09-03-2005 11:53									#61
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I would rent (house) if it was significantly cheaper. but it is not.

	09-03-2005 19:16									#62
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quote: Originally posted by chegitz guevara Even if housing prices fall, you're still better off in the long run buying than renting. Suppose you only get ten cents on the dollar back from your house? That's still more than you'd get renting?

The Economist is assuming that you can save money from renting and invest it in something else.

	09-03-2005 19:23									#63
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While that is probably true (if the savings are there), most people are not disciplined enough to bank/invest the savings.

	10-03-2005 01:32									#64
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quote: Originally posted by Ming Hey Flubber... I just had a "senior moment"... instead of hitting the quote button to respond to your post, I hit the edit button... and pretty much destroyed your post. So I just deleted what was left of it. Sorry about that...

In compensation for destroying my reasoned musings I would like the right to mod powers so I can randomly destroy a post of yours

	10-03-2005 01:38									#65
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quote: Originally posted by Kidicious The Economist is assuming that you can save money from renting and invest it in something else.

Even if there are savings, you need to do a comparison of the value of this revenue stream against the equity that you will assume you will have in your home as you pay down the mortagage.


Obviously if housing prices fall dramatically, you were better off renting since you will be in negative equity. But if housing appreciates or remains stable, you are left with the mathematics. You will come up with very different results depending on

the difference in rent versus ownership costs
your assumed rate of return on any difference
your assumed appreciation or depreciation in the value of your home

	10-03-2005 01:42									#66
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can you depreciate your personal property?

	10-03-2005 01:42									#67
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Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

	10-03-2005 01:43									#68
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quote: Originally posted by Japher can you depreciate your personal property?

Only if you purchased it for business purposes.

	10-03-2005 01:55									#69
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quote: Originally posted by chegitz guevara Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

So I buy a house at 300K and its now worth 30K and I'm still better off having made that purchase?? NO way. You would have been better off renting until the property was 30K and THEN buy it.

I agree that if the costs of renting and owning are EXACTLY equal, its hard to imagine renting ever being better on the theory that rent is totally consumption while ownership does gain you something . . . But the costs are rarely equal when you factor in things like property tax and even when you apportion out the major maintenence items

So again you are left with a comparison of the rental "savings" with the home equity.

Oh and I doubt "most people" lose money given the historical trend of the stock market to go up in value. What you say is probably true of the speculators or day trader types ( and may even be true of many people oevr the last couple of years) but in the long run I seriously doubt that MOST people lose money investing

	10-03-2005 01:58									#70
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quote: Originally posted by chegitz guevara Even if you have negative equity, you're still better off buying than renting, unless there is a dramatic difference in mortgage v. rent. If your house depreciates to 10% of the value you paid, you still have 10% of what you put into it, whereas you have none of the rent. Even if you do manage to save and invest the difference, it's rather uncertain that you'll see any appreciation. Most people who do their own investing lose money.

1) I buy a house for $100,000 with a $100,000 mortgage. I make repayments of $10,000 in the year, of which $5,000 is interest.

OR

2) I rent a house for $20,000 a year.


The market crashes to 10% of original prices:

1) I have a $95,000 debt, a $10,000 asset, so a net position I owe $85,000 and I spent $10,000 in the year.

OR

2) I have no debts and no assets, and I spent $20,000 in the year.


Option 2 looks a whole lot better, don't it? In terms of net gains and losses.

The numbers are silly, but explains why I don't agree with your point.

	10-03-2005 02:04									#71
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Well, most people have their money invested for them (in various retirement accounts). They aren't the ones I'm talking about. We're assuming that you have your money in your account and you're clicking on eTrade or some such place. These are the people who end up losing money, by and large.

As for a 300K house, I'm assuming it's 300K after 30 years, whereas the rent you paid for similar accomadations over the same period would probably be more. After all, if you rent the house instead of buying it, you're not only paying the owner's mortgage and taxes and insurance, but also giving him a little bit of profit on top. Obviously, you're going to have the same expenses as an owner: taxes, insurance, etc., but you could keep the profit for yourself. In addition, if you add $50 a month to your mortgage payment, you would significantly lower the cost of your mortgage in the long run (assuming you didn't foolishly sign an early-payment penalty clause).

	10-03-2005 02:11									#72
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quote: Originally posted by Dauphin Option 2 looks a whole lot better, don't it? In terms of net gains and losses.

Yes, but next year your going to have to spend that money again, and so on. In ten years, with option 1, you've spent $100,000 and have a $10,000 asset. With option 2 you spend $200,000 over ten years and have no assets.

Of course, that assumes rent prices don't fall, which they would, but not as much, since rental owners would still be holding mortgages that needed to be paid. If rent prices fall by more than one half (and remain steady over the decade), then it's preferable to rent in your option 2 scenario.

The assumption also assumes the crash happens at the begining of the mortgage, in which case the homeowner could declare bankruptcy, lose the house and the debt, and still be better off than the person in option 2. If the crash happens more than five years out, the owner is better off.

	10-03-2005 02:13									#73
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Che

Don't get me wrong. .. I believe in home ownership and thats why I own one. I also believe in any case where rent is MORE expensive than ownership costs, then the choice is clear and ownership wins. I just don't know for sure that you can rent out properties for more than your ownership costs all the time

I just know friends you are renting properties out here and what they tell me is that they can get enough monthly that if they attribute it to the interest and property taxes, they just have a little bit or none of the rental money to go toward the equity portion of the mortgage payment. This is anecdotal so proves nothing but I would like to know the source of your ideas that rent exceeds ownership cost .. . The original post seemed premised on the opposite idea that renters would have excess money to invest. I think either can be correct depending on the city and circumstances

	10-03-2005 02:15									#74
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quote: Originally posted by chegitz guevara Yes, but next year your going to have to spend that money again, and so on. In ten years, with option 1, you've spent $100,000 and have a $10,000 asset. With option 2 you spend $200,000 over ten years and have no assets.

Nope-- you go with option 3 and buy that house for 10K in year two. So you "wasted" 20 K on rent and spent 10 K for a 10 K asset for a total of 30 K spent and a 10 K asset.

	10-03-2005 02:15									#75
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I tend to live in areas with limited room for expansion. There's a big blue wobbly thing to the East of me, and big wet lawn to the West. Neither are terribly good for building on.

	10-03-2005 02:17									#76
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quote: Originally posted by Flubber Nope-- you go with option 3 and buy that house for 10K in year two. So you "wasted" 20 K on rent and spent 10 K for a 10 K asset for a total of 30 K spent and a 10 K asset.

Option four, buy the house year 1. Declare bankruptcy year 2 and buy the house for $10K. You've spent $20K and have a $10K asset.

	10-03-2005 02:20									#77
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quote: Originally posted by chegitz guevara Of course, that assumes rent prices don't fall, which they would, but not as much, since rental owners would still be holding mortgages that needed to be paid. If rent prices fall by more than one half (and remain steady over the decade), then it's preferable to rent in your option 2 scenario. .

Renters that have the means to buy don't care what a person's mortgage is . . . . Put simply, if a crash has occurred, I don't care that the owner paid 100K for the property and must service that mortgage. All I care is that I can buy a like property for 10K and I will do my comparison based on that.

rents may fall slowly due to rental obligations of existing leases BUT there is no way an owner will generally be able to get away with rents that are 4 or 5 times what the tenant would be paying in monthly ownership costs for a similar property

	10-03-2005 02:20									#78
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If the market goes from 100k to 10k I'd declare bankruptcy and buy a house for 10k cash for sure.

Property is good to own, even if the market drops (just not that much) because at least you can leverage a house. Equity is good for it can get you, not for just having it.

	10-03-2005 02:23									#79
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quote: Originally posted by chegitz guevara Option four, buy the house year 1. Declare bankruptcy year 2 and buy the house for $10K. You've spent $20K and have a $10K asset.

Not bad except you have no assets and no credit to come up with the 10K-- If you have a big income your bankruptcy petition would be refused ( the law in your jurisdiction may be different but here you don't get to declare bankruptcy just because a debt is large--- )

	10-03-2005 02:24									#80
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Course, if you could get a lot more for renting than for selling, I imagine that the housing market would dry up pretty quick, as owners decided it was better to rent than sell.

Wow, this gets pretty damn complicated pretty quick.

	10-03-2005 02:27									#81
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quote: Wow, this gets pretty damn complicated pretty quick.

It gets pretty damn sucky pretty quick. All those ppl with mortgages AND savings will declare banckruptcy to get out of oweing their mortgages and buying places for cash (from their savings)... Talk about classes! Ppl who have already made money off of real estate will just be able to write of their debts on to the government and start over.

	10-03-2005 02:38									#82
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quote: Originally posted by Japher If the market goes from 100k to 10k I'd declare bankruptcy and buy a house for 10k cash for sure. Property is good to own, even if the market drops (just not that much) because at least you can leverage a house. Equity is good for it can get you, not for just having it.

Leverage is the #1 reason to own property. I put up slightly less then $100k (thank you dad) on my house yet I bought a $400k house. I get appreciation on all $400k even though only 25% of that money is mine; sure I have to pay interest on that loan but with equity and the 15% per year appreciation I'm doing very well thank you.

Let’s do the math. The interest probably costs me around $8k per year but equity goes up around $16k per year with appreciation adding up to $60k per year. I’m $68k per year ahead. A man can work his ass off and not make that much money per year.

	10-03-2005 02:46									#83
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quote: Originally posted by chegitz guevara Course, if you could get a lot more for renting than for selling, I imagine that the housing market would dry up pretty quick, as owners decided it was better to rent than sell.

exactly. . . . if rents far in excess of all owership costs are readily available it makes no economic sense to sell

quote: Originally posted by chegitz guevara Wow, this gets pretty damn complicated pretty quick.

Not that complicated-- Its pretty basic economics--- rents and ownership costs can't get too too far out of whack or you get a movement from one to another and in theory this should result in a price adjustment. What gets complicated is if you throw in things like interest rates or even demographics ( we have talked throughout as if all renters COULD be purchasers which is an incorect assumption). Both of those factors can change the analysis with no change in rents or house prices.

WE have also talked as if renting and buying were just an economic decision and for many people it is not. To many, a "home" is much more than just accomodation.

	10-03-2005 02:51									#84
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quote: Originally posted by Japher It gets pretty damn sucky pretty quick. All those ppl with mortgages AND savings will declare banckruptcy to get out of oweing their mortgages and buying places for cash (from their savings)... Talk about classes! Ppl who have already made money off of real estate will just be able to write of their debts on to the government and start over.

amd you might get away with it but not without committing a number of offences. Part of bankruptcy proceedings is making declarations as to your assets and sources of income. Hiding these would be an offence in Canada and I suspect under any bankruptcy law.

Bankruptcy should not be a carte blanche to screw your creditors . . . its supposed to be a last resort when you simply cannot pay your debts. There is no way you could have "savings" sufficient to buy a house without committing a fraud

	10-03-2005 02:54									#85
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Tell that to Trump

	10-03-2005 02:58									#86
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quote: Originally posted by Japher Tell that to Trump

Way way way more complex than the average homeowner

	10-03-2005 03:26									#87
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Renting is to working for someone else as home owning is to being selfemployed.

	10-03-2005 03:30									#88
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Basically, yes.

	10-03-2005 03:53									#89
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quote: Originally posted by Kidicious Renting is to working for someone else as home owning is to being selfemployed.

Ok . . . I may regret asking this but . . . so ?? Why does this matter??

I see both renting and working for others as acceptable alternatives . . Each involves less risks than than the other alternative and can have many benefits depending on a person's circumstance

	10-03-2005 03:56									#90
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You are arguing financial risks associated with buying a house vs. renting. Is there a greater risk in working for yourself vs. working for someone else? Not really, so I guess Flubber is right.

However, I feel, you can't win the game if you don't play the game.