My Thoughts on Renting Versus Buying
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Housing MarketPersonal FinanceRenting vs Buying
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Renting vs Buying
The article discusses the author's thoughts on renting versus buying a home, sparking a heated debate among commenters with diverse perspectives on the financial and emotional implications of each option.
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Half of American renters are cost burdened, for example.
https://news.ycombinator.com/item?id=43119657
(own my primary US residence free and clear, my housing savings goes into investments, which grow faster than inflation)
some parts of california have been affected by insurers more than others, but in those more minimally affected? prop tax is suppressed via prop 13 (for better or worse), and the cost of insurance is a drop in the bucket relative to what id be paying for a roof over my head otherwise tbh
This is done to allow people to age in place, and not price someone out of a neighborhood they’ve live in all their life.
My current city in central Europe is very renter-friendly. A nice apartment would cost $600k, but rents practically never exceed $1500/month. Under such circumstances an apartment doesn't seem like a great investment.
I've also lived, briefly, in Canada -- where rents were often extremely high relative to home prices. (I have a friend who pays $300/month on a mortgage and rents the place out for $2000/month. At the same time, the house has nearly tripled in value over the past ~7 years.)
I was in a one bedroom apartment, so not like-for-like, but I didn’t need or want anymore space than I had. I was also in a nice area, and in the nicest apartments in that area, as far as I could tell.
A couple people who moved out there when I did bought places, and I heard nothing but regrets from them a year later.
I don't doubt you or your friend, but their situation was unique.
That said, he was often trying to show off, so who knows.
Statistically, I’m in the top ~5% of income earners (from the data I can find), with no debt, and I couldn’t afford $6k/month.
I bought a house because I don't understand the rental market anymore. I don’t really like being a home owner, but the rent prices these days are so out of hand. I think the most I ever paid for rent was $1,680 and I felt irresponsible doing that. I don’t know how all these rentals are full with the prices they’re charging. Does everyone have roommates?
So, yes, $6k per month is house-poor numbers, but it’s workable for sure. If you’re even better off, good for you, it may fall into affordable range.
Maybe I’m conservative, but being house poor while making $300k is insane.
I’m thinking someone would need to be pushing $400-500k for household income. That would put them in the top 3%. I don’t get the supply and demand curve on it. Making that much, and renting. It’s an even smaller market than the full 3%.
6k for a mortgage would be scary in case of job loss, but for rent, whatever, just move.
Plus, if a sizable portion of that household income is in the form of stock or a bonus, that isn’t showing up each month in the paycheck, lowering the monthly cash flow. If there is a layoff early in the year before the bonus pays out, and you can’t exit the lease, that would be a bad spot to be in.
There is still risk on the table, depending on how some of this is structured.
I know a couple in that range of HHI (doctor/lawyer) who sold their house and moved to a rental in that range.
Their take is that their time is very valuable to them, and dealing with their house involved a bunch of time spent on management and administration that can’t be made to adequately go away without effectively hiring a house manager.
Here a variable rate is norm and has been since I remember.
I was eyeballing a particular house with specific financing in mind just before covid started, and if I'd pull a trigger on that transaction my monthly payement would more than double at some point.
my life cannot be uprooted based on the whims of a crummy landlord or because my obligation has crept out of my budget
i bought conservatively and now have a tiny payment relative to what i’d otherwise have to pay to live in the bay area. peace of mind is hard to put a price on
I don't see how your statement follows at all. I'm sure landlords would prefer rents to be higher than their mortgage but that will be determined by supply and demand, not their desires. The housing market is huge, with lots of alternatives and competition, so you can't exactly price fix it either.
I suspect it’s some kind of uncoordinated price fixing. E.g.
1. landlord buys property, optimistically sets rent at $mortgage+30% even tho that’s above the market rate
2. Everything cheaper is rented, or highly sought after, so renters are forced to take the higher rent.
3. Other landlords see places renting for higher than their current rent, and raise prices accordingly.
But i’m no economist. I’ve just never seen a landlord take a loss except as a result of special circumstances. Economic crashes, fire, etc.
It currently only profitable only of ppl who got super lucky during covid .
Thats like saying it makes sense to buy tesla stock because i bought it at $10
And the stability of buying is undervalued. It's telling that this article frames housing as an investment vehicle rather than as a basic necessity. And it's not just a necessity because it shelters you from the elements and gives you storage for your stuff; it anchors you in a neighborhood and allows you to begin forming a local community. The flexibility of renting that this article glorifies is itself anathema to knowing and befriending your neighbors on anything but the shortest of terms; even if you don't intend to move, you have no guarantee that they won't up and exercise that flexibility. This is a major contributor to the modern loneliness epidemic.
However, I think this depends highly on the personality of the renter/owner, and that is the point this article misses.
If someone is, like myself, comfortable with risks, I'm ok with changing neighbors, locations, and I've lived on 3 different continents and 9 cities?
If you're someone who craves stability, then this isn't for you, and you're proably better off buying a house.
You crave an addictive substance. By choosing the word “crave”, it sounds like you are pathologizing the choice to buy a home, perhaps from a need to validate your personal life choice to rent in spite of facing a forced vacation of your residence. Or perhaps you have financial interests in real estate companies that manage apartments.
If you lose your employment and you have a home, that's a much riskier situation than if you're renting. Because, if you cant find a job in time or in a very small location radius, you must sell.
The mobility of renting lowers the risk associated with extraordinary life events which requires relocation.
8-10% annual rent increases are not unusual at all in NYC/LA/SF - maybe you can get a 10% raise every year, but I'd wager even most HN posters can't.
For this reason alone, it makes sense to grind to homeownership as quickly as possible if you live in a top tier market. Those locations also de-risk homeownership a bit since they have the largest job markets and highest real estate demand.
If you live anywhere else in the US then I agree, renting starts to look a lot more attractive.
Can't really move companies easily if you're owning a home, ergo, about 10% potential loss per year over renting, not including the difference in investments you could achieve by having more liquid income w renting vs buying.
Buying DOES make sense. I think it almost never makes sense if you're early in your career. The ceiling is just too high to give up potential earnings that early. The closer you get to the ceiling though, the more sense buying a home makes.
It depends.
Personally, after witnessing both sides of the coin second-hand, I am not leaning in the direction of either buying or renting in absolute. It is highly dependent on the context and circumstances of a specific situation/market.
I am aware that this is just an anecdote (i.e., it isn't going to say much about the overall state of things across all states in the US), but there is a specific example I'd witnessed myself, which led me to believe that this is a bit more complicated than just "renting is the move" and "buying is the move."
TLDR: one of my former coworkers bought a condo in Queen Anne neighborhood of Seattle (which is a highly desirable and expensive neighborhood in that metro area). Within the first year of his ownership, the pipes behind his laundry machine burst due to no fault of his own (while he was at work), and it ended up flooding the apartment of the neighbor below. It decimated the flooring of both his own unit and the unit of the neighbor below. He ended up was facing the costs of unfucking his own condo AND the unit below.
I don't remember the numbers off the top of my head at all (as the whole thing happened around 2018-2019, and I wasn't really involved in any direct way at all), but I remember that he did the math and (based upon the numbers, reasonably) ended up selling his condo as soon as he'd finished fixing his own unit + paying for the fixes to the unit below.
Meanwhile, I am currently renting, and if the pipes in my unit burst and end up flooding the neighbors below, it would be mostly the problem of the property management company running my building to deal with, not mine. This alone make me feel way more stable than if I'd owned the unit I live in atm.
hoas only make sense to me in condo situations - but even then you’re at the mercy of others
But in the US it usually implies neighbors above and below and on the sides.
There are A LOT of costs which are not explicit when owning a condo.
Honestly I have such low trust in the ability for humans to plan for the future over the now. It is like a bug in our psychology.
As a homeowner I have definitely had some 5 figure costs over the years that were totally unexpected and several in the low 5 figure range that really needed to be done. Doesn't mean I couldn't cover them in some way shape or form but they happened.
Most home owners don’t do this either, but it’s pretty much the same thing short of an association leaving stuff so long it ends up being more expensive overall.
Stuff like siding isn’t really all that hard to predict - it typically has a useful life and easy to calculate like a roof. Might get lucky or unlucky but it all averages out in the end over time. If you’re not saving/spending about 2% of your property value each year for maintenance you are almost always running on hopes and prayers.
Granted, the outlier cases a condo owner has far less control over the situation- including neglect to the point of building collapse.
Anecdote of my own: The last place we rented before buying had a minor roof leak. Minor, but still a roof leak. The landlord was old, her daughter was responsible for a lot of stuff, and they were both remote for at least part of the year. It took 3 years for them to finally get the roof replaced, evidently about a year after we left.
And these were good landlords. They took care of a bunch of minor disasters in good time: dishwasher, washing machine, thermostats for the baseboard electric heat, stack vent got clobbered by ice coming off the roof? All dealt with promptly. But the roof, important though it was, wasn't a big enough problem to merit quick attention. The place was a log home, and by appearances, hadn't been subjected to any kind of refinishing for a good while too.
There are definitely tons of pros that come from renting from small/individual landlords (e.g., potentially tiny/non-existent monthly rental cost increases over the years; I have an acquaintance who managed to keep the same lease price [which was already extremely low for the neighborhood] for about 3 years now in LES neighborhood of Manhattan).
However, what you described is precisely one of my biggest personal concerns, hence why I tend to stick with larger/property-management-company-run properties+buildings that are, in general, newer. I discovered that it is much easier to get property management companies to get things like that done. In fact, after some of my current neighbors complained enough about elevator outages over the past month (for context: the building is 30 floors tall and has 3 elevators, but we recently had multiple weeks where only one elevator was functional, which led to large elevator lines and slow service), everyone automatically got a $500 credit applied to their next rent payment.
This just doesn't happen as often with apartments, where people are more transient and more likely to be single and/or childless.
80% of Eastern Europe, for example, would disagree with you.
Our place is ‘far’ (10m walk, this is Tokyo) from the nearest supermarket, a bit small, but it’s also connected to a tiny street that allows kids to play safely, 20s walk to the kindergarden, 5m walk to elementary school, and there’s parks around everywhere. Apparently those are things that a lot of young parents value ;)
We need, as a society, to bring back generational communities.
Our workplaces are not our families!
I'll also add, that once you have children, owning your home is a very welcome level of stability.
Nothing worse than looking for a new rental and potentially being forced to upend all your routines and find new schools for the kids as you cant rent in the same area anymore!
owning does not shield you from shit like that, maybe in rural america but definitely not in/around the cities
You brought up a good point though, and that’s the trap of being house poor. Too many owners fail to look / have not been taught to factor local property taxes and maintenance costs into their homes. My network definitely has people caught unaware by escrow shortages, siding costs, roof costs, HVAC stack costs.
Despite it all, US homeowners seem to edge out renters, but it doesn’t have to be causative, either.
https://www.aspeninstitute.org/wp-content/uploads/2024/11/AS...
And this is why, despite some negatives, Prop 13 (California) is so valuable. People don't get priced out of their own homes.
I think this is the biggest factor if it applies. If we want to be utilitarian about it, the benefit to your kids of having the same school to attend, same neighbors to play with, same room to call their own and paint the walls as they desire, etc. just dwarfs everything else. Kids just do well in stable, predictable home environments.
I can make all the commitment I want to date Beyonce but at the end of the day it takes two to dance :)
Befriending your neighbors kind of works in a city but only REALLY works in Amish communities.
Arguing the actual optimal approach would require crunching numbers, which would take time by authors and readers, ergo the surfeit of "Here's why you crunching the numbers doesn't matter" popular content.
Also, just to call out one of the many gaps in this particular post: buying a home is a double hedge against inflation.
Given that (1) your debt is denominated in buy-date currency, while your real property value will be inflation-adjusted & (2) in the US at least, buying a home is the easiest way to borrow to invest with, given low mortgage rates (compared to other loans) + <100% down + fixed-rate 30 year mortgages with refinance at buyer's discretion.
I chalk up the difference to the fact that a lot of people my age couldn’t afford to live where I moved so my neighborhood is full of wealthier older people who I have nothing in common with.
Owning also lets you invest in your space a lot more, and I'm not really talking about fancy remodels that cost tens of thousands. More like smaller projects like adding a nice catio, buying workout equipment that fits your space, or setting up a nice home office in a dedicated room. My partner and I held off on all sorts of purchases and projects like that while we were renting because each would have been a huge hassle to move, and might not have fit in the next place we lived. The costs are manageable for a long term improvement, but I wouldn't want to toss one out in a year. Now that we own a house we have have gone ahead with a lot of those additions and they make our living situation much more pleasant.
So like… Is that really that important?
In my country, buying a home is the only way to get cheap debt for the vast majority of people.
Detailed analyses exist, e.g. https://www.youtube.com/watch?v=j4H9LL7A-nQ .
As Ben notes the tax advantaged status of primary homes has more capacity than most tax sheltered alternatives.
But a lot of this depends upon income.
This reminds me, I need to buy more DFA. :)
I want to buy some small/medium CAP ETFs but there is nothing really in Canada you can buy off the TSX.
Several companies (including major ones like Blackrock, and TD Bank) offer US equity ETFs denominated in CAD available for purchase by Canadians. This includes some basic sector and factor options, and even some leveraged and other derivative ETFs (but expect MER >1% on these).
Your bank can most likely set you up with a "direct investing" or similarly named option (after doing some KYC stuff of course) that allows you to buy ETFs directly in a TFSA or RRSP. Or you can try a third-party service like Questrade, WealthSimple etc. It's even possible to hold options in a TFSA if you have the right paperwork, as long as you don't give the CRA the impression that you're making a "business" out of "day trading". Once you're set up it should be easy to find "some small/medium cap ETFs", for both Canadian and American (and maybe international) holdings.
tl;dr: talk to someone at your bank. Make sure it's clear you aren't looking for investment advice and want to make the decisions yourself. Or look up those third parties. (If you hold registered accounts at multiple institutions, to my understanding you will be held fully responsible for observing a total contribution limit etc. across all of them.)
Also, there's leverage baked into most stocks. Corporations will lever up.
As the rent prices keep rising, the renter in the end will end up spending much more money in the same duration as a mortgage, won't they? After a few years, when they end up owning more of the property, they can secure a good deal with better monthly mortgage payments.
They can also quite easily set up an AirBnB or get proper renters, if they want to have some flexibility, and in most cases the rent money will be more than the mortgage payments, so if they want to rent another place of their liking, the additional income will offset the monthly costs.
The renter doesn't have to deal with this.
this touches on something the author sorta hinted at, mortgage as a forced investment. Some buyers/renters won't view the down payment as an investment opportunity if they go the path of renting, they decide to rent and suddenly theyve got a new car loan and all new furniture or whatever, and that down payment is gone, instead of compounding year over year in an attempt to make renting a financial advantage
you can usually napkin math investing the down payment and it makes more financial sense to rent, but from a human perspective its just not gonna happen like that for so many people. they are gonna mess with that money instead.
The main advantage of a house imo is that you can't typically rent something comparable, at least where I've lived. The rental market for 4 bedroom houses is tiny compared to the number for sale.
I can only imagine it makes financial sense to rent if you live somewhere where you're not paying off someone else's mortgage and are paying a fair renting price. (Otherwise paying your own mortgage just makes more sense)
As an actual honest question, where in the world is like that any more?
Which is why I asked.
I can name 4 cities easily where you're paying mortgage+extra driven by the "buy-to-let" craze over here. I'll assume you mean the UK is a phenomena in that case.
_sigh_ don't remind me...
This means that, generally, no matter where you buy, you won't want to have bought anywhere else after a few years. There are cases where you might hate it, of course, but you could still sell/rent to someone else and buy/rent elsewhere.
If you get unlucky with no reason to still be in a particular city and that city starts a downward swing, there's no gaurantee it ever comes back and you're stuck taking care of something that you might never be able to sell for anything but a loss.
I will likely stay a renter and keep that flexibility in my new city for a long time after this experience.
https://www.realpage.com/storage/files/blog/posts/images/202...
If this had been framed differently, it would be more interesting. Instead it comes across as universal (“most people won’t saved unless forced to”) and ignores the many many benefits of buying. (Not mentioning 5x leverage on a historically good asset is willful ignorance)
As a former renter of 20 years, these are great points that everyone should evaluate. As someone for whom home ownership made sense now, I wish I had been able to prioritize those factors earlier as it would have been nice to have my mortgage locked in at 2010 prices.
I think this might be a good balance to get us some type of flexibility while also diversifying our assets. But now the problem is trying to find a decent rental property in another city :p
I get good flexibility and value for my dollar. The savings over renting is insane.
That sometimes under the right circumstances a home is both a great place to live, the best deal you can get in your area, and also an investment
You sort of alluded to it in your post, but it’s different for everyone, but then you go on ahead and speak as if there were one answer
Good for you you chose to rent - you don’t have to deny homes potentially being good investments to validate your decision
I looked into this a few years ago when I was trying to see if we were really in the worst housing market ever, and came to the opposite conclusion. https://arriens.us/articles/housing.html
Of course, a solid investment plan may offset these - but only a domicile (doesn't need to be a house) would survive everything related to the economy going to utter hell.
I agree about houses, though. A saner plan may be to purchase a modest apartment or the like, that you keep in the wings until you reach retirement.
Any "house" would be too big for me by myself. And buying a condo apartment seems like a strange proposition to me; compared to renting the same space, it seems like just paying extra in order to accumulate some nebulous equity at the end of the term. I'd rather do that with more liquid asset classes.
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