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.
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.
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'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.
> 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.
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 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.
> 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.
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...
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.
> 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.
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.
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.
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. :)
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?
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.
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.
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 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.
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.
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.
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 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.
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”
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.
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.
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.
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.
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.
> 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").
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.
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.
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.
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.
> 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.).
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.
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.
> 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:
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?
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 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.
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.
> 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.
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 better than that, better numbers-wise to continue renting; if your rent is more, probably better numbers-wise to buy/own.
The company he works for created a tool to examine the numbers:
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:
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.
> 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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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
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.
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 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.
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.
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 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.
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.
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.
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.
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.
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.
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.
> 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 ...
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.
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.
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.)
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.
> 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.
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
“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.
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.
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...
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.
>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.
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).
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
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.
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.
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.
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
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.
>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.
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'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.
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.
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 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.
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.
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!
> 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.
> 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.
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 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.
> 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.
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...
You can pretty much always finance a repair that size and amortize the expense so that it works out ok.
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.
> 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.
> 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.
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.
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!
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. :)
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
> 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…
“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?
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.
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.
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
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.
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.
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.
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 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.
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.
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.
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.
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.
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).
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.
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.
Why not just sign a longer term lease? Most landlords would love that.
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.
> 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").
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.
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
"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.
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.
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.
>"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.
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.
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.
> 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.).
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.
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.
> 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
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?
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 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.
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.
> 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.
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 better than that, better numbers-wise to continue renting; 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
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.
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.
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.
> 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.
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.
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
> 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.
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.
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?
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.
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.
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.
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.
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.
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.
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...
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.
> 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.
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?
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.
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.
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).
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.
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.
The cost of having to live under the boot of a landlord is immeasurable. The freedom of not having a landlord is priceless.
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.
Rent control changes the math on this. Obviously location dependent but it can have a significant effect.
Rent control causes other problems, such as lack of supply and lack of maintenance.
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.
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.
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
This is mostly the real cost of borrowing money, not the real cost of owning a home.
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.
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 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.
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
The Repair section of the article could have been mitigated by a inspection and negotiation before buying.
Always negotiate repairs into the offer price.
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.
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.
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 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.
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.
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.
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.
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.
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.
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?
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.
> 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 ...
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.
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.
> 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?
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.
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.
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.
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
> 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.
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.
“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.
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.
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.
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
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.
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.
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.
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
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.
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
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.
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
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.
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.
>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.
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.
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.
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%.
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.
I say that, and I bought my house less than a decade ago. So you're making a generalization that isn't true.
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.
where does OP live? these costs are absurd lol
You will own nothing and be happy.
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.
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.
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.