Guy makes $160,000 and barely making it month to month...

[sle]

Still though that's a ton of annual money just to pay for the convenience. Why not just park the car at the weekend house and take alternate transportation to it when needed?

Doesn't fit my utility function, unfortunately. First of all, there is no real public transportation to where my house is (Gardiner, NY). There is a Trailways bus ($43.50 round trip), but the bus stop is in New Paltz, NY, some 20 min cab ride to my house. So, at 4 weekends a month, (43.50 bus fare + 20x2 cab fare) * 4 would add up to 334 dollars a month. Cheaper then my parking, but considering that it would add an extra hour each way and make it a proper production, the extra 166 dollars aren't worth the pain.

PS. What I used to do is park a bit further uptown in Spanish Harlem, which was break-even at 300/month, but that garage closed down.

 

[sle]

You conveniently omitted how profitable they are. Many are just scraping by, others are in multi year bankruptcy proceedings, a few others are doing OK. Why do you think all the Hongkong property forms are building and selling units rather than piling on tons of debt to rent out units? Same applies to most other markets. Renting out property on a commercial basis is a suckers' game. You got the facts stacked squarely against you.

I think you are confusing construction companies (whos business is to build) with residential real estate companies. To give you a counter-example, NYC and London are full of tenements of various degree of luxury, for example, and those places are wildly profitable. Rental holdings are pretty profitable, especially the ones geared toward lower tiers of society - I have an investment in a trailer park that has been yielding roughly 12.5% for the past 11 years.

On the other hand, a condo owner in NYC, while not achieving economy of scale, on average gets a rental yield of 2.5% on his property after maintenance and taxes (RE tax deduction not included). Even assuming zero appreciation, it's still better then TIPS.

Equity indexes outperform RE *after costs*.

Are you taking RE as total return or price return (which is what you usually see)? Cause real estate also pays "dividend" which is also known as "rent" which most studies ignore. However, real estate should be more properly compared to some sort of inflation protected bonds and it tends to do better (while showing a comparable degree of volatility).

Finally, don't forget, that, as assets go, it's one of the few assets that can survive an economic meltdown to some degree. Pretty much every country (even the US, though it was a technical default on the war bonds) have defaulted on their debt in the past 200 years. Pretty much every country has experienced massive equity meltdowns in the same period, in some cases with no recovery of the original index. Yet real estate owners in those countries have done OK in the long run.

PPS. I have plenty of friends that rent, plenty that own. Also, have a few that own a place, rent it out and renting one themselves. The economics of rent vs own are so complex that it would take a separate thread and probably will be different for each country.

 

[Zzzz1]

Nne of them is wildly profitable ad you claim. Please list a publicly traded company that makes a fortune buying property and then renting it out. They don't exist. Sam Zell knows that better than anyone. He buys up cheap shitty properties, remodels them and then rents out or sells. Entirely different business.

I think you are confusing construction companies (whos business is to build) with residential real estate companies. To give you a counter-example, NYC and London are full of tenements of various degree of luxury, for example, and those places are wildly profitable. Rental holdings are pretty profitable, especially the ones geared toward lower tiers of society - I have an investment in a trailer park that has been yielding roughly 12.5% for the past 11 years.

On the other hand, a condo owner in NYC, while not achieving economy of scale, on average gets a rental yield of 2.5% on his property after maintenance and taxes (RE tax deduction not included). Even assuming zero appreciation, it's still better then TIPS.


Are you taking RE as total return or price return (which is what you usually see)? Cause real estate also pays "dividend" which is also known as "rent" which most studies ignore. However, real estate should be more properly compared to some sort of inflation protected bonds and it tends to do better (while showing a comparable degree of volatility).

Finally, don't forget, that, as assets go, it's one of the few assets that can survive an economic meltdown to some degree. Pretty much every country (even the US, though it was a technical default on the war bonds) have defaulted on their debt in the past 200 years. Pretty much every country has experienced massive equity meltdowns in the same period, in some cases with no recovery of the original index. Yet real estate owners in those countries have done OK in the long run.

PPS. I have plenty of friends that rent, plenty that own. Also, have a few that own a place, rent it out and renting one themselves. The economics of rent vs own are so complex that it would take a separate thread and probably will be different for each country.

 

[sle]

Nne of them is wildly profitable ad you claim. Please list a publicly traded company that makes a fortune buying property and then renting it out. They don't exist. Sam Zell knows that better than anyone. He buys up cheap shitty properties, remodels them and then rents out or sells. Entirely different business.

Why don't you show the study? Cause I can show a few REITs with nice yields that have high rental content. Apparently, those companies get income somehow.

 

[Zzzz1]

Nice yields? Don't make us laugh. You claimed a few pages ago they beat a broad based stock index. That is total nonsense

Why don't you show the study? Cause I can show a few REITs with nice yields that have high rental content. Apparently, those companies get income somehow.

 

[Rationalize]

Why would I get a corporate job? I trade independently and have since 1996 and keep all the money I make. I no longer have to worry about money and I'm grateful for that. I volunteer in schools and help kids with math. My wife and I can live anywhere we want and we're fortunate to live in a warm climate in the winter and on the ocean in the northeast in the summer. I took a one year leave from posting on ET due to people like you who seem to have anger issues or other unresolved problems. This topic is about a guy who can't get by on $160K per year and addressed other sub-topics like rent vs. own. You snarky comments above are irrelevant and suggest you have personal issues. But I guess there's always the IGNORE button for posters like you.

If your corporate background was finance, then talk about finance.
If your corporate background was working at a boot factory, then perhaps you know less about finance than some others here.
Like .. Would you trust a mechanic to do dental work?

 

[JSOP]

That is total nonsense. Longterm, renting comes to almost the exact cost than owning when you factor in property taxes, repairs and renovations, the giving up on the ability to stay flexible and move quickly when opportunities elsewhere arise. Not saying renting is better I am just saying many studies have shown that renting is not more costly than owning.

Well whether renting is more costly than owning really depends on the return you can earn with the funds besides your rent vs. the return you can earn on your house that you have borrowed to buy. It has nothing to do with whether the actual amount of rent is higher or lower than all the housing cost. Owning a house with mortgage is really borrowing to invest in a house. From a cash flow point of view, it's rent vs mortgage payments + property tax + repair so at the end of the day, if your house is able to earn you a net return after all the housing cost higher than what you can earn on an investment that you have invested all your spare funds after deducting rent, then owning a house is obviously cheaper than renting even if the housing cost is more expensive. But even if the rent is more expensive than all the housing cost but if the investment return from investing all the spare funds outside of the rent is so high that it's much higher than the appreciation of a house, then renting would be cheaper at the end.

So I guess a third alternative solution to this housing crisis is investing all the spare funds outside of the rent, if any, in an extremely high return investment like starting your own .com business so that way you will be able to come on on top over those pesky foreign real estate buyers.

 

[JSOP]

The situation in the US is a little different from other countries:

In the US, it is not stigma but $. Gov policy and tax favor home owners vs renters. As a home owner, your property tax, mortgage interests are tax deductible but for renters, rents are not. As a result, after tax home ownerships often are cheaper than renting equivalent houses. In addition, most homeowners take out fixed interest mortgages so the monthly payments are fixed whereas rents escalate with inflation. On top of that, your mortgage payments include principal payments and homes generally are good hedge against inflation....

I agree home ownership is more favoured in the US than other countries from at least tax point of view. Mortgage interest is tax-deductible is a major help. I don't know why the stupid CRA in Canada doesn't allow it. It would've given major boost to the housing industry here.

 

[JSOP]

You conveniently pick a case where someone bought a house on the cheap. What do you recommend all those who are leaving university right now? To buy into sky high housing prices? Are you claiming there is no risk involved in home ownership regardless of when someone times a home purchase? I would in that case completely disagree. When comparing mortgage purchases and renting one has to factor in all aspects of the trade.

The only risk to home ownership is 1) owning in a place that is too dependent on ONE major industry or company like in Detroit and those mining towns. Once that one major industry or company goes bust than whatever home you own suffers a major loss in value and/or 2) buying into the wrong stage of the economic cycle like at the end of 2007 at the height of the housing bubble and then once the bubble burst in 2008, the housing value went down with it.

Other than those 3 extreme scenarios, house ownership is pretty much a sound investment unless like I said before, you can earn even higher returns from other investment while renting.

 

[JSOP]

Tax is charged both federal and state in California. And 160k hits a 28% tax rate at the state level. Combined it's about 35% in taxes (about 56k, let's call it 60k).

Rent + Utilities + Transport can easily put you at 4000/mo (48k, let's call it 50k).

160k - 60k - 50k = 50k

Now if he is also contributing to his 401k (18k), that leaves him with 32k (or roughly 2600/mo)

IF he has to feed a wife & 2 kids, pay for school, clothing, etc. It can get a bit tight.

160k/year is not an outrageous sum in California. Even less if living in New York (where there is also municipal tax).

OMG!!! You only pay 28% tax on a $160K income???!!! And only 35% combined with Fed. tax rate??!!! In Canada that $160K is going to garner you a 45% tax rate on average, Fed + Prov. combined. Oh God, I gotta move to the US. And you guys actually wanted to immigrate to Canada if Trump gets elected??! LOL

Forget about the weather, you guys wouldn't even be able to handle our taxes. LOL