Why the New American Real Estate Dream Is Renting

http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html

by mjfern • 17 years ago

16 25 17 years ago

online.wsj.com

TweedHeads• 17 years ago

Never rent unless in a precarious situation or if just recently moved to a new city. Buy as soon as you can. You will never ever see a penny of what you paid for in rent.

If you buy, even if temporary, you get all your money back, sometimes more, sometimes less, but you always get some.

I lived most of my early adult life renting and I can tell you this, more than $100K wasted and no way at all to get one cent back.

alanthonyc• 17 years ago

Sorry, that line of thinking is dogma.

Here's an article that explores this argument: http://www.smartmoney.com/personal-finance/real-estate/renti...

Basically, take the "never rent" piece of advice with the same amount of skepticism that you would any other piece of advice that begins with "never."

Summary: average annualized return on investment on owning a home barely beats inflation, dating back way, and that's including the boom times.

Average return on investing in businesses (i.e. the stock market, your own startup), is a much better place to put your money.

Not saying there is no reason to buy a house, there are plenty. But never say never.

yummyfajitas• 17 years ago

Mathematical identity:

    price to own = price to rent + speculative ownership premium + transaction costs

If you rent, you get to keep that speculative ownership premium and the transaction costs.

An additional problem with owning is that your investments are bound to your living situation. Orthogonality is good. I can change my living situation without even thinking about my investments.

pg• 17 years ago

On average the owner does get something in return for the speculative ownership premium, though, so you have to factor that out.

randallsquared3• 17 years ago

Ownership and renting do not have that simple a relationship; it's easy for them to get out of sync such that renting is more expensive than owning, for a time.

dionidium2• 17 years ago

This is so far from the truth that you couldn't possibly be doing anything but repeating something you've heard without independent verification.

If you have to borrow money, then you have to pay something akin to rent, except you pay it on the money borrowed, not the property itself. Second, under standard mortgage amortization schedules, nearly all of your early payments go toward interest (and by corollary, very little goes toward principal).

Length of ownership, prevailing interest rates, and potential maintenance costs should all be factored into a home-buying decision. It is far from obvious that owning is better than renting.

veteran• 17 years ago

Here is something for you to feel good -- http://patrick.net/housing/crash.html

ryanwaggoner2• 17 years ago

I think this is the guy who from 2005 - 2008, was constantly predicting a 50% collapse in property values in SF within the next few months. Not saying he was wrong about overvaluation (though it wasn't rocket science), but I wouldn't try to time the market based on his advice.

ryanwaggoner2• 17 years ago

I used to think this, until I moved to SF and actually ran the numbers. And running the numbers for rent vs. buy is complicated when you do it right, because you're forecasting things like inflation, interest rates, how long you intend to stay, etc. Here's the best calculator I've seen:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...

HeyLaughingBoy2• 17 years ago

Dumb article! Homeownership is dead because you could be foreclosed upon? This is news?

I bought my first house in the city about 12 years ago. First thing I did was paint one bedroom wall cobalt blue cause I loved that color. Lawns are a pain in the ass to take care of (and I don't much care for monocultures anyway), so I began ripping up the lawn in the back and planting veggies, strawberries, raspberries and prairie wildflowers that can take care of themselves. Added a computer room in the unfinished basement.

Sold that house after 5 years and move to the suburbs (bad idea!). I like to cook, so the second house had its kitchen ripped out and replaced with real slate floor tiles, nice countertops and custom cabinets within 2 months of moving in. Built a metal-casting setup behind the house. Bought house #3 way out in the country and rented out house #2 for 2 years then sold it.

Hope to stay in house #3 until economy improves. I have 10 acres to play in and a small machine shop in the basement. We have horses, chickens, large vegetable garden, maybe goats or cows someday and can do whatever we feel like with the property -- like the outdoor clay oven I haven't finished. Next summer I think I'm digging a goldfish pond/water garden.

Try doing any of that with a rental! Not everyone buys to flip or to sell at a profit. Most of us just want a place to live in that we can hack to suit our current mood.

dionidium2• 17 years ago

"People who rent talk about the books that they've read, the trips that they've taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner's personality are those which relate to his or her ownership of real estate."

http://philip.greenspun.com/materialism/early-retirement/whe...

randallsquared3• 17 years ago

Hm. Boring and secure, or interesting and anxious? :)

HeyLaughingBoy2• 17 years ago

You could at least make some personal comment about what Philip had to say instead of merely quoting him. Otherwise what's the point?

In any case, I learned about 10 years ago to disregard anything philg had to say unless it was about photography or building websites!

natrius2• 17 years ago

A little while, back, I subleased a room from a couple of people who had been renting a house for something like ten years. They had made changes similar to the ones you mention (painting, planting produce, raising chickens). You just have to ask, although the answer is probably no more often than not.

Some people have particular tastes that are worth owning a home to satisfy. I doubt ~60% of people do.

modeless2• 17 years ago

This is why I cringe when I hear people say that the current economic crisis is an indictment of capitalism; a proof that free markets behave irrationally. To believe that you have to ignore the enormous distortions government has created, not just with recent legislation but with things like the mortgage tax deduction that are so entrenched and popular we take them for granted.

natrius2• 17 years ago

I've never understood the point that people who say that sort of thing are trying to make. Unbridled capitalism (which, as noted, this wasn't an example of) has problems. What are they suggesting we do about it? It seems like the idea must be more than just a small increase in regulation. That's already being done, so the point wouldn't be worth the breath.

barrkel2• 17 years ago

If the market were so perfect, why wouldn't it cope with distortions perfectly? In other words, why wouldn't it predict the effects of mortgage tax etc., and still come out OK in the end?

barrkel2• 17 years ago

I find it very interesting that when this argument is presented, people don't post a counterargument - they downvote instead?

cema• 17 years ago

Market is not perfect, it works well under certain assumptions which are not always accurate after government interventions.

modeless2• 17 years ago

Of course markets aren't perfect. They can cope with distortions like the mortgage tax deduction but the cost is reduced efficiency and resiliency. The mortgage tax deduction didn't trigger the crisis but it amplified the effects by increasing the number and size of mortgages.

(BTW, I'd like to clarify that I didn't downvote you and I agree it was uncalled for. I don't yet have the ability to downvote.)

hs• 17 years ago

another disadvantage for homeowner:

in unstable countries, the new government that replace its old one will try to steal the land from owners

if the new gov is democratic, it only honors those who can show certificate on ownership (even the ones granted from old foreign govt -- the countries that gain independence from colonial in ww2 show this trend)

if the new gov is communist, it will simply take the land (worse, the big owners will be labeled capitalist and shot to dead -- happened in china, see the movie 'to live' by zhang yi mou for ref)

those are best and worst case, of course, america is far too remote from civil war or foreign invasion

the renters can just walk away; however, the old money will be of no value ... so it's better to diversify to foreign currencies or precious metal ... or tools

my grandparents actually buried a minivan when the japanese invaded us. once the new govt is set, they resumed the transportation business. it could be more optimal than currencies/metal because ... after a war, the survivor is the only pioneer, no competition -- sufficiently a monopoly by event

Why the New American Real Estate Dream Is Renting

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