Economics of Renting vs. Owning
- Thread starter The Kin2
- Start date
Are you kidding me? In any popular metro area, rent is no where near a mortgage bill. Rent is almost half the mortgage of a house the same size of what im renting, where I live.
In hot areas, buying is a bad move. Your paying way too much premium for a home right now.
In hot areas, buying is a bad move. Your paying way too much premium for a home right now.
Doesn't the cost of money matter? surley you attach a value to your downpayment right?
I have spoken to experienced investors and real estate agents. I have concluded, only a trader knows how to pencil this out correctly...I swear to you that they do not even get near what the cost is...even those people renting out single family residences do not have a clue. Do you know that many real estate agents or even property managment companies do not figure in rental down time or even attempt to estimate it based on real demand figures? Do you know that liability can have an additional cost, eventhough you are insured?
Over the years real estate has proven to be a good investment. many rationalize by saying that hey...you gotta live somewhere, why not own it...
my point is...there might be conditions where the economics of renting vs. owning may be different...there is not one answer. for example if a trader can use money and make more with it in trading then the answer to this threads question would be very specific to him.
I know real estate investors who only invest in apartment building or certain commercial projects..it is getting harder...
Michael B.
I have spoken to experienced investors and real estate agents. I have concluded, only a trader knows how to pencil this out correctly...I swear to you that they do not even get near what the cost is...even those people renting out single family residences do not have a clue. Do you know that many real estate agents or even property managment companies do not figure in rental down time or even attempt to estimate it based on real demand figures? Do you know that liability can have an additional cost, eventhough you are insured?
Over the years real estate has proven to be a good investment. many rationalize by saying that hey...you gotta live somewhere, why not own it...
my point is...there might be conditions where the economics of renting vs. owning may be different...there is not one answer. for example if a trader can use money and make more with it in trading then the answer to this threads question would be very specific to him.
I know real estate investors who only invest in apartment building or certain commercial projects..it is getting harder...
Michael B.
mvic put it in the right perspective...
i've been arguing on the same line where the crash doesnt really happen until the mostly "poor" babyboomers want to cash out of their homes to retire and find no buyers. and from that point on, everyone else(younger generation) are going to think RE is no longer a "safe" "investment".
of course you can argue about how much your net worth is (minus primary home).... but there are tons of financially illiterate people out there, that are running around with their eyes closed hoping against hope that they retire comfortably when they put their home on the market.
US housing prices are going to do what the Japanese market have done. the Japanese RE prices has been trending downward for the past 15-16years. it is also coincide with the fact that starting in early 1990's a huge portion of working population started to retire.
maybe its just a coincidence, or is it?
i've been arguing on the same line where the crash doesnt really happen until the mostly "poor" babyboomers want to cash out of their homes to retire and find no buyers. and from that point on, everyone else(younger generation) are going to think RE is no longer a "safe" "investment".
of course you can argue about how much your net worth is (minus primary home).... but there are tons of financially illiterate people out there, that are running around with their eyes closed hoping against hope that they retire comfortably when they put their home on the market.
US housing prices are going to do what the Japanese market have done. the Japanese RE prices has been trending downward for the past 15-16years. it is also coincide with the fact that starting in early 1990's a huge portion of working population started to retire.
maybe its just a coincidence, or is it?
Smitski lives in van down by the river in the outskirts of palookaville. Please disregard.
I'm agnostic on the future of housing prices.
I've also contributed to a couple of these threads mentioning the insane resale/rental ratios. In the Miami/Lauderdale/Palm Beach coastal areas I see much of what Mvic is exploiting in Boston. In SoFla there's many homes for rent in the 4-5k a month zone that would sell for a million or so.
However in my twenty-five years of renting and owning it's always been cheaper to rent! So by that criteria one would NEVER be a buyer.
Renting advocates miss two points. The "premium" that a buyer pays over renting is a call on higher valuations, particularly on appreciation caused by currency devaluation. Secondly, real estate is a great hedge. Not necessarily against just run of the mill inflation. "Normal" inflation can cause an uptick in interest rates that will actually cause home prices to decline. That's why RE has usually done best during benign periods of inflation. Rather though, if we ever have hyper inflation, that million in the bank could quickly have the purchasing power of half a mil, if not worse.
DIVERSIFICATION is key. No one should struggle to own. Renting is a time honored alternative. But for those who have savings and cash flow, buying is a primo prudent method of portfolio balance. Always remember that cash is a position and any position has risk.
I've also contributed to a couple of these threads mentioning the insane resale/rental ratios. In the Miami/Lauderdale/Palm Beach coastal areas I see much of what Mvic is exploiting in Boston. In SoFla there's many homes for rent in the 4-5k a month zone that would sell for a million or so.
However in my twenty-five years of renting and owning it's always been cheaper to rent! So by that criteria one would NEVER be a buyer.
Renting advocates miss two points. The "premium" that a buyer pays over renting is a call on higher valuations, particularly on appreciation caused by currency devaluation. Secondly, real estate is a great hedge. Not necessarily against just run of the mill inflation. "Normal" inflation can cause an uptick in interest rates that will actually cause home prices to decline. That's why RE has usually done best during benign periods of inflation. Rather though, if we ever have hyper inflation, that million in the bank could quickly have the purchasing power of half a mil, if not worse.
DIVERSIFICATION is key. No one should struggle to own. Renting is a time honored alternative. But for those who have savings and cash flow, buying is a primo prudent method of portfolio balance. Always remember that cash is a position and any position has risk.
Dumbest thing I've read in awhile. Come back when you figured out what deflation means.
existing RE properties are not counted in GDP numbers...
their "inpending" deflation happens when majority older population spend alot less than what they used to, and produce almost nothing. japanese central bank had to drop their interest rate to encourage spending & prevent deflation... their RE market still went down the toilet at 0% central bank interest rate.
http://www.bis.org/publ/work205.htm
provides a better explaination...
and your comment is ... poignant and right on the mark.
their "inpending" deflation happens when majority older population spend alot less than what they used to, and produce almost nothing. japanese central bank had to drop their interest rate to encourage spending & prevent deflation... their RE market still went down the toilet at 0% central bank interest rate.
http://www.bis.org/publ/work205.htm
provides a better explaination...
and your comment is ... poignant and right on the mark.
<i>However in my twenty-five years of renting and owning it's always been cheaper to rent! So by that criteria one would NEVER be a buyer. </i>
That's totally bogus. Just because the monthly mortgage bill is higher than the rent on a comparable property, doesn't mean it is cheaper to rent.
If you used a proper financial model I'm sure you would have found that buying is often cheaper over the long run.
Martin
That's totally bogus. Just because the monthly mortgage bill is higher than the rent on a comparable property, doesn't mean it is cheaper to rent.
If you used a proper financial model I'm sure you would have found that buying is often cheaper over the long run.
Martin
rofl, so aging populations are the cause for deflation? Thats gotta be the dumbest thing I've ever heard.
Deflation in Japan
Deflation started in the early 1990s. The Bank of Japan and the government have tried to eliminate it by reducing interest rates, but despite having them near zero for a long period of time, they have not succeeded.
Systemic reasons for deflation in Japan can be said to include:
* Fallen asset prices. There was a rather large price bubble in both equities and real estate in Japan in the 1980s (peaking in late 1989). When assets decrease in value, the money supply shrinks, which is deflationary.
* Insolvent companies: Banks lent to companies and individuals that invested in real estate. When real estate values dropped, these loans could not be paid. The banks could try to collect on the collateral (land), but this wouldn't pay off the loan. Banks have delayed that decision, hoping asset prices would improve. These delays were allowed by national banking regulators. Some banks make even more loans to these companies that are used to service the debt they already have. This continuing process is known as maintaining an "unrealized loss", and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy. Improving bankruptcy law, land transfer law, and tax law have been suggested (by the Economist magazine) as methods to speed this process and thus end the deflation.
* Insolvent banks: Banks with a larger percentage of their loans which are "non-performing", that is to say, they are not receiving payments on them, but have not yet written them off, cannot lend more money; they must increase their cash reserves to cover the bad loans.
* Fear of insolvent banks: Japanese people are afraid that banks will collapse so they prefer to buy gold or (United States or Japanese) Treasury bonds instead of saving their money in a bank account. This likewise means the money is not available for lending and therefore economic growth. This decreases the supply of money available for lending and economic growth. This means that the savings rate depresses consumption, but does not appear in the economy in an efficient form to spur new investment. People also save by owning real estate, further slowing growth, since it inflates land prices.
* Imported deflation: Japan imports Chinese and other countries' inexpensive consumable goods, raw materials (due to lower wages and fast growth in those countries). Thus, prices of imported products are decreasing. Domestic producers must match these prices in order to remain competitive. This decreases prices for many things in the economy, and thus is deflationary.
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You'll notice in quite a few economic writings talk about the various factors causing deflation in Japan. An export driven economy is experiencing deflation because its people stopped buying goods. Whats wrong with that picture.