Anonymous wrote:I'm always suspicious of those saying renting is better because they are never entirely honest with their scenarios and it turns out they're comparing renting versus buying two quite different properties rather than the same type of property. You can certainly save money renting a small apartment in a less desirable area over a larger SFH in a highly regarded school district. But that's not the option most people face when making the decision to rent or buy.
If it was really that much financially better to rent, then vastly more affluent people would do it. But they don't. And that tells you everything.
I've only owned a house for four years but in that time I've had significant appreciation, my mortgage is almost half what it cost to rent the same property based on the few rentals in the neighborhood. Meanwhile I'm building up equity. It's a form of forced savings.
People have lost money owning houses and much of that comes down to timing, buying at market peaks and selling at market lows, facing foreclosures due to job losses, buying the wrong kind of money pit, or selling too soon after buying. Some of those factors you can control by being intelligent, others you cannot. But I will say that based on the last 10 years, people who waited for prices to come down have only lost out.
Interest rates are high by recent standards, but they could go up. Or if they go down, you can refinance. Given that there is nothing to indicate any kind of housing crash because we actually have a severe undersupply of housing, if you can swing the mortgage payments, it's better to go for it.
Renting is not always better but it is almost always better right now. If you don’t believe it go on Zillow and look at rentals that were recently sold and compare the rental price to what you would pay if you got a mortgage on them at the current rates. My impression with people tirelessly defending buying is that actually it is them who did not do the math. I own and did the math for myself. I would be significantly richer now if I kept renting and invested my money instead. But there are other advantages of owning, which is precisely why affluent people own too. They are very well aware it might not be financially the wisest but they do not care as they want to have a place they can renovate as they please and that no one can sell from under them.
There is an aspect of short term thinking when you see rents being lower than comparable mortgages if you buy *now*. But rents always go up in the long run. It's rare for rents to fall, especially for better areas, and those falls never last more than a year or two. Even if you pay more with a mortgage than rent right now, you are still building equity in the property that you don't with rent, plus you get to deduct taxes and mortgage interests, which you don't with renting.
The gap between renting and mortgage payments for a comparable property is never going to be so huge in favor of renting that you can genuinely make money off investing the differential in the market. All that is theoretical. Part of it comes down to that a mortgage is a forced savings, you have no choice but to make the payments and build up your equity. But telling yourself that if I rent I'll have an extra $1k to invest doesn't mean the extra $1k always goes into investments. Given that we still higher than typical inflation, the rent is also only going to keep going up.
Well, you are clearly another one who has not done the math for comparable properties RIGHT NOW. The mortgage for a house I considered renting for 7.2k would be almost double that (sold recently for 2.3mil). And an absolute majority of that is interest so the equity you are building is minuscule. And as a foreigner with a particular visa situation I cannot deduct any of it. Why would I buy that house right now knowing I won’t be staying there for more than 10 years anyway? You always need the full picture. Also it is very unlikely that the rent would double in the next 10 years. Many of the houses on the rental market I have been watching, have been renting at about the same rate for the last 5-7 years. And I would never have to replace the AC or roof in them.
Where do you think the money comes from to pay the interest, replace the AC or roof? Tenants are still paying and the longer you rent, the more of your rent is going toward that than quality/location.
If you don’t like interest bc it’s “throwing money away”, you should really hate rent.
For the kind of properties I am interested to rent vs but you pay more in interest than you pay in rent. I am looking at houses in NW DC roughly in the 1.5 to 2mil range. Rent for all of them is lower than what only your interest payments would be in the time horizon for which I would own or rent. I definitely disagree with whoever said above that even owning for 5 years is better than renting for the same period. I highly doubt this is true in the current market, considering the massive transaction costs and any improvement/maintenance costs. People also seem to largely ignore the opportunity cost. My 500k down payment would have gone significantly farther in the stock market in the 5 years since we bought. There is nothing wrong with wanting to own a place but it is definitely much more often than people want to admit not the best financial decision. Sure, no one has a crystal ball and I am curious how this post will age, but if I was not owning already, I would definitely not buy right now with the standard 20% down or less.
I looked at what was available in NW DC/ Chevy Chase. Seems like the rents for a $1.5 to $2M property is $8k a month on average. Mortgage would vary depending on how much equity you bring to the property. But 500k down on a $1.8M is about $10k a month in mortgage. It is more expensive than what you can rent. But it's still $8k in rent gone forever each month whereas for $10k monthly mortgage you are still paying something towards principle and building equity, so at worst it's a wash, at best it's still cheaper than renting. And with a mortgage you have a property and can benefit from appreciation.
Yes, housing prices can go south just as much as they can go north. So can the stock market.
If you just wanted to live somewhere for a few years before moving on, you do have a good argument for renting *now* because you're planning on moving in 2-3 years. But if you, like most people, are looking to stay put for a long time, it's better to bite the bullet and buy what you can. Even if you end up selling in a few years, any money "lost" will just be the equivalent of the rent you otherwise would have paid.
Add to it transaction costs of buying and selling, property taxes, insurance, maintenance costs and it is very unlikely to just be a wash. Plus you have blocked 500k in cash that could have been working for you. You can also be saving and investing the difference between the rent and mortgage. People should go ahead and buy if they value owning and don’t want their neighbors who think the same way to look down at them, but let’s please stop convincing ourselves that buying is always a good investment.
FYI a mortgage payment is typically bundled with the property taxes and insurance. The sums you see on redfin estimates will include those estimates. Renters are also not immune to maintenance costs like yard work and renters ideally should have renters' insurance too.
Still, we get it, dude. You're justifying your decision not to buy but instead spend a fortune each month on rent that goes away forever. It's fine. It's working for you right now, psychologically. I did have a prof in a RE class at Wharton who covered the costs of owning/renting and concluded that in a typical market you need to own for five years to break even due to transaction costs but after five years it's better to have owned. But that was a typical market in the early 2000s. Are we in a typical market? Is DC ever a typical market? I'm reminded of the old saying that no one ever went broke buying California real estate, which isn't entirely true but if you held your ground and stayed put, you came out extremely well.
But I will agree the market is in touchy place right now. We do have a significant undersupply of housing combined with higher interest rates that's keeping prices high. We also have persistent inflation. We also have a strong economy and buoyant stock market. Some cities are seeing softening real estate prices. Others, however, are very resilient, like DCUMlandia.
When I look at all the data available, and I'm mindful that a significant portion of the real estate is now owned by people with 2.75% mortgages that they will never give up unless they absolutely have too, what it means is that in stable and desirable areas with good amenities and schools, there's a strong likelihood of continuing undersupply of housing keeping prices high. If you're looking to own for the long run, it's likely better to just buy what you can and sit. If you expect to buy and sell every few years, it may be worth it to wait a few years but even that is a gamble, more so than buying.
No, you do not get it. I do not need to justify anything as I actually own. But I also know how to math and that I would have been better off financially if I kept renting. But there are other reasons to own. It just depends on how much you value them.
You’re wasting your time. PP sounds like an MBA in which case, he doesn’t understand math…
Hah! We have to live somewhere, yes or no? That's the fixed need either way. You can chose to rent and never see a penny of that back. You can chose to buy and see some of that money back. There are times and situations where renting is the better decision but for the typical homeowner, buying is unquestionably the better decision in the long run. And most homeowners are in it for the long run. Most people who bought in/around DC since 2009 have done extremely well and each year always had the same doubters.
This is bro-speak for “yes explaining the math to me is a waste of time” - glad we’re all on the same page.
The hostility is intriguing.
I work with a large network of successful people with excellent incomes and careers and virtually all own, not rent. I guess they are stupid? If there's a pattern with owning and renting, it's that the affluent own, the poor rent.
When you talk of the opportunity costs from owning instead of renting, you deal with the strictly hypothetical. It'd involve having the discipline to put the surplus money from not owning in the handful of years when it's cheaper to rent into the market and not spend it on vacations. Owning is a forced form of savings in real life, not imaginary back of envelope calculations involving hypothetical scenarios and behaviors. Choosing investing over owning means you're also subject to unpredictable market swings that may not time well with your other plans. There are also other variables such as owning a property you'd never be able to afford later in life, as many in DC discovered to their benefit.
People have definitely lost money owning a house but on the whole, most people have done better owning than renting.
Being smart/successful in one area does not necessarily mean one will be smart/successful in other areas. This idea that “I am an expert in *this* thing means I am an expert in *everything*” is unfortunately pervasive in our society right now.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
Sure, there's emotions involved in owning a house, but the same human nature also makes those hypothetical rent instead of own scenarios unstable and unrealistic. If you're a spastic autistic living in a basement studio pouring over excel spreadsheets I'm sure you can rationalize renting as the more financial sensible option. But your typical homeowner is someone who barely manages to cobble together the down and rarely saves significantly more than that across his or her life. The idea there will be excess savings after paying the rent to put into the market isn't practical reality for most Americans. But if they buy, they have a forced forms of savings. People have a habit of spending rather than saving. People have a habit of not renting the same type of property they'd buy and vice versa. People have a habit of spending too much on rent. If they hadn't bought, they'd end up with nothing.
If I had adopted the renting is better mantra, this wouldn't have happened to me: buy a house with 10% down, see 200k+ in appreciation, refinance to a 2.75 superlow monthly mortgage half the cost of renting the same property, watch inflation hollow out the real value of the mortgage loan and monthly payments. None of that was guaranteed to happen, in fact, it wasn't even on the horizon when I bought the house. And all for what was effectively a 10% investment. And in the meantime I still put plenty of money into the market each month thanks to what is now a cheap mortgage for a valuable house.
Admittedly that was then and a new buyer today is in a different place. I don't dispute it. But homeownership is also a hedge against the future, which is why affluent people still buy.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
OP - the conclusion of all this debate is that you need to 1) run the numbers 2) decide if the numbers matter to you. There are a lot of perfectly valid reasons to buy even if the numbers don't work out.
Anonymous wrote:OP - the conclusion of all this debate is that you need to 1) run the numbers 2) decide if the numbers matter to you. There are a lot of perfectly valid reasons to buy even if the numbers don't work out.
Buy something "even if the numbers don't work out"?
We are also renting because we are saving money in the long run and have good interest rates in our money markets. It’s a DC thing to talk about these things when it’s no one’s business. The culture here is very competitive and most people are very insecure.
We added up our mortgage & interest cost, maintenance, taxes, savings on utilities, homeowners insurance if we were to own and come out with significant (2k) per month. If we save in a money market we can make over 5%. We enjoy a lot less stress as a renter.
Buying makes sense from putting down roots, customizing the home,
buying in a neighborhood where there are no rentals,
securing access to some target in boundary school. It does not, in many cases, make sense from a making money standpoint.
You are betting on the local real estate market beating the stock market. Doubling your money in 10 years is 7% annual growth. Yes yes i know taxes etc but its easier said than done to find a house thats literally doubled in ten years. Some markets have this, yes. But most markets are not like this.
There are rentals in many neighborhoods because people don't want to sell their 2.5% mortgage homes. In good school areas. Our neighborhood has homes that do not go for less than 750K (many around 1M if fixed up). The schools are top notch. We have 20% rentals in here. Some of them are just people who kept an estate house as a rental and some are people who are gone for 3 years on a military hitch, but "might" come back. Either way there are rentals to be had.
Where I live renting a single family home in a top school district runs $6500-$7000. Rentals are hard to find and the owners unload the house within a couple of years. It’s a major headache.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Comparing a certain type of home, in a historically strong metro area, to the stock market in general is an unfair comparison. A better comparison would be to compare the real estate market in general to the stock market in general.
If you’re going to compare the DC housing market to stocks, compare it to a certain company or a certain sector. If you bought a basket of individual tech stocks (Apple, Microsoft, Amazon) 20 years ago instead of a house in DC you’d be doing far better.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Ideally they can do this. Often the rental market will not allow for them to do so.
There is no math in that article... just random assertions.
Yes, I just googled him and put the first article here. You can google him or look up his podcast if youre interested in more info. I'm not the expert to explain why he thinks these things...
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Comparing a certain type of home, in a historically strong metro area, to the stock market in general is an unfair comparison. A better comparison would be to compare the real estate market in general to the stock market in general.
If you’re going to compare the DC housing market to stocks, compare it to a certain company or a certain sector. If you bought a basket of individual tech stocks (Apple, Microsoft, Amazon) 20 years ago instead of a house in DC you’d be doing far better.
No I am not. The average house appreciation in the US for the last 2 decades has been ~5%, for strong metro areas it has been double that. If you only invest $400K (down payment) and purchase an asset of $2M (house), your asset would have appreciated $100k a year annually with a 5% appreciation rate. If you invested the 400k in the market you'd need a 25% annual return to make 100k (stock market average has been 9.9% annually). Plus 1. rents have increased 8.5% annually for the last 4 decades while your mortgage payment stays fixed and often decreases through refinancing 2. your mortgage is tax deductible while rent isn't. Renting only makes sense if you can't settle down for 5 plus years in an area.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Ideally they can do this. Often the rental market will not allow for them to do so.
No one holds on to an assets that bleeds cash, so yes they pass on the costs or sell. Rent inflation in the US has been 2x general inflation and has surpassed housing appreciation.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Comparing a certain type of home, in a historically strong metro area, to the stock market in general is an unfair comparison. A better comparison would be to compare the real estate market in general to the stock market in general.
If you’re going to compare the DC housing market to stocks, compare it to a certain company or a certain sector. If you bought a basket of individual tech stocks (Apple, Microsoft, Amazon) 20 years ago instead of a house in DC you’d be doing far better.
No I am not. The average house appreciation in the US for the last 2 decades has been ~5%, for strong metro areas it has been double that. If you only invest $400K (down payment) and purchase an asset of $2M (house), your asset would have appreciated $100k a year annually with a 5% appreciation rate. If you invested the 400k in the market you'd need a 25% annual return to make 100k (stock market average has been 9.9% annually). Plus 1. rents have increased 8.5% annually for the last 4 decades while your mortgage payment stays fixed and often decreases through refinancing 2. your mortgage is tax deductible while rent isn't. Renting only makes sense if you can't settle down for 5 plus years in an area.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Ideally they can do this. Often the rental market will not allow for them to do so.
No one holds on to an assets that bleeds cash, so yes they pass on the costs or sell. Rent inflation in the US has been 2x general inflation and has surpassed housing appreciation.
When an overwhelming majority, staggeringly overwhelming majority, of higher income, higher net worth people own, not rent, that tells you something. Not a coincidence.
It tells me they’re not too concerned about what the optimal financial move might be, because they can easily afford to own and they want to own so who cares?
What does it tell you?
Not PP. There is no free lunch. Landlords pass on the cost of PITI plus a profit margin to the renter. People who rent and save vs. bying are typically renting much less space or worse amenities. I don’t think housing is a great investment, but you do have to live somewhere and pay for shelter. Also, a house is bought on leverage so for a 400k down payment the house has to appreciate by 30k a year to beat the market long term. And yes $2M houses have appreciated a lot more than 30k annually. I consider PITI the sunk cost of providing for shelter, no different than rent.
Comparing a certain type of home, in a historically strong metro area, to the stock market in general is an unfair comparison. A better comparison would be to compare the real estate market in general to the stock market in general.
If you’re going to compare the DC housing market to stocks, compare it to a certain company or a certain sector. If you bought a basket of individual tech stocks (Apple, Microsoft, Amazon) 20 years ago instead of a house in DC you’d be doing far better.
No I am not. The average house appreciation in the US for the last 2 decades has been ~5%, for strong metro areas it has been double that. If you only invest $400K (down payment) and purchase an asset of $2M (house), your asset would have appreciated $100k a year annually with a 5% appreciation rate. If you invested the 400k in the market you'd need a 25% annual return to make 100k (stock market average has been 9.9% annually). Plus 1. rents have increased 8.5% annually for the last 4 decades while your mortgage payment stays fixed and often decreases through refinancing 2. your mortgage is tax deductible while rent isn't. Renting only makes sense if you can't settle down for 5 plus years in an area.
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