Ye’ olde rent vs. buy argument

Donald pointed out this discussion over at the SeattleBubble blog about 10 reasons NOT to buy a home:

  1. Renters don’t have to fix leaky plumbing, pay for a new roof, or buy major appliances.
  2. The moment you sign the closing papers, you lose ~10% of your home’s value.
  3. Better job offer in another city? Hope you can afford to sell…
  4. Lousy neighbors move in next door? Too bad, you’re basically stuck!
  5. Your down payment and equity are anything but liquid.

Read the rest of the list at SeattleBubble.com.  One interesting thing to consider is this list is based on a theoretical situation where home prices are at reasonable levels and supported by local economic fundamentals.  In a hot housing market where prices only go up and people fight for the right to overbid on a teardown in a bad neighborhood it’s always a good idea to buy instead of rent.  Always.

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Extremely rich,confident and proud, Van house owner.
Guest
Extremely rich,confident and proud, Van house owner.

1.Renter has no equity for retirement
2.Renter could end up pegging for small change at liquid store.
3.Renter could be facing eviction if don’t pay rent on time.
4.Renter could easily squander their saving on drug and beer.
………………..million of things renter are failing themself and end up being a resentful and delusive loser.

patriotz
Member

Those aren’t 10 reasons not to buy, those are 10 reasons why buying should be cheaper than renting.

Of course in much of Seattle buying is still more expensive than renting, so I’ll give The Tim a break on this one.

🙂

Dave
Member

@patriotz:

This isn’t ‘should be’ world.

jesse
Member

“You don’t have the financial discipline to save up a down payment”

But gifts can fill in this gap. There are lots of ways of saving — living at home with room and board is a good one, a proverbial Easy Button for accumulating the necessary downpayment. Just watch that first step out of the moving train!

“In some neighborhoods, renting will always be a lot cheaper than buying.”

Um, er, I got nothing on this. Talk amongst yourselves…

The Ant
Member

@jesse: You don’t even need to get the down payment as a gift. Don’t you know our generous Canadian banking system offers zero-down loans? They’re called ‘cash-back’ mortgages and you’ll pay a higher interest rate, but what does that matter when your living in the moment and investing like a boss?

jesse
Member

@The Ant: That’s going away soon, as are some other questionable loan agreements. What I’m not sure about is the case of a family member gifting a downpayment. Many will structure this as a loan to allow the money to be reclaimed in case of family breakup, but often it’s just a gift.

s.p.
Guest
s.p.

(off topic) here is a music video that describes what went down in the usa.

http://www.youtube.com/watch?v=sHQqhC4Sesc

actually quite catchy…

Patiently Waiting
Member
Patiently Waiting

Yet another local lad takes a look at real estate prices and realizes the city he loved is no more. This time its a newspaper editor:

“Dear Vancouver,

We’ve known each more than 40 years, yet I feel we’ve grown apart.

I don’t know when it happened. It started out so well.”

http://www.newwestnewsleader.com/opinion/141972533.html

Almost sounds like he’s ready to leave.

N
Guest
N
Here is a question for all you guys who are good with numbers. We all know that if rent covers mortgage payment + transaction costs + holding costs + opportunity costs, it’s a good deal. But some of these numbers change over time. Pumpers say, rents go up, mortgage payments don’t. That’s not actually true, but I suspect it is true that the way the numbers look at the end of a mortgage period may be very different from the way they looked at the beginning. Rent should go up in line with inflation (assuming population density and desirability at that particular location are constant), other costs, such as maintenance, taxes and closing costs should also go up. Given current rates, borrowing costs will also be going up. Has anyone tried to juggle these things an come up with a… Read more »
rp1
Guest
rp1

@N: “Has anyone tried to juggle these things an come up with a way of projecting the numbers over time?”

Here’s a basic formula:

http://en.wikipedia.org/wiki/Dividend_discount_model

When I tried this on a few examples it came out broken. People might be using a “new model” to value real estate. That’s a pretty big warning sign.

registered
Member
registered

9 N Says: “Pumpers say, rents go up, mortgage payments don’t.”

That’s not quite correct. In an inflationary environment fixed mortgage payments actually go down in real dollars over the duration of a single term. What ‘pumpers’ apparently can’t grasp however is that lenders factor this inflationary loss into the loan by charging rates safely in excess of their predictions for inflation over its term length.
Far from taking advantage of lenders, mortgage borrowers at best get reamed less harshly as the term progresses. Unless you’re locked into a single term for the entire length of your payments, the banks also get to ramp up the pain again at regular intervals.
‘Pumpers’ don’t have clue how financial systems work.

jesse
Member

@N: The previous two comments by fixie and rp1 are good ones. For what it’s worth, here’s a post I wrote last year that might be useful to you:

http://housing-analysis.blogspot.ca/2011/03/use-and-reasonably-foreseeable-misuse.html

interesting
Guest
interesting

Murder/suicide came after man lost $200,000 at casinos Richmond Review 3/4/12

http://www.richmondreview.com/news/145986045.html

patriotz
Member

@N:
What matters is the present value of all future net rent versus the purchase price. The pumpers don’t understand present value (or any other financial concept), so they think the fact that the rent will eventually exceed the current interest payment will put you ahead. It’s won’t, not even after the mortgage is completely paid off. Someone buying at current prices will always be behind.

People who invest in stocks know this quite well of course which is why they wouldn’t buy a stock with P/E of over 15 if they expected the earnings to simply grow with inflation.

PRC
Guest
PRC

Murder/suicide came after man lost $200,000 at casinos Richmond Review 3/4/12

http://www.richmondreview.com/news/145986045.html

_________

No loss there….

Our pathetic justice system failed to take care of them on their “controlled substance” charges (aka grow ops)

So karma stepped in and took them out….

N
Guest
N

@patriotz:

I see. Thanks. I did, in fact, never think of it like that.

AlmostPerfect
Guest
AlmostPerfect
jumpin in
Guest
jumpin in

Regarding rent versus buy:

I really like the simulator inside the MLS robot.
The robot saves me a huge time (no need to search the MLS any more) and to organize my preferences,
follow some properties, and access some extra info.

I registered through Gina http://www.ginarossi.ca/robot-mls/
and I have been happy so far.

cico
Guest
cico

@interesting: are you suggesting more suicides to come?

Extremely rich,confident and proud, Van house owner.
Guest
Extremely rich,confident and proud, Van house owner.

@cico:
Yeah, Bear will be so dissapointed that the expected downturn will not materialized in 3033,so mass self-extermination will be common in bear camp while the bull camp prospers to fullest extent of their wallets can contain.Cheer summer will a good yr again

Bob
Guest
Bob

I gauge the local RE market as proportional to the FORECLOSURES on VCI postings …+/- the basement suite dweller factor.

jojojo
Guest
jojojo
@Patiently Waiting Says: April 9th, 2012 at 10:27 am “Dear Vancouver, We’ve known each more than 40 years, yet I feel we’ve grown apart. I don’t know when it happened. It started out so well.” http://www.newwestnewsleader.com/opinion/141972533.html Almost sounds like he’s ready to leave.” I loathe these kinds of articles with a passion. They’re so self-centred and display far too much drama queenery. What city HASN’T changed almost beyond recognition in the last 40 years – his initial timeframe – or even the last 25 or so years (since Expo, which he identifies as the start)? Yes, houses are expensive right now. In future they will not be so expensive. This guy and many others (me included) just happened to reach house buying age during the biggest housing bubble ever. That sucks. Stuff happens to many people at many different times… Read more »
jumpin in
Guest
jumpin in

Great series of recent articles:
http://canadabubble.com/

patriotz
Member

@jojojo:
There’s a LOT more to it than just house prices.

The real problem is that Vancouver, which used to be a city that earned an honest living, has now become a cheap hustler. RE speculation, Asian money, and drug trafficking are all facets of the same problem.

No Canadian city has gone downhill over the last generation like Vancouver.

Patiently Waiting
Member
Patiently Waiting

@jojojo: BTW I’m fairly certain Chris Bryan is a homeowner because he wrote about becoming one a little while back. Like a couple years ago, IIRC.

So he might be legitmately screwed if he doesn’t soon sell the cubbyhole condo he probably bought. I suspect his newfound angst is due to being stuck on the bottom rung of the property ladder. Probably like many in his age group.

wpDiscuz