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by mhomde 2978 days ago
People often fail to take into account that risk has a value. I did some quantitative analysis (most of that is BS but that's another story) for a gig and it was big eye opener.

People talk like:

"Well property praises will always go up. It's a good investment yada yada" but there is a risk that they won't (which often is a sore point). There's even a risk they'll crash. Many people (at least in Sweden) is so over leveraged that it wouldn't take that much for the bank to require a mortgage holder to put in more money to cover the decreased value of the property.

How large risk for a "catastrophic decrease" varies but taking that risk is a cost in itself. It's the same as with insurance, the less healthy/more risk you are the more it costs.

With renting you might not have the upside of investment, but you also don't have to bear the "cost" of that risk
2 comments
phamilton 2978 days ago
> so over leveraged that it wouldn't take that much for the bank to require a mortgage holder to put in more money to cover the decreased value of the property

That's an interesting contract. For a primary mortgage that would be very unusual in the US. (For a secondary line of credit against the home, the bank would likely freeze the line of credit if the value dropped too far.)

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mhomde 2978 days ago
I'm not super familiar with how it works in the US. But here you loan against the value of your property. If the value plunges you no longer have coverage for your loan and the bank may ask you to cover the difference. This happened in the 90's in Sweden where many even were forced to sell their homes when they couldn't pay.

Many home owners I've talked with is not aware of that this is even a possibility and refuse to acknowledge the risk. I guess it's one of those thing one rather not think about :) Another major difference is that in Sweden, in contrast to the US you can't simply give up the keys to you home and be rid of the debt (as I think it is in the US) but it stays with you.

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phamilton 2978 days ago
It depends on the state, but at least in California there is "no recourse", which means that if you default on the loan, the bank cannot come after your other assets.
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Twisell 2978 days ago
Also renovation work... That’s often an under-accounted risk but if you own a flat you could well be forced at some point to cash out vast amounts of money so that your equity just don’t loose value.

If you rent you just wait for the landlord to pay or you move to a better flat if bad maintenance become unbearable.

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