces of wood to hold the front wheel in place (and a few smaller pieces where needed). It works for my bike only because of the geometry and it's definitely not great but it does the job! I watched some videos on how to make a good stand and it seems possible to DIY something really great for a fraction of the price. Sure, your time and labor costs money, but it would be satisfying to make something good yourself. I'm thinking of making another stand in a couple of months.
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This isn't an overly apples-to-apples comparison. It factors in costs like "updating your kitchen", making things more stylish, etc.
The author also seems to assume you'll be paying more to heat and cool your house because if you're renting you're in an apartment? Just down the road from him, four of the five homes I rented before buying in 2021 are larger than the home we bought.
"Less than 21% of my monthly payment is going towards paying off the loan" - well, yes, because it is front-loaded with interest. And as you get through the loan, 80%+ will be paying off the loan.
Maybe different loans are different, but generally your home insurance and property taxes are rolled into the mortgage (and often paid on your behalf by the servicer) - indeed, it seems like there's a double dipping of breaking down his mortgage payment and the component that is tax and then saying below "I currently pay $515 in taxes monthly".
There absolutely are additional costs to owning a home, to be very clear.
But there's definitely a contingent (and this post isn't the "worst" of them) that likes to paint home ownership as nothing more than opening your check or pulling out a credit card every month for "the next four digit expense".
Especially in Western Washington where the property market 2010-2020 was "a good one". (I put down 10% and at the contractual "year-and-one-day" on my loan for the soonest I could remove PMI I was able to because I'd hit 20% equity on value increase - only making my regular payment), something that he benefits from, too:
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. I've put a lot of money into it catching up on maintenance, repairs, and improvements, but the appreciation will definitely exceed whatever I've put into it when I decide to sell it.
And you know the funniest part: you actually don’t own it at the end, you are on a different (worse) type of rent contract called property taxes, that if you stop paying them you lose all that! So to rent nowadays is better: it’s controlled, you can bailout any month for whatever reason, be it a bad neighbor or another personal stuff or just getting into a better newer building, you don’t pay anything for maintenance, and sometimes all utilities are included too.
Meanwhile owning is all burden, plus you don’t actually own it, you do all maintenance, and taxes aren’t controlled. Additionally, you are already paying for an inflated asset because of the speculation prices rather than actual cost.
I actually enjoy it much more than I thought I would.
I love tinkering and solving problems on the computer, and it's fun to have a space to do it with my hands in the real world. Learning the basics of carpentry to erect a fence, basics of plumbing and the various international fitting types to install a (from japan) bidet toilet, cat6 throughout the house and trench out to the garage, basics of hvac for a whole-house humidifier and smart thermostat (MN winters) -- have all felt like very fun projects.
Next project is probably trying to replace the plumbing up to our second floor bathroom with pex (water pressure upstairs is very poor).
Also helps that I have a very handy dad that I can fall back on to ask questions or help.
So, roughly 16 years ago I bought a tiny flat. Renting tit for that long would already be more expensive than all the costs of ownership, even assuming that renting cost was constant (it TRIPLED). As a bonus, the flat is worth more than three times of what it was.
So in total, I've paid 1.5x for a flat worth x and now it's worth 3x and I don't have to pay the rent!
I'm not saying the article's author it wrong, just that your mileage might vary.
Where you die matters. A $30M estate left to children in WA owes $5M in state estate tax. Move to one of 34 states and that drops to zero, and in 8 of them state income and capital gains tax disappear too. The hard part is cutting that tax bill while landing somewhere you'd actually enjoy living: who your neighbors are, how educated and affluent they are, how they vote. This tool lets you optimize all of it across 8,000+ U.S. suburbs, towns, and cities at once: https://where-move.vercel.app
This argument is just rich people trying to convince poor people they don’t need to own anything (as they often do). The gap between wealthy and poor grows ever more.
> I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost...
I was renting around 10k a year, that is -50k in the bin every five years. Even if I make 0 profit selling my house I am already up +50k. I pay less monthly and works like a savings pot. It is a lot of work. But whatever way you math it, renters are just paying someone else's mortgage
Some of us get lucky and it is financially beneficial. I bought my house right before the housing market spiked so the value of my house almost tripled. It has since gone down a bit but it will be a boon if I ever sell. The rent at the apartment I was at was equal to my mortgage payment but now if I wanted to rent that apartment, it is 4x my mortgage. I also have an EXTREMELY low rate (2.5%) because of my credit.
I save almost 6 figures of money per year of owning versus renting just because of timing. I guess the moral is: get lucky or optimize your living situation for how you want to live instead of worrying about cost (unless it's huge)
Many people can make gains or even huge gains while still having the average real appreciation be negligible.
Is the author accounting for the equity built up? Cash has to go out whether it’s a mortgage or rent. With a mortgage you are building equity. This changes the true math when you sell (leaving aside your ability to now get a HELOC).
Yes the author is accounting for the equity buildup. They only count the interest part of the mortgage repayments as an expense. Any principal repayments are neutral.
He's saying - and rightly so - that outflow towards rent can be significantly less than outflow towards real property equity given the structure of a traditional mortgage + maintenance burden. And with (a large amount of) financial discipline that delta can result in substantial increase in wealth at the end of the day.
interesting enough to read this. One thing that is not talked about is why would homes just keep going up, i understand the math behind it and what appreciation does to a home value. where is the cap that a visually home is 150k but market value over the three previous years has gone up 4% for example. This makes sense for high value areas, and upcoming areas. My confusion lies in the market value and negative equity. separate the mortgage "rate" and "market value, est home value" We can expect some gain is a guarantee, this could be 20% or 4% in 5-7 years of residing. The chilling wonder of rates exceeding 4%-6% is temporary as we saw previously in the 80's and 90's. Someone can argue that indeed this is a natural cycle of mortgage financing, however my conclusion is to draw attention of the the span of time that mortgage rate have stayed high and the implications of inevitably adjusting to lower rates by the feds. The president has persisted to lower the rates regardless of the Chair's decisions. Lower rates cannot be done alone. The market also needs adjusting at the same time. Sure by adjusting the rates will have an immediate effects on the market as well, but not large enough.
Those that have updated and added additional features to their home did so with materials and services bought during high pricing. It is true that a deck built a year ago is going to be 20% less for example. later when selling a home how will this reflect on the bigger picture for the total price. Let alone the market when the cooling takes affect you will owe more than what the home is worth lets say. So my confusion is brought by a conversation with a coworker. Stated that he wanted to buy a home at 21 years old i said that unless you have a family and know that you will be stable in that location for arpox 5-7 years that sure, however when the market cools and your locked in mortgage rate is XX% how will you sell you home and come out even or even +.
Response: equity
me: you mean negative equity!
response: homes are only going up.
me: to what a million dollar for a two bedroom, one bath dwelling located in a busy street and minimal parking and adjacent to neighboring property.
He seemed convinced, he seemed to convince me that i was wrong.
People seem to have very strong feelings about the subject (myself included), and some seem to think there's only one correct conclusion.
Renting an apartment and owning a home have so many differences that it doesn't make much sense to compare the two.
Many people seem to assume they'll be moving every few years, but if you want to stay in the same place for life the equation looks very different. I hope to be done paying the mortgage around the same time I'm too old to work for a living, and if that lines up it's a pretty big win on the own instead of renting side.
While this is true, I think the bar should be lower - the real question should be "and how does it compare to renting" - there is very possibly a universe where owning is cheaper than renting even if your home depreciates. Because paying some amount for years to be left with a fraction of what you put in is better than getting none of what you put in.
However many of us knowingly exceed that point. For example we pay ~$500/mo over that point. Though there is no really comparable rental, we definitely could have chosen a more cookie cutter rental to be about +$6000 / year.
We would expect them to be equal on the margin if the market is even somewhat efficient (not always true with rent control, but still pretty close in most places).
That doesn’t mean it’s equal for any given individual of course. So it’s important to do your own calculations and make your own decisions. But I think the fact that it is debated so much shows that it is probably roughly equal on the margin.
This is mostly the real cost of borrowing money, not the real cost of owning a home. What's more, it could be argued that these costs are actually directly associated with NOT owning the home.
For me personally, I used an LLM to build out a financial model with different macro and financial input variables (e.g. mortgage rates, if I rented rooms, HOA, home appreciation rate, etc). These factors changed my projected return differently on a 10, 30, 50 year time horizon for renting vs owning
I recommend everyone who's making this decision to do something similar as an additional perspective. So many variables will be dependent on location, personal finances, and goals
I had a rental which was great up until the last 2 months where the landlord sent a prospective tenant to view it twice a week.
No regard for my personal privacy. At a point a real estate agent just walked into my home without any notice. Even after this the showings continued.
I’ve had truly awful landlords and some very good ones.
Although unless you own a house in the woods it seems like someone needs to mess with you. You’re hoa fines you for not mowing enough , etc.
> a real estate agent just walked into my home without any notice
Just open the door stark naked, you are in your private home.
Houses are almost allways bigger then something you rent… well that might be because you would not afford the rent of the large property, and the whole comparison falls apart.
Home ownership is a 30-year bet that you will have continued income to sustain the lifestyle[1] . It is extremely unlikely anyone will have a 30 year home run, without job loss, divorce, bad health and any number of life events. Most people would be considered super lucky to have a decade of good run.
On the other side of the bet are the financial institutions, which will get continued income (as long as you pay) and will own the asset the moment you can't pay.
It is a win-win for one side of this bet. If home ownership was actually profitable, the super rich would have setup all kinds of structures to completely own all housing. The funny thing is the bank does not have the money, they create it out of nothing based on your ability to pay[2]! Extracting rent from money which they don't have. You either rent a home or rent the money (very few buy outright with cash). Bank can rent the money they don't have, as long as you show income + credit history. This is why Warren Buffet owns (some part) Wells Fargo, not homes.
[1] lifestyle = (mortgage + property taxes + insurance + repairs + maintenance) + health insurance + child support
[2] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Best advice I ever got on home ownership:
Don’t get a loan til you can save 20% for a down payment and then, never get more than at 15 year mortgage.
Good advice on both counts.
Once you have 20% down you get out of paying PMI (private mortgage insurance) and you can open a an equity line (HELOC) for about 80% of the equity in the house. It’s typically like a super low interest credit card that you can tap for emergencies. I didn’t have an income for 6 months once and had to live on it.
The 15 year is critical. Do the math on a 30 year mortgage and you pay almost nothing toward the principle for a slightly lower payment for the first 10 years.
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To further understand how banks win, the interest is front loaded. Proponents of home ownership always point to low interest rate for 30 year mortgage. However, with front loaded interest, the majority of payment goes towards interest payment and not building equity in the first 7 - 10 years.
For a $400,000 mortgage at 6.4%, after 7 years, you'd have paid over $210,000. However, the equity built is only $38,942. The other $171,226 went entirely to the bank.
The average homeowner stays in their home for only 7 to 10 years before selling or refinancing. Which means very little equity building, mostly interest payments.
> "renting is just throwing your money away".
yep, it is.
i bought my home and went from paying 650 euros/month for a single room and sharing the rest of the flat with a roommate (in his own room) to paying 430 euros/month for my whole flat (in the same city, btw).
fast forward a few years and:
- the same room now goes for around 700-900 euros/month (post covid inflation)
- my mortgage price would have stayed the same (fixed interest rate)...
- ... except i paid it in full before time (and saved a ton on interest)
- my flat is now worth a lot more than i paid id (again: post-covid inflation)
nowadays i'll be kinda braggy, i'm leaving the dream: i work in tech, i have a very good salary and all of my fat paycheck stays in my pockets.
having a mortgage with a fixed interest rate meant i could plan around the payments i had to make.
and don't get me wrong: i'm 34, i'm not a boomer.
they say that renting gives you optionality. well... i can still easily sell my flat and move elsewhere OR, hear me out... i can rent it.
My home on 3/4 acre is worth 2.5x what I paid for it after just 7 years ago.
The best time to plant a tree... same for a house... Do it now or live with the regret of generations of "wait and hope" idiots. I waited and I see the folly of my ways. If I had done it 20 years earlier and dealt with the hardship of being "house poor" for a few years I would have been able to retire at an early age. Do not let fear control your decisions/actions! Carpe diem!!!!
There are pros and cons to home ownership - this article is both U.S.-centric and focused on the cons.
Obviously maintenance costs are high, maintenance is time-consuming, and transaction costs buying and selling are insane. I'll add one - property tax will turn that high income tax (especially in an expensive blue state like CA or NY) and add a massive additional tax, easily transforming that 35-45 percent of income into 55-60 or more, a math absolutely no one does when comparing taxes with W European ones which are supposedly much higher.
Here are pros and why you should probably buy:
If you want a house in a low density but in demand area, you won't find anything for rent. Because appreciation goes up, because renting gets more expensive every year, because lease renewal every year is a stressful waiting game and decision point, because renters subsidize owners via interest tax deduction.
And most importantly, you are free to do what you want inside your house. Just avoid HOAs.
Is there someplace that takes all of these inputs. Then graphs them over 10 or 20 years and include some adjustment for inflation? I didn't see in article any discussion about mortgage rates versus appreciation versus inflation.
Article did sum all the inputs/outputs, and came out at loss. I'm just wondering if there is some other trends over 10 or 20 years that make the house better.
https://rentvsbuycalculator.app/
Based on the nytimes version from 20 years ago but updated since then.
Actual rent vs. buy outcomes vary by location, but the general rule is that in most desirable urban areas, it's financially better to rent.
Not all the inputs, but Ben Felix’s company (makes videos on this topic) has a rent vs buy calculator, mainly focused on investing the cost difference for mortgage vs renting: https://research-tools.pwlcapital.com/research/rent-vs-buy
https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
Live in something thats not massive, old & high maintenance. Live small, minimal & not reliant on a system designed to steal from you.
https://youtu.be/rY9q9rbgUsA?si=jbDLtZvVu1rm0daQ
I mean the video was interesting but the guy literally explains how wind ripped its entire roof off in the middle of the night during a storm.
This doesn’t factor in the growth in the value of your house, which mostly happens tax free (in the uk at least)
We bought our house 10 years ago and it’s basically doubled in value since then. Which is way more than the money I’ve spent on interest.
It seems like this is also based on buying somewhere with a super low deposit, which I agree is probably a bad idea.
I bought a house to move close to my big tech job
Now I have no job as I was reorged to a new manager who made it his first mission to fire me
How do I pay for the mortgage
That’s the real cost of owning a home as a swe these days.
Management at these companies is so out of touch with reality
The numbers miss a key aspect - risk management
Landlords do whatever the hell they like with zero consequences. Thats not a game I’d like to play with a 40 year horizon of unknowns.
With a mortgage the risk is interest rates. And on that I’m confident I can carry far more exposure than my peers. So if that blows up in my face then the entire country’s financial system is cooked anyway
And that’s why we have rent control.
Rent control is nice for the select few that get it but results in worse overall conditions for renters by distorting market conditions.
It's a stop gap band-aid feel good measure, not an effective long term solution.
More housing supply and densification is the solution.
More housing supply is not a solution to landlords deciding to evict tenants or raise the rent for arbitrary reasons. ("The housing market is great for sellers right now and I want to sell my house." "My niece wants to live in the city." "I don't want tenants with pets/children." etc.) Renters deserve stable housing just as much as homeowners and that requires some degree of regulation.
> More housing supply is not a solution to landlords deciding to evict tenants or raise the rent for arbitrary reasons.
Irrelevant. Sensible tenancy laws are important but are unrelated to discussions of housing affordability.
To fix the affordability crisis the long term solution is to address the structural issues caused by imbalanced supply vs demand as result of market distortions.
It is directly relevant to the comment I was replying to:
> Landlords do whatever the hell they like with zero consequences. Thats not a game I’d like to play with a 40 year horizon of unknowns.
Rent control (and tenant protections in general) help ensure that this does not happen. My landlord can't raise my rent more than x% a year, so I won't have to leave my apartment just because he's found a richer tenant. I'm quite secure in my housing barring a full-on condo conversion of the entire building with no further renting allowed.
And by "we" you mean what random cities making up a couple percent of accommodation globally?
people might scream about corporates owning housing - but one thing that's a blessing is if corporates sink their money into apartment blocks | buildings instead of single family homes.
you can rent for multiple years at a favorable rate - then save some money into the stock market.
however in america - people have been fed the propaganda you need to live in a single family home.
This isn't propaganda, a single family home is actually better housing along a bunch of axes people care about, as plenty of people in this thread are talking about at length. The idea that a person would be less likely to want a single family house if they weren't subject to propaganda is itself propaganda.
Yep. Yet many on here (and other specific online forums) will tell you that your only options should be owning a home or renting an apartment because they don't feel the single family home they desire is within their price range, and resort to advocating for short-sighted, draconian policies as an means to an end that is favorable for them.
The cost of having to live under the boot of a landlord is immeasurable. The freedom of not having a landlord is priceless.
I have been renting 15 years and have never once even really thought about my landlord...
I pay them on the portal and if something needs fixing I put in a maintenance request and they get it fixed. That's all i've ever thought about with them.
I rented for somewhere around 20 years before I was finally able to buy a house, and I hated every minute of it. I've had a landlord (in Arizona) tell me that it's normal for an air conditioner to only be able to reduce the temp by 10 degrees. I've had a landlord decide to convert the complex into condos and tell me I would have to let potential buyers into my home before my lease was even up. I can't even remember all the times I've had disputes over various repairs.
There was a period of about 5 or 6 years where each year I would get a raise at work, only to have my rent increase by almost the same amount, so I could never get ahead.
So yeah, ymmv, but for me I'll never rent again.
Like anything I am sure there are good and bad experiences.
I mean both my pay and rent go up by about 3% each year, barring some position change, but 3% of a 100K salary is $3000 more a year. 3% of a 650/mo rent like I pay is $230 more a year. So not even 10% of my raise is eaten by the rent increase.
You're incredibly blessed
My house is twice the size of my last apartment and my utility bill is half. apartments just generally don't have as good insulation or as efficient HVAC at least where I live.
The person also discounts the impact of horrible neighbors, stomping and barking at all hours of the day. That can happen in houses but they are not right next to you
I mean my heat is included in my rent, it doesn't change no matter how much I use it. I pay 650/mo in rent including heat and water and I have it like 75F in the winter...
This is nonsense.
The person counts the 12 month escrow prepayment during closing as "cost to get a loan" It's not. It's the cost of 12 months of taxes and insurance on your property.
Also notable is the "1 year insurance premium" either they're double counting the escrow, or this 1 year insurance premium is mortgage insurance where the bank makes you take out insurance to protect them. This can be prepaid, split paid, paid monthly, or you could put down 20%.
The lender makes you purchase title insurance for them, but this person also purchased title insurance for themselves. This is mostly just pure profit for the title company. The cost for the insurance is for the company to do the research, if they found an issue, they wouldn't insure the bank. Buying it for yourself is mostly just lighting money on fire.
A lot of those closing costs are shoppable, you can find better lenders. Before closing, you're given a truth in lending disclosure with all this carefully spelled out. If you don't do even basic due diligence, I question if you have the financial literacy to own a home.
I'll also note, they didn't mention in their closing costs paying for a home inspection (beyond termites). This is likely why they had to pay for real repairs on the house.
One of their "repairs" is new water pipes. There's no reason listed for this, but this is often pushed by door to door salesmen telling you need to do it to protect your property/health and is mostly, like all door to door sales, a scam.
That note about counting the cost of heating and cooling is similarly nonsense. They claim "apartments are almost always smaller than houses" which isn't true, and count electricity rate increases as cost of ownership, rentals have to pay that too. They also assert, with clearly no evidence that heating and cooling is half their electric bill. There's easy ways to figure this out, an emporia can do it easily.
The whole premise is flawed. They note that in the beginning only 20% of their payment goes to principle and A) you can control that (bigger downpayment so no PMI, less interest), bigger more frequent payments or a shorter loan, and B) exactly 0% of your rent payment goes to your principle.
This might better be an examination of "can I afford a mortgage with the same rent payment as I make today" and the answer, not surprisingly, is no, if your rent payments are a the top end of what you can afford.
They also neglect the Mortage Interest Tax Deduction and State and Local Tax Deductions, whcih reduce the cost of both by your marginal tax rate, and is a big benefit towards owning.
More importantly, this neglects that buying a home is locking in the price for the long term for the majority of your housing cost. Buying usually is similar all in the first year, but after 5 years your mortage payment is the same while rent has probably gone up significantly.
Not everyone benefits since many people take the standard deduction.
If you own a house and pay interest, especially like this person, they'd max out the SALT deduction with the house alone, much better than the standard deduction.
As a non American, I have to admit a lot of things sounds very weird to me, especially on the "mortgage loan fees" part.
In particular, the title part sounds horrible (and expensive). As far as I know, over here it's all handled by the state, no insurance required. I don't know if it's because of different laws regarding future claims (the registry is the truth, too late to change it?) or just better records?
Same with tax/insurance escrow, you just pay directly as it comes, but since we have essentially no property taxes, it's probably not required?
On the other hand, here mortgages only have a closing fee (and quite often even none at all, with all the small fees being invisible and rolled into the margin), so that transparency is welcome.
The title part is kinda weird. The government makes a best effort to ensure all lien holders are satisfied, but that can't be always guaranteed, so title insurance happens. They do the indepth research and put their money on the line (and charge a pretty penny for it). It's pretty rare, but there's little recourse if you buy a home from somebody and they weren't empowered to sell it to you. Banks obviously want to be protected from these situations since the loan is secured with the property. If the title company finds something suspicious, they won't insure it, which is why it's almost never a good idea to buy it for yourself too.
> Same with tax/insurance escrow
You can do this, but only for jumbo loans (>400k). Property tax and home insurance is usually paid once per year, and especially for first time home owners, not being prepared for one of these could be significant financial hardship. So the bank mandates an escrow to make sure a regular yearly charge isn't going to make you miss payments to make. They don't make money on this escrow and there's no interest or fees involved.
> On the other hand, here mortgages only have a closing fee (and quite often even none at all, with all the small fees being invisible and rolled into the margin), so that transparency is welcome.
Yeah, it's super nice. Spells out all the fees, the interest rate, the APR and everything. It clearly delineates fees that can be negotiated/shopped for and which are set by the government and which are set by the bank that you can't shop for (unless you change banks who might charge differently). It's also required to be provided to you in advance with a minimum time window to allow you to read, understand and come prepared.
I agree, this is a pretty terrible article that basically boils down to (to quote the article...)
> I bought this house new, and didn't live there very long
End of story.
Exactly, the even say:
>I bought my home in Auburn, WA for $321k, and sold it a few years later for $333k. After all the costs to buy and sell it, I probably lost more money on it than I would have spent renting an apartment.
Home ownership isn't a net positive from day one. Otherwise, everyone would always do it. Home ownership is net positive in the long run. It's a long term position. You don't day trade houses.
Right. And he notes that the home he bought after that, with ten years ownership, appreciated from $420K to $770K.
The real point of home ownership is control, you have complete ownership and responsibility which comes with pros and cons.
I used to love renting but now value the control above all else. I suspect having kids is the largest factor in the shift
I zero'd out almost all these costs by building a shack myself and leaving it uninsured. Maintenance cost almost zero because I own all the tools and much the spare materials already form building the house. Cost of house $60,000 post COVID, there is a similar ready-built house next to me for sale almost $300,000.
I was waiting for the classic “why would you pay for Dropbox” comment
You experience more than 100% of all of these costs as a renter, while you have none of the up-front costs and less liability you also have no agency and no equity. It can be a trap though, as selling isn't free and if you didn't have enough equity built up you can end up losing money to move. Some housing ends up as rentals because of this, makes more sense to not sell and to rent it.
Renting is definitely the better option for certain people, if you intend to move often, or want to live in an apartment your overall costs are likely to be lower. If you want a single-family home and don't want to move often (or be moved out) Buying is worth it. Even setting aside the satisfaction of home ownership if you can mange to pay off your property you pretty much can't live cheaper at the same scale.
that said I've rented, I've owned, and I've been a landlord and I'd take home ownership in a heartbeat. It's not all rosy, and being responsible for maintenance is no joke but not being subject to the affairs or whimsy of someone else's finances along with the pride and sense of actual ownership is is wonderful.
I enjoy the maintenance, doing what I can myself, trying to learn if I don't know. When the house was renovated (read rebuilt internally completely), we chose to stay in it during the works. It was fascinating. And, houses (usually) increase in value. Some more than others.
It's interesting to put this article in the context of all the local-model vs. frontier-subscription inference discussions occurring recently.
How can anyone (financially) justify the cost of owning your own compute?
How can anyone (ideologically) justify the cost of not owning your own means of compute?
One huge plus of owning is you are forced to put money each month into a likely appreciating asset. It probably doesn't beat someone who diligently DCAs into s&p 500 though.
If you're paying a mortgage you're not owning it. The author is wrong from the onset.
“Smart” people always tell us to rent. But ask any regular person if they’d rather own a home or rent and they will say own. Who cares about xyz costs or a lower investment return. The entire point is to have a stable base from which you and your family can thrive.
I'm just a single guy, why do I need more than a small apartment which is like 1/4 the monthly cost of a home mortgage payment. I put the other 3/4 of that cost into index funds. Also saves me time not having to do things like mow and shovel which is quite valuable to me.
I said family which isn’t a reality for you yet.
I suppose you do say family. For me I don't really plan on having a family, so it semes like renting will always be a better option. Perhaps mainly because they don't really make houses small enough to match the cost of renting, or at least not in the area I want to be in.
Land ownership is powerful but I hear you.
Smart people always tell us to buy a cheap used Honda. But ask any regular person and they will say they’d rather have a new Porsche.
O so they suggest buying instead of renting as well? Thank you :)
> My 1983 home had been used as a rental for years, so much of the maintenance had been neglected.
This quote is ironically a weighty argument for why living in a rental sucks, even if it nets out the same or better on paper.
I don’t share this experience at all. I bought a fully finished new house in Japan, and I haven’t had to do or pay anything extra (other than mortgage and yearly tax) for the past 6 years.
Maybe it is different if you buy an old house?
My understanding that Japan is exceptional in this case; I've been told that houses in Japan depreciate about as fast as a quality roof, so e.g. a roof-replacement is not ever needed -- it's just time to build a new house.
The housing industry is the one industry that makes healthcare look efficient. Next time you buy a house visit your titling company. White Collar daycare. Great coffee though. And free pens, nice ones.
Some other costs that may incur:
- Pool
- HOA
- HOA (if the community belong to larger community association that maintains things like park)
Summerlin area in Las Vegas for example have summerlin association you pay HOA to in addition to your residential HOA.
If you have some spare cash flow, you can pay extra principal on your loan. Since early years are mostly interest, this can make a big difference in ultimately paying off the loan early if you plan to live there that long.
No one mentioning you can borrow against an asset. Unless you have a massive portfolio of stcok, you usually aren't going to be able to borrow against it (at least on favorable terms).
The author mentions interest but not that there is the mortgage interest deduction, which is a massive tax deduction especially during the first years.
This is an excellent post for folks just getting into the homeownership racket: what is pitched as a necessity for wealth creation and an “easy” transaction with nothing but upsides is - unsurprisingly - a nuanced and complicated financial transaction that has no guarantee of upside.
A few things I’d note to add more data points to the pile:
* Property tax caps like the OP discusses are likely to go away in the near future. Having been artificially capped for so long with so much uncaptured asset appreciation, communities are having to face either serious cuts in services or to seek permission in raising property taxes. If you’re buying a “forever home”, ask yourself if you could still afford it with 2x or 3x the property tax bill; if not, you might not be ready to weather the disruptions ahead
* Rent has skyrocketed alongside home prices, making both untenable (local housing jumped 50% in home prices during COVID, while rent has appreciated about the same over the past ten years; wages have not kept pace with either). Some states have tried forcing higher density housing near mass transit, but those have been blocked or lawyered around; now tenants are pushing to rent caps, terrifying landlords. The point is that pricing in the near future is going to be incredibly volatile as asset prices and rents adjust to meet what workers can afford instead of what financial models spit out, and that’s going to impact your own home prices accordingly
* The primary benefit of home ownership going forward isn’t likely to be asset appreciation so much as stability. For those of us who want to put down roots, owning our homes is critical; for folks happy to move around and explore, renting is far preferable. I would strongly caution against the old adage of “buy if you’re living there for 4+ years”, as there’s no guarantee you’ll come out ahead anymore and may be better off renting
* Most “affordable” housing stock will require repairs anywhere from 20 to 50% of its purchase price, especially in older regions of the country. Do not waive inspections when buying a home or you’re likely to miss a five or six-figure repair - like an oil tank that’s leaked into the foundation, for instance.
The ponzi scheme of property-values-always-go-up only holds when population is increasing. In the US, immigration and fertility changes are bringing population growth to a halt. Good news: We may yet enter an era of housing abundance!
Yes and no, at least in the USA. Thanks to companies rug-pulling with RTO, the populace won’t leave cities again this generation regardless of how cheap other places might be; we have to stay near the place of employment, and those are predominantly in cities.
Frustratingly, cities have a housing crisis in that there’s not enough stock to meet demand - period. We can carve up the rationale in a variety of ways (too expensive, too many vacant units held hostage for investing, NIMBYs, red tape, etc), but the blunt truth is that companies and the government have made it abundantly clear that the only chance at a successful career is in a major metro, and thus more folks will move to them seeking their lottery ticket to the middle class.
So what ends up happening is rural areas will continue to thin out due to a lack of local work to support existing workers as well as a dearth of remote work to allow city salaries to come back to Small Town USA and prop up businesses through outsized taxes and spending. This will cause a contraction, forcing more locals to cities, deflating rural property values further while cities keep struggling with a lack of supply.
The silver bullet - the only silver bullet for any crisis we’re currently facing - was widespread remote work allowing humans to relocate based on preference rather than career need, and thus alleviate urban sprawl and revitalize smaller communities. Capital and Government have killed that dead, and there’s no way to bring it back.
I have a ~2000 sq foot ranch. A new roof was $25k. New siding was $55-85k depending on the material (vinyl vs james hardie). Gutters are $7k. I had a bunch of trees removed and a forestry mulcher out: $7k.
Everything is so fucking expensive.
This article does not mention the opportunity cost of all the home equity you accumulate, which is frequently a big component of the overall cost of ownership.
You don't even take care of your car well and you think you know what it takes to take care of a building? Anyway, you should buy a boat.
> I currently pay $515.50 per month for property taxes.
I currently pay almost $2500/mo in property taxes here in SF (about $100/mo in parcel taxes). FML.
It's true that there are hidden costs to owning but get this: Those costs exist regardless of who owns the house! When you rent, you are still paying those costs, but you don't have an asset when you're done. You actually have to pay more in taxes and insurance on a rental!
When you buy, you will pay a certain amount for 15-30 years, and then you only have to pay for the continuing maintenance. When you rent, you will pay a certain amount every month forever regardless of whether the property is paid off or needs any maintenance.
The Repair section of the article could have been mitigated by a inspection and negotiation before buying.
Always negotiate repairs into the offer price.
If you live in a house long enough, you will have to deal with things. There will at some point, be a new roof, a new furnace. New windows. Some of it will be optional, some will not. If you are renting, part of your rent is going to the landlord to cover these things. And you are dependent on them doing it. One way or another you are the one paying. If you own, at least you have the choice of doing it the way you like.
Probably the biggest factor of considering the rent/buy question is how long to do you expect to be there. We paid off our mortgage after 16 years, so now it's 'free', except for ongoing maintenance and taxes. And we're looking at some nontrivial reno in the future: the kitchen is quite beat, and someday we'll need to deal with the asbestos siding (one of four layers on the house!). But it least it's our choice.
In some markets they get like 20 offers for a house. You aren’t going to negotiate anything at that point
Then don't worry about the cost of ownership because you're going to make it up in equity.
How does buying for a high price mean you will make it up? If anything it should mean the opposite.
Probably alluding to high demand rather than high prices. More demand, more likely you're win on equity
Demand can be fleeting. See Austin, TX in the early pandemic years vs now
Too much reliance on the permanent number-go-up hypothesis in home prices
HOA fees can get so extremely high I don’t understand what people are paying for - 300, 400, I saw 800$ on some property.
There's also the difference of Condo vs Home.
A condo is a type of home, so it's like you're saying "Do you drive a car or a vehicle?".
Also, condominium does not automatically imply apartment, because there are condo townhouses and condo detached houses.
A condominium is a legal structure that prescribes which parts are owned jointly and which parts are owned individually. https://en.wikipedia.org/wiki/Condominium
Wait if this was true then wouldn't landlords be LOSING money by renting? What am I missing?
At current rates you are losing when renting (excluding possible appreciation), that's why it's hard to sell and easy to rent. Due to low rates before homes went big in value cause you were earning even not counting appreciation, so whoever had credit was maxing it to full for easy money but now situation starts to stabilise / reverse?
Home is not the same thing as a house. Owning an apartment is way better than renting.
> Less than 21% of my monthly payment was going toward paying off the loan!
Something is wrong with this.
Something I've been eyeing is the All In One Loan or FirstPosition HELOC where you take a HELOC on the entirety of the homes value, then use that credit account as your daily spending account.
It's a higher interest rate, but then you only get charged on the amount you have actually borrowed which ideally would be get lower and lower.
If anyone has any feedback on it I'd love to hear it
The annual price-appreciation of a home is usually lower than the risk-free rate (and thus the HELOC rate). If you "pay yourself" rent and use that to pay the HELOC down then it can make sense I suppose.
It's just leverage and it depends on the returns you're getting on the loan. Renting is also a kind of leverage though so if you own a home outright it might make sense to lever up. If you want that kind of leverage while still having the position in the house then an I/O loan is probably the easiest way to do it.
>You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true. There are so many hidden costs to home ownership that most people who have never owned a home don't know about.
I appreciate your saying all you said. I just want to add on, the ownership picture is even uglier. (what I'm about to say will break your brain, frequently to the point of downvoting; don't blame the messenger for the bad news you don't want to hear.)
When you buy a house or a condo apartment, you now have the right to rent it out to other people. That rent would be income to you, and you are entitled to it.
if instead you choose to live in this piece of property you just bought, it is an identical financial situation to you being the payer of the rent. Owning the property did not eliminate rent (the monthly rental value of your property) from your budget.
Now, you are paying the rent to yourself, so isn't that break-even? well, it needs to be compared to the opportunity cost of the capital you had to put down and the interest you need to pay on the mortgage.
due to many govt subsidies for homeowners, it can work out in your favor, but at the same time the stock market does offer higher returns. But more importantly, why are non-homeowners on a very large scale being expected to subsidize wealthier homeowners in the form of an unfair tax burden?
If you have public REITs active nearby you can do this comparison for real: if you buy ~1 unit's value in shares of that landlord you will probably own about 1/<however many units they operate> of the company and receive someplace around the rent of that unit in dividends and capital gains.
The government subsidies for investing in the stock market are also pretty nuts, and the TCJA hosed owner-occupants by limiting the interest deduction, the gains exclusion, and raising the standard deduction.
If you invest you get to deduct any interest against investment gains (even better: you can just not pay any interest), you pay ZERO capital gains taxes on up to ~$80,000 of (real!) contributions each year (with no maximum excluded gains), you can defer $22,000 of (real!) income to literally whenever, AND you can take the standard deduction every year (including in retirement when you wouldn't have had any income to deduct had you paid off a house).
For renting to be a better deal than owning, one of two things has to be true:
1. Your landlord is losing money
Or
2. The rental market is dominated by landlords who own outright, or bought long enough ago that their cost is much lower than the cost of owning is now.
I’ve never seen #1 happen, and the only place i’ve lived where #2 was the case the market has now adjusted and it’s very much not true anymore.
Just like in the production of other durable goods, the lower bound on price (rent per sqft of floorspace per month) has a relationship with opex, capex, & financing costs, but it's only binding when we are talking about a very small scale - and individual with a mortgaged property trying to get into rental.
Buildings last 60-100 years. It does not take that much over building in a previous era to decimate the bargaining position of landlords of a future era. We have been using the law to prevent this horrible no good outcome /s for the last 100 years or so. We can stop anytime.
Looking at all these fees broken down, AI should reduce many of these costs.
How many times are they gonna double count the insurance a property taxes?
Transaction overheads are generally not that significant over any realistic period of ownership (5+ years). The OP's situation was a not expensive house in a not expensive area over a negligible period did not appreciate sufficiently to cover overheads. That is not surprising.
Philosophically the real cost is that you become a sitting duck target for taxation, theft, etc. The asset is also highly subject to external effects, such as regulatory change. This is not something you have control over, and can greatly alter valuation.
Given the low returns plus high risk profile plus high capital input, it is generally fiscally smarter to have money in the stock market and rent.
However, on the plus side owning a house means investing in subtle aspects of your environment becomes possible: things like gardening, workshops supporting your interests, or infrastructure projects toward self sufficiency. These can be some of the most rewarding parts of life. Ideally, if you can stand debt-free at a certain age and have self-sufficiency and passive income, with kids grown up and moved out, then you are well placed to relax. Renting ... good luck.
Nothing is easy.
> About 80% of your first mortgage payment is interest.
Is it common in US?? In France the current rates are about 3,5% fixed rate, meaning in your first payment on a 25 years loan you pay about 55% interests. Which I think is pretty high already!
What kind of rate do you have to end up paying 80% of interests in your first payment?
It stands to reason that owning must be cheaper than renting an equivalent place over the long term, unless the guy renting to you made a poor investment. But you're usually not comparing equivalent places when you make the comparison.
Been thinking about this a lot. Curious what the rational folks of HN would suggest for me. Fact pattern:
- I'm in the 25-30yo range, single male
- Living with parents because I can; there's no friction and I mostly enjoy it. And I'm saving a ton of money.
- Remote senior SWE for a non-FAANG, but still doing around $200k/yr between my W2 and a few other things
- NW somewhere around 400-500k.
I could easily go buy a house, it just seems like... a trap? Home prices are stalled at a little over 7x median household income, a bit above where they were in 2006 [0]. Everyone who tells me to buy property seem less like they have my best interest in mind and more like they're either repeating the cult saying of the last 50 years, or they're invested in a class of bigger fools existing.
I fear the one-two punch of me becoming unemployable (AI is getting _really_ good at even the niche stuff I do) and the market crashing. I'm glad I don't have dependents to worry about; even more glad I don't have a mortgage to service.
If I had to go live on my own, the napkin math I've been doing, even ignoring closing costs and house maintenance costs, is that I can rent a house for cheaper than I can buy a similar house in my area. This is "in the long run"; meaning at the end of 30 years I will have higher net worth having rented than bought, with conservative estimates of market performance and aggressive estimates of rent increases and house value appreciation.
It all just seems nuts. I see people my age working at grocery stores (a good and honorable line of work) who are buying houses and I don't understand how they make ends meet.
Am I stupid?
[0]: https://www.longtermtrends.com/home-price-median-annual-inco...
If you rent and remain invested in the market, it's a wash. So yes there's nothing wrong with renting. It just tends to not be effective for most people since they lack the self control and discipline to invest in stock equities, since lifestyle creep means they tend to overspend. A mortgage for most people is then a form of forced savings which helps them build equity through rising land values.
Do you want to buy a house? Do you need to buy a house? If the answer is no to both, then don't buy a house.
I want to buy a house, but I do not want to end up crazy underwater on a house. If I thought values would be at-least-stable I probably would buy. Everything just seems so bubbly that it feels like a trap.
The general consensus is that there is never a best time to own a home (for example, rates are much better today than in the 80s). If you want it, figure out how to pay for it, and buy it. Keep enough savings to weather a year of unemployment. You might be unemployed for longer, in which case you'll just figure out other options, like forbearance/hardship program/loan modification, state unemployment, temporary work, renting out rooms, food and utility assistance, etc. Worst case you can sell the home.
What about the relationship thing? Most significant others don't want to live with their in-laws and fear failure to launch. Clearly not the case of a failure with your great income. That said, this isn't as much a buy a house point as it is a get your own place point, which could be either rent or buy.
Oh sure, if I found an SO I'd move out. No question. Nothing on the horizon and I've never even met anyone I would be seriously interested in, but that can change quickly.
But as you say, that's orthogonal to the rent/buy question.
PSA: it’s probably time to change your furnace’s filter
For me, it is about stress and time (and money). I hate to say this because I don't want to upset anyone (really just trying to help, not perfect), but we created HomeSpark.AI to try to reduce the stress/time/money blackhole from personal experience. What my contractor was doing didn't feel right, so I had to hire a "auditor" of sorts who wrote a 47 page report of the issues. Didn't relief the stress but did relieve the uncertainty. Then I said that has to be an easier way with AI. I just ran into this issue with an oil pressure gauge for my whole house generator. The AI gave me the part, video and where to buy/cost for part. $30 and 20 minutes later installed - before that I had no idea other than call a guy. Sorry not trying to shill anything , just hope to be helpful.
Rent goes up every year, your mortgage goes down. 30 years of renting and you’ll have nothing except more renting. With buying, you’ll own a house. That house is now effectively free to live in, as a rentoid still has to pay rent and make repairs to avoid losing their deposit.
What a meaningless slop article.
Somehow it's taken as given that rent goes up - SF took 6 years to recover its 2020 rent, other cities saw a dip during COVID too. Similar thing took place during the dotcom crash.
> You've probably heard someone say something to the effect of "renting is just throwing your money away".
Then skip to the bottom:
> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. I've put a lot of money into it catching up on maintenance, repairs, and improvements, but the appreciation will definitely exceed whatever I've put into it when I decide to sell it.
There you go.
The only counterexample is one that's a truism: author bought at $321k and sold at $333 a few years later. Real estate is a long term investment, same as the funds you'd choose for a retirement account. In both cases if you're buying/selling short term you missed a very important implied premise in the conversation.
The thing with home is that it's leveraged investment for normal people. You can pay 10% of value and resell later. Buying home for cash is less optimal but for credit it makes sense usually due to leverage and little downside risk. Plus usually every now and then you get money printing and you 2x your leveraged money or more rarely get hyperinflation and home for free. This was mostly issue of too low interest rates but that's how I see it from the past 10 years (non US resident)
One thing the author does not think about is end of life depreciation. When you retire and drain your investment funds they very quickly will disappear and stop producing value, especially at any sustained rate. A house has none of these issues. Costs are relatively constant. Rent on the other hand. Well. Anyone who rents knows the cost goes up and will keep going up, if not simply for increased utilities. Another way of course is to die quickly once you retire but then what’s the point of savings anyway?
[dead]
And yet the property will appreciate in value, barring the implementation of a land value tax, and negate those extra charges the article's author is enumerating. One can borrow against one's property and reinvest in the property and you'll still make money. No bank or credit union will ever turn down land as collateral for a loan because in this economic paradigm land remains the safest and best investment. Nothing there is really relevant and skeptical r
This is a South African take on owning a home.
Author is correct that if you don’t live in the house long, the overheads such as transfer duties and legal fees make it somewhat expensive.
But over here we have a pretty high interest rate of around 10% and comparatively high inflation rate, which makes the initial purchase of a house be a bit challenging, but if you start paying more than the minimum as soon as possible you can find yourself in a financially more comfortable position.
My bank allows me to have something they call an access facility on my bond account (the account for the debt on my house). With this I can transfer extra money into my bond at any time and I can draw this extra money out at any time too, this extra money counts as extra paid on the principal.
This essentially means that any extra money I put in it is worth about 10% p/a in terms of the interest it saves me.
They calculate interest per day so even if extra money sits in there for only a few days, depending on the amount the interest saved could be worth a coffee or possibly a meal.
Although I settle my credit card every month, everything I route through it and don’t have to pay back interest free for the next 30-45 days is essentially saving me that portion of interest on my bond, so easily over a percent. And that’s before credit card rewards.
And while I don’t recommend this except for the most financially disciplined as it is a little precarious feeling, I have a second credit card which I’m able to settle using my first credit card, this adds yet another 30 days of essentially interest saving to me.
It’s a great way to save for something big over say a year or two, even if you draw everything you deposited out again two years later, it’s saved you from the interest in the meantime, so you’re still better off.
Then there is the effect of inflation. If you’ve been able to put a good amount extra into your bond each month, you will find that after 5 years or so it’s probably less financially burdensome than renting.
This is because since you bought the place, property prices have gone up, so has rent and so has your salary, but your principle debt has not increased with it, meaning you’re paying no more than you were 5 years ago for the monthly instalments, but due to inflation it is comparatively less expensive.
Anyway, that’s the financials aspect, but on the quality of life aspect, a few years ago we finally bought a house that should be very nice for our family for the next 20-30 years, in terms of size, comforts and security.
We also bought a house with an old interior and renovated it, making the bathrooms and kitchens modern and how we wanted them. Was also able to chase conduits into all the walls (brick and mortar houses are the norm here) so that every room has CAT6 going to it.
Is South Africa a place your family will want to be (or be able to be) for the next 20-30 years? What are you doing for electric power, water, and physical safety from violent thieves?
I’ve lived here most of my life.
Electricity has been essentially uninterrupted since the last load shedding about two years ago. I did get some solar panels and an inverter installed while load shedding was common as I work from home and didn’t want the stress due to lack of power. Another thing I put in our new kitchen is a couple of gas hobs next to the main induction ones, allows us to cook even during power outages. But as I said, no real outages in two years now.
Water is quite reliable, maybe interrupted half a dozen times in a year. I have 2kl of water backup tanks and a booster pump so I don’t generally feel any outage, although not uncommon, I expect that most middle class don’t have backup tanks like this. Regional water infrastructure hasn’t been keeping up with growth, so there is a large issue looming there.
Crime is common, but not so common that most people have been a victim of it. Most (middle class) people have house alarms linked to armed response services. I’m a member of community association which amongst other services they provide from membership fees, they also have a special arrangement with a security company and additional patrol vehicles are dedicated to our suburb.
Most security systems are door sensors and interior passive beams. I did however add outside beams which tends to catch intruders by surprise and gives early warning. I actually had an intruder in my garden last year and the outside beams caught the guy by surprise, he had dashed by the time the armed response got here. Harrowing for sure, but not tragic fortunately. Since then I added some IP cameras and there was a gap in my electric fencing above my garage which is where it seems they got in from, so I also had that remediated.
Our suburb (like many others, but not most) has road closures (gates get closed across most streets on the suburbs border) in effect except during morning and evening peak traffic times, this helps a lot, but criminals are regularly trying their luck in the area.
The intruder aside, and without load shedding, and being vigilant in case of criminals, it’s not that different than my 2 years I spent in Cork in Ireland where there was the occasional violence incidents with chavs and several water outages.
If I was living in a township (inhabited by those living well below a middle class wage) my experience would be quite different, probably lots more crime and I expect water and electricity to be quite spotty.
How will things be 10, 20 or 30 years from now?
My biggest worry right now is the water supply, but it’s more a worry of inconvenience of it being turned off regularly to manage demand. I’m expecting within 5 years they’ll have addressed it. Basically it’s a repeat of the electricity capacity shortage issue of the past, despite people telling government for over a decade they need to increase infrastructure to meet expanding demand, they do nothing until they run out.
Otherwise, I’m optimistic things will improve overall, not get worse. I think our democracy is maturing. The ANC which has managed to stay in power since the first democratic elections in ‘94 has been progressively losing voter share, it seems the masses are finally saying no to their excessive corruption and incompetence.
Another point not really mentioned in here is the type of home. Buying a condo has absolutely been the worst decision of my life.
It was our first home after getting married. The condo HOA will probably go down as the most disfunctional HOA in California history - not exaggerating. It has/will cost an obscene amount of time/money that I will never get back.
If you're in SF and weighing this decision, it's easy to get tilted in the buy direction because the rental stock is so horrific. Landlords have very little incentive to update properties or provide basic amenities that people take for granted in other major cities (good luck getting a washer/dryer).
I wonder if there’s any reason SF has that problem yet almost no other cities do.
I'm firmly in the renting camp and I'll only own a home if I can buy some land and build it, probably. From a US perspective, I see too many people buy a house because that's what they're "supposed" to do since that's the American Dream. They end up with projects every weekend, stressing about repairs, and dealing with random BS from the local government and Karens.
I also despise the culture around owning a home and the insane things that we do to prop it up. Zoning restrictions, absurd mortgage terms (what other country does 30-year fixed rates?), overbearing building codes all so we can live up to this arbitrary life goal of Owning A Home.
I've been through this cycle a few times.
Rent (because I'm a college student or in my 20s)
Buy (because American Dream and FOMO)
Buy a few rental properties (diversify income)
Buy a vacation home (seemed like a good idea at the time)
Sell everything and rent a house (move to an area better for my kids) <--- I am here
Buy one primary home and stay there forever <-- the plan next year
Renting a house is a great financial decision for my current market but the landlord is erratic (will he raise the rent? sell the house? move in?), I still have to deal with a HOA, and there are several big upgrades/changes I want to make and I can't: double the solar/battery, add some covered storage, put in wired cameras, put in a high quality RO water filter, devote most of the backyard to an orchard/garden, etc. And the rent will keep going up, whereas insurance/property tax will go up much slower because I plan to buy in cash.
Not aure anyone else mentioned it but good luck keeping a big dog in a rental unit.. or any other animals for that matter. Gardens are a pain as well...
You can rent a single family house
it doesn't really fill the same need. Especially because you are at the mercy of the landlord.
Owning my own home is the only way to go.
I've come to the conclusion that high housing prices are pretty much the root of most of our problems and is probably the biggest factor in increasing wealth inequality. I came across the housing theory of everything recently [1][2]. Disappearing third spaces, out-of-control inflation. homelessness, etc can all be traced back to housing affordability being the primary factor.
I tend to abhor buying vs rent calculators. I always have. Why? Because of inelastic demand. You can't opt out of the housing market. Well you can. It's called being homeless. If you rent, you have in effect taken a short position on the housing market. If house prices go down, rents tend to follow and you're better off than those that bought. If house prices go up, you're worse off. That's a short position.
So, by buying a house, all you're doing is closing out a short position. You might argue "but you still win or lose depending on the housing market's movement" but that's not actually true. Why? Because if all houses double in value, you still own 1 housing unit's worth of wealth. You're actually no better off. Who is? Corporate landlords and those that own swathes of houses. But your "investment" in tdhe housing market is used to buy your vote. You have a tendency to become a NIMBY. You tend to think of rising house prices as "good" despite the ultimately destructive effect on society.
Once again, China has been proven to be correct. Xi Jinping said back in the 2010s "houses are for living, not for speculation" [3]. Remember the trillion-dollar Evergrande default? Have you seen Western coverage of Chinese "ghost cities" or how the Chinese real estate market has been in turmoil like it's a bad thing?
All that happened was that Xi quietly popped the real estate bubble and made it more difficult and expensive to own more than one home. Prior to Xi's reforms, property speculation was rampant. It's going to take years for that correction to work itself out but it is ultimately a good for China as a whole.
Oh and one nitpick about the "costs" of home ownership from this post. A lot of the things like the repairs are cash outlays but they also tend to improve the value so that's more of an ivnestment than an expense.
[1]: https://worksinprogress.co/issue/the-housing-theory-of-every...
[2]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6571818
[3]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...
You'll likely enjoy the book 'Progress and Poverty' by Henry George. His 'land theory of everything' predicted continued increasing rents, decreasing interest rates, low real wages, continued global population growth, the GFC, analysed the case of superintelligent AI, explained how free trade and immigration without tax reform would lead to backlash from working class, and that communist states would become tyrannical dictatorships - all in 1879.
where does OP live? these costs are absurd lol
You will own nothing and be happy.
Came here to say this but you beat me to it- sorry to the author but home ownership gives you a real tangible piece of equity for the rest of your life if you maintain it reasonably well. This is especially true for people who aren’t good with saving money.
This^^^ The article is just more globalist tripe espousing owning nothing.
- A happy home owner (not a boomer)
It's insane that there is literally nowhere that you can have a piece of land reserved to you without perpetually owing someone money. Like it isn't possible at all. With home ownership, you will always owe taxes, so there is no such thing as paying it off. People claim mortgage payments are fixed/stable... yeah, taxes are not. Where I live taxes are like 50% of what rent would be. And on top of that you have costly maintenance that could happen any time, and if you live anywhere prone to natural disasters or even the occasional naughty storm, you better have all kinds of insurance. You're still renting. Even if it is fully paid off.
Let's say you decide to abandon modern life and move into the woods, guess what, there are fees to camp in BLM land or in national forests even, and even then you have to move around every few weeks. Camp anywhere near a city, you're homeless scum that has no rights anymore, what's the matter, the shelter is full? participation in the system is not optional. The only actual liberty and freedom is wealth in modern society, you still have to pay but you can setup lawyers and corporations to manage that for you, and fund any life style you want anywhere without worry.
It used to be in our history, that so long as you can work a land and live off of it, and you lived in peace and got along with your neighbors, you were left in peace and to your devices.
In the name of liberty, slavery has been instituted, since you must work, get currency and exchange it, and even then you must be kicked around like a nomad, whether you are renting (rent prices increase yearly until people move out), or camping in the forest or on a mountain top. Even in medeival feudalism, you got to stay in your allotted house and land, and to the most part currency exchange wasn't required, simply a share of your crops, animals,etc... was what was expected of you.
I don't have (never will) children, I don't drive cars (and even if I did, there are road taxes when you pay for gas!), I pay a ton into medicare and social security, so why am i paying for property tax? i already pay for water/sewage separately, simply having the fire department out to help you costs thousands of dollars anyways, and i wish we could reduce the funding to cops. why would i pay property tax so much, and it is perpetual and permanent, the property owes the tax even, not the owner!! how ridiculous of a mental gymnastic.
And all of this is assuming you're not unfortunate enough to live in a HOA, in which case it is the worst possible situation, non-compliance with a random person's wishes means they can sell your house on the cheap and tell your property with no consequence. I hope there are countries where things aren't this twisted.
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Maybe I missed it in the article but it doesn't seem to mention that you deduct mortgage interest on your taxes in the US?
This isn't something you get renting and it effectively lowers your monthly payment.
That's technically still true according to the tax laws here, but Trump raised the standard deduction during his first term in office so where I previously took an itemized deduction and claimed my mortgage interest from my taxable income, it's now more beneficial for my (basic) tax situation to claim the standard deduction. I appreciate the simplicity, but I'm no longer getting a tax benefit for home ownership.
I own a modest house that I bought close to 20 years ago before the standard deduction changes. The first year the calculated tax savings from itemizing was a whopping $800. This went down every year and at year 7-8 it no longer made sense to itemize. Interest rates are higher now but the standard deduction is way higher now as well. This strikes me as something that was a big deal in the very high interest rate 80s and has then been parroted as a huge benefit for decades after is largely ceased being true.
I pay less under "orange man bad" than I did under "Prof Autopen the funder of perpetual war."