[jedberg]

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.

But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or owner move ins or any of that other stuff that renters deal with.

And if you have kids, they get a sense of home and place.

But don't do it for financial reasons.

[Galanwe]

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.

That is not the right way to see it.

If you have the cash to buy upfront, then yes, real estate is not that good an investment, unless you have a loaded portfolio already and want to diversify a bit, get some high inflation hedge, etc.

The real value of buying a home is leverage. That is, most people cannot go to a bank and borrow $500k. The bank will just not make a blank loan like that without any idea of what you're going to do with it.

Buying a home though is well understood and borrowing is made relatively easy.

For most people, buying a home is the only way they have to actually get significant leverage from borrowing.

[wwweston]

Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion.

It's probably worth making a closer comparison though:

* Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments, another 400k in interest by the time you're done. Your home probably appreciates by that much in most markets, which gives you a million dollar asset at the end. In some good markets, it may appreciate by 3-4 times, which would mean you have a 1.5-2 million dollar asset.

* Pure Financial Investment: put $50k into a fund, add sustained regular $2500/mo contributions. Let's imagine that the fund averages a conservative 5% annual return and we do this for 30 years. The outcome should be... a bit above 2 million dollars.

All investment involves risk and variable outcomes, but the BHL plan probably has a more varied outcome. Parity may be as common as substantial profit.

The PFI plan, on the other hand, performs really well even considering conservative 5% returns: over 2 million dollars (minus 400k you would have probably paid in rent). Bump it to 8% returns and we're looking at 3 million, a performance even many good real estate markets couldn't match.

Its major problem is that you need to be disciplined about putting the chunky contributions in, which means you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.

Leverage lets housing costs go to equity and interest payments, which is key leverage for people who don't have disposable investment income. But less key for people who do.

[iteria]

A house is an inflation hedge. Any calculation about investing the difference has to subtract the rent you are paying and rent goes up every year. There is no where where you can pay a rent anywhere close to what I'm paying for my mortgage in my area and I'm only 5 years into this. Of course I lucked out by locking in that sweet sub-3% rate, but still, I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.

A house in a long term play. I didn't buy until I know where I wanted to anchor. That's the deal. I didn't want to be in a situation where late age destitution came because I couldn't afford where I wanted to live anymore. I got to see that play out with older relatives who did go the rent only route. Course I have to pay property taxes, but as it stands it's less than $200/mo and I don't imagine it'll rise above that taking inflation into account. That is something I can afford in retirement even on social security.

There is maintenance, but living in a neighborhood full of elders, a lot of it is truly optional. And honestly I think the only maintenance I've paid thus fair is the yard only because I don't want to do it myself. For me financially this is a hell of a deal with the only trade off that I must stay here. And... I'm settled enough that I'm willing to do that. I moved all over in my early career to find where I wanted to be.

[lesuorac]

> A house is an inflation hedge.

So are Stocks ...

> I find it hard to believe that over time if you took the money you'd put into a house and subtracted out rent, you'd end up winning in the long term.

You are not alone. The thing is this is such a common argument that there are a zillion rent vs buy calculators [1].

That said, yeah sub 3% the math often does work out in terms of buy (assuming you don't sell before 7 years which the average person _does_ sell before). But sub3% and holding for 30 years is actually rare.

It basically comes down to that the down payment gives renters such a headstart in gains that the homeowner takes forever to overcome it. But keep in mind they're also comparing a similar rental house to the bought house. So If you'd rent a smaller 1 bedroom apartment but only going to buy a 4 bedroom house then you're really behind in the math.

[1]: https://www.google.com/search?q=rent+vs+buy+calculator

[sanderjd]

The problem I have with buy vs rent calculators is that the speculative questions often end up dominating the decision. How much will rent go up in the place you rent? Nobody knows. How much will the value of the property appreciate during the period you own it. Again, this is unknowable. So you put in a range of guesses for these, and you can get it to come out as a good or bad investment depending on what you guess.

My guesses were ludicrously wrong when I did these back in 2018, relative to what has actually happened in both the rental market where I live, and the value of the house I bought. I concluded that the reason to buy was only about the non-financial aspect, and that we'd probably lose a little money all told. But it has turned out to be a six figure win in practice. Rent has gone way up, we were able to refinance to one of these very cheap loans during covid, and the property value spiked around the same time. I never would have guessed any of that. And any of it could have gone the opposite way.

So the calculators were honestly pretty useless. It's all too unknowable.

[mancerayder]

Stop - have you also accounted for 750K loan amount in mortgage interest tax deduction, and the SALT cap of 40k?

Are we looking at markets where we had massive appreciation in real estate values in the last 5 years? Because while you might say they were outsized and abnormal, the stock stock market was, too. The years of ZIRP made everything nuts.

[mizzao]

Don't forget the mortgage interest deduction as well, which is a huge subsidy for those who can afford to buy.

[alistairSH]

The one thing missing from that calculation... the rent goes up over the 30 year period while the mortgage is fixed (subject to changes in tax rate and insurance as value hopefully increases).

9 years into my current home and my 20 year mortgage is substantially less than renting a similar house in the same subdivision. And because it's 20 year, the interest rate is lower, and when I retire, I'll only have to cover tax and insurance at a fraction of the future rent.

[jp191919]

Exactly. After 8 years there is absolutely no way I could rent a comparable house in my area for what my mortgage costs.

[mancerayder]

And people aren't including the interest deduction on income - up to 750K loan amount worth. This is a form of subsidy that renters are handing over to mortgaged owners.

[tootie]

I always consult this calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

It forces you to make some assumptions on market returns and such, but it gives a pretty clear picture. The biggest variable is how long you expect to live in the same place (longer favors buy) and the next biggest is the ratio of average rent to average housing payment. The inflection point being that if you live in one place long enough to pay off the mortgage, then it obviously starts to be much more advantageous to buy, but that requires you predicting your life 30 years in the future.

[pc86]

> but that requires you predicting your life 30 years in the future.

This is true, but the vast majority of people - especially in the US - don't move around the country or even state every few years. One of the biggest, perhaps the biggest, pro of renting is that you're not tied down to one place for very long.

It's pretty rare that someone buys a house then is suddenly forced to move hours away.

[lokar]

I think people sell their (occupied) house after about 10 years on average, for whatever reason.

[lorecore]

Moving around a lot incurs its own costs. Time, transportation, movers, deposits (which you're unlikely to get fully returned), new furniture... I think it's an additional "hidden" cost to renting that doesn't get talked about much.

[tootie]

The cost of moving from owned home to owned home is far higher. Brokers, lawyers and all the associated closing costs can be huge. And you still have to pay movers and worry about new furniture.

[barchar]

It's not true that paying off the mortgage makes it more advantageous to buy, home equity creates portfolio drag.

[bombcar]

It is possible to find weird inversions where it never makes sense to buy - prices are too high and rents are too low. CA has these places, where property tax arbitrage by renters can be less than the new property tax would be if sold.

[barchar]

Many high cost-of-living places have this property. People bid up owner occupied home prices even when rents can't support them.

[vardalab]

You forgot to include the actual living costs if you invest. You're not gonna be able to contribute $2,500 a month. You would be able to contribute not that much , around here rents are $2,500 a month.

[wwweston]

That point is in the analysis after the bullet points (in phrases like "minus 400k you would have probably paid in rent" and "you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.").

I considered putting it up in the bullet points. Apparently deciding against that lost my expressions of this point to some readers, including yourself.

But yes, this is why the analysis after the bullet point mentions the profile of people who don't have $2500 disposable income. The leverage matters more to people in this situation.

Having seen this conversation play out more than a few times and even turn a tad fighty, I think this is the fault line:

* people who do this kind of analysis frequently and generally have high disposable income often see that they can leverage compound interest rather than pay it, so the Pure Financial Investment plan seems like a slam dunk to them, and for their profile they're probably right.

* people who generally don't have high disposable income see that they can use leverage to make their rent payment do double duty, which seems like a huge win for them, and for their profile they're probably right.

What I did leave out is how a mortgage can bound your living costs. Another commenter correctly pointed out rents can expand dramatically. Where incomes track rents, I don't think this makes a dramatic difference, and that's why I didn't include it, but it's true this isn't guaranteed, and mortgage can function pretty well as a hedge.

[blks]

Then analysis that includes buying a home should as well include investing $rent amount every month in addition to mortgage.

[hbarka]

They forgot to mention that they will move back to mom’s house.

[skeptic_ai]

Exactly lol

[crooked-v]

The 'Pure Financial Investment' one is overlooking that you still need a place to live for those 30 years.

[Galanwe]

Your calculation is bogus, you are 1) assuming infinite money 2) assuming infinite time.

1) When you say "add sustained regular $2500/mo contributions", you forget that compared to buying your place, you also have to pay rent, most likely at the same amount you would pay back your mortgage assuming same quality of life. So either you have a free $2,500 to spare (in which case you could also have invested that amount in the buying case, or borrowed more), or you have $0 to invest.

2) You cannot just take the expected value of two different returns distribution and assume you would earn it in both cases. That would assume you have infinite time to wait for the average rate of returns to converge. If your life depends on said returns, you cannot just say "oh nevermind I'll wait another 15 years to withdraw". In your example, stock market returns are immensely more volatile than real estate.

[pc86]

The house gives you a place to live, so the PFI plan is either a huge miscalculation (not a great place to start when you're making a numerical argument) or intentionally disingenuous. Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes. If you're getting a $2500/mo mortgage, what's rent for a similar house? Could be $2k/mo, could be $3500/mo. And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years. After the initial post-purchase increase, taxes are usually capped to some degree as well. For most people rent is capped for at most 1 year. So every year you rent you will have less money to invest, and eventually you'll have to start taking money out of that account because your rent has surpassed what your mortgage payment would have been 5, 10, 15, 25 years ago.

When you run the numbers honestly it's really, really hard to get similar gains renting as you can buying, especially 30 years in the future.

[notnaut]

I understand it’s more complicated than this, but it seems really really confusing at a basic level.

In one situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you’re out on the street.

In the other situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you have a house.

[jandrewrogers]

Renting gives you a giant pile of additional money you can save and invest so that after 30 years you could buy a house in cash if you wanted to. The person with the house does not have this cash, they have a house instead.

After 30 years you either have a house or enough cash to buy that house. In many cases, the rate of return on the cash is sufficiently greater that it is significantly more than the value of that house.

[what]

Eh, not really? If you have money to invest after rent, you’ll also have money to invest after mortgage payments.

[wwweston]

> The house gives you a place to live

A careful re-reading of my comment will reveal that I did mention rent as a factor in at least two places: one as an opportunity cost to be reckoned with for people following the PFI plan (with which my example still comes out looking good), one as a cost of living substantial enough for many working people that they do not have significant disposable income, which makes leveraging their largest living cost appealing.

> Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees, or property taxes.

Using a 5% interest rate was one of several simplifying assumptions that I chose to be generous to the Buy Housing on a Loan plan.

You are correct that interest rates are presently and historically higher than that, and that mortgage insurance, homeowners insurance, property taxes, and some maintenance costs that under the BHL plan can add up to significant housing costs that aren't going to equity and therefore aren't well-leveraged. In other words, the BHL plan actually comes off worse than I made it look.

(If there's a counter side of that, it's that landlords can and will pass on those costs so they're reflected in rents... but sticklers will notice that landlords who are done with amortized costs or who financed at lower rates can choose not to do that and may have incentives to depending on the market.)

That's in absolute terms. There's a relative point too: the higher the interest rates, the more the field tilts towards the PFI. It magnifies debt/leverage, making that path more expensive, and it magnifies return from invested income, making that path more rewarding if you can swing it.

> And don't forget that other than insurance and taxes, your mortgage payment is capped for 30 years.

I did leave out the bounding effect that a mortgage can have, and that's arguably an important missing point.

Wy would someone do that? My observation is that incomes also tend to grow in rough parity to rents in many markets -- in fact, local income growth is probably the primary variable local rents are dependent on (at least in a functioning market). This means during prime earning years decades from retirement, rent changes might be an acceptable simplification. But you're probably right that the closer you get to retirement, the more important bounding costs is. And there might even be other situations where the tradeoff starts to make sense even for earners with significant disposable incomes.

[namanyayg]

You can live in a house, but you can't eat stocks

[barchar]

Eagh, the leverage really isn't that cheap, and you can think of renting as giving you cheap leverage too (it's just your borrowing the house instead of the money).

[bombcar]

The leverage only matters in an appreciation market (which we’ve been spoiled with in the USA since boomertimes). If you distill the math on assumed zero appreciation (or zero “real” appreciation) it becomes not so terribly pretty.

It’s really a form of various hedges wrapped up with a bow, that for many people is desirable (and since we HAVE had appreciation it doesn’t “turn out bad” most of the time anyway).

Anyone who says “renting/buying” is the only way to go is missing something.

[barchar]

Renting also has hedges embedded, and every hedge can be a risk position.

In particular the interest rate options in foxed mortgages are pretty expensive and it only hedges the cost of a particular house not housing in general.

Housing cost is correlated with local incomes so in some ways it's doubling down. In particular recessions are deflationary in the immediate aftermath.

[notnaut]

Uhhhh where are you getting that $2500 a month to invest? That’s your landlord’s money, dawg. And they’re gonna expect at LEAST another $100 year over year if you don’t want to move.

[funksta]

Leverage is great when prices are increasing, but not when prices are moving in the opposite direction. The recent 40-year trend of decreasing interest rates lulled a lot of people into the belief that real estate leverage is an unalloyed good.

[brabel]

> I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k.

Well yeah, in the last 20 to 30 years in most countries the story has been the same. My parents bought a house in Brazil in the early 90's for 30k and we're now selling it for 400k. My relatives in Australia bought a house in Adelaide for 400k around 5 years ago. Prices exploded there and it's now around 700k. They got 300k dollars in a few years while actually earning less than that in salaries over the same period.

On the other hand, me, in Europe, managed to lose money on a house I bought 10 years ago because I overpaid (at the time it was really hard to buy as competition was huge) and after COVID, prices in my region fell 20% and never recovered... Also, I invested too much on a new building in the property which people in this country don't actually value a lot, so the investment did not pay off.

But before that I had made 60k on an apartment in just 2 years. So, while I know too well that the housing market can be unpredictable, I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.

[tmnvix]

> I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.

I think they have. As mentioned above, the past 40 year trend of declining interest rates appears to be at an end. It was the most significant factor in rising prices in my opinion.

[bombcar]

You also have to factor out inflation over those periods of time, as often it turns out the return is relatively anemic, but the time periods are long.

[at-fates-hands]

>> Leverage is great when prices are increasing, but not when prices are moving in the opposite direction.

This.

I worked for a medium sized company in the early aughts. It was a family owned business. The eldest brother was the owner and we often had lunch and he would tell me that once I make x amount, then I should buy this kind of real estate. When you get to this xx amount, then buy this kind of real estate. Fuck the stock market, only real estate goes up in value every year like clockwork. At the time he had several rental properties and three or four houses located all over the country.

That was until 2008.

Its funny, I ran into him at an architecture conference a few years back and one of the first things he said to me was, "Remember that real estate advice I was giving you? You can completely ignore that now!" and we both had a good laugh about how drastically the market had changed since 08'.

[schumpeter]

Sounds like your friend did something wrong with his investments. I had rentals before 2008, and bought more during the crash in South Florida for pennies on the dollar. It was a great time to buy.

[hardtke]

In some states (California being one) the original mortgage on a house purchase is non-recourse. This means that the bank cannot come after your personal assets in the event of default. Yes your credit gets dinged but the leverage of a home loan is fundamentally different than a margin loan in the stock market.

[Eridrus]

This is only relevant when rates are low. Rates are currently higher than the growth you can expect in housing prices.

I have done repeated financial models of this over the last 15 years and it has never made sense to buy a house for me.

When rates were low, if I had bought a house and then stayed in it a long enough time to counteract transaction costs, it could have been ok, but in expectation, basically everyone buying a house would have been better off investing the money from their downpayment & repayments into the stock market.

[bombcar]

Transaction costs are killer and never factored in correctly, I’ve found.

[musicale]

> most people cannot go to a bank and borrow $500k

Unless they can get admitted to a private university and a professional school.

[pdonis]

The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.

[inanutshellus]

Neighbors of owned-properties:

  - care about the long-term effects of their actions
  - care about the plan of their surroundings
  - plan to stick around

This is a HUGE part of the psychological benefit you refer to of buying.

Notably this is equally applicable to any occupant-owned property (e.g. condos > apartments).

[huhkerrf]

Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.

[y1n0]

HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.

As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.

[TimorousBestie]

> HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.

You don’t need a potentially abusive and/or rent-seeking HOA for this. My locality controls for all of these potential issues through local ordinances.

[alistairSH]

Sure, but you don't need to buy in an abusive HOA community.

I live in a "town" (Reston, VA) that has a notoriously strict HOA. But, it mostly applies to buying/selling and home additions. And it's very consistent. Each subdivision within Reston also has its own HOA that's run by the owners and in charge of regular community upkeep. It works out, as long as you perform due diligence up front and know what you're buying. I don't know anybody who would claim it was abusive or rent-seeking - just mildly annoying sometimes.

[huhkerrf]

Genuine question: how can you know ahead of time? I could imagine you could have an HOA that seems reasonable until you get to know them.

[pandaman]

Though it could also be a case with a HOA, a government employee is much more likely to not give any fucks about local ordinances than the board of HOA, composed of people who are directly affected by violations.

[blks]

I understand benefits of HOA, but I would like to live with one that allows me to just grow middle length grass or local flower and grasses.

[gib444]

Can attest to this, living on a street which each year sees houses sold off to landlords, and now there are very few of us occupying-owners left.

The renters all have rubbish in their front and back yard, have more pets that they let bark and poo everywhere, smoke weed etc.

[bombcar]

This has more to do with how the neighborhood is going (literally “to the dogs”) than it does with renting - you’d be surprised at the houses that look owner occupied but are actually rentals.

[abalashov]

This can be good, but can also be quite bad if points #1 and #2 manifest in Karen form...

[vikingerik]

Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.

There are tax advantages that favor owning (in the US), for a primary resident and not an arbitrageur - mortgage interest and capital gains when you sell are not taxed, while capital gains in a non-retirement account are.

You can gain by appreciation and leverage, of course - but you can just as easily not, you don't know if your city is going to be the next high-flying Austin or Boulder, or run-down Detroit. My own house has been flat in estimated value for four years in an area that I thought would continue to rise.

[ThrustVectoring]

There's significant personal financial benefits to renting, too, in that many local areas are dominated by one firm or industry as a major employer, so your employment prospects can be highly correlated with the local housing market. You do not want your investments to be correlated with your employment if at all reasonable. Detroit in particular was hard hit by this in the '08 financial crisis, iirc - the automotive industry had huge layoffs and a simultaneous residential real estate market collapse, and many newly laid-off workers were underwater on their home and practically unable to sell to move for better job prospects.

[smithza]

This is something that is hard for people to factor in when decision making. Optimism will blind us from considering such a tragedy since not only was there buy-in on the home, there was buy-in on the future trajectory of the company you decided to work for.

[steveBK123]

The liquidity problem with homeownership as well is that it's a lump sum.

If you own $400k of stocks, you can sell any increment of dollars you want over time. You can take profit, you can take money out to cover needs, etc.

With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back.

It's like having a $400k position in your companies stock that you can only sell all at once with a 10% round trip transaction fee.

[carlosjobim]

> With a house, sure you can "take out home equity" but its just a loan against your home you have to eventually sell to cover or pay back.

Do you expect to be able to take out a loan on your house and not have to pay it back? Want to have your cake and eat it too, literally?

[rwmj]

But the same argument applies to landlords too. Why are they willingly losing money?

[kridsdale1]

I’m a landlord. I’m losing money because the Seattle market went to shit and nobody will buy this place.

I bought for $850k in 2017. Selling now asking $899k and no-one’s buying. Think of my ARR with inflation and opportunity cost here. I sold Facebook shares to get this. I have made zero return from rents overall. I’d likely have earned $1M if I hadn’t sold those shares.

[cma]

That's pretty contingent. If you had Snapchat shares instead you'd be ahead.

[philipallstar]

Even selling up and putting the money into the S&P500 would've done a lot better than that[0], so I think it's a reasonable claim.

[0] https://investment-estimator.com/s&p-500-calculator says $850k in 2017 would be $2.8M by 2026.

[markdown]

Can I ask why you're selling?

Do you happen to be a young person looking to move for better prospects (economic migrant)?

[jandrewrogers]

A landlord is unlikely to have the same cost basis as someone buying on a new mortgage. I know many landlords that own their rentals outright. The ability to make a profit renting for less than you'd pay in interest charges alone changes the financial calculation.

That said, landlords don't always have a choice to not lose money. These are investments, there is inherent risk.

[kccqzy]

A lot of small mom-and-pop landlords are certainly losing money. Especially when they buy properties as their own residence but later converted to a rental. The majority of the Bay Area housing market has basically zero properties that would make a landlord profitable; you only need to compare the market value of a house against the market rent.

And this is really no different from the majority of stock pickers or day traders. They just lose money.

[materielle]

I get what you’re saying, but the housing market is actually a really subtle issue in my opinion.

Just one example, owning a home protects you against price shocks. As others have pointed out, this can sometimes be a bad thing, because when prices decrease you are also leveraged.

But it’s pretty important to a lot of middle class people that they are protected against forced relocation due to 5x housing price increases.

Of course, there’s other reasons to not own a home.

My point is that localized housing markets have all sorts of factors that are perfectly explainable by economic theory but aren’t just “Econ 101, run the supply and demand” curve.

[rurp]

Totally agree with all of this. When I was younger I'd heard that owning a home was financially a no-brainer so many times I took it as fact. Boy was I in for a surprise when the reality of actually owning a home kicked in. It's not just the less obvious overall costs that add up, it's also the variance. At any point you can be hit with a sudden expenditure of thousands or tens of thousands of dollars for a major repair.

Owning does give you a lot more control over your life in certain ways, which some will find a lot of value in. If you're someone who likes doing home improvements then buying a house makes a lot of sense.

Whether or not you plan to stay in the area for a while is probably the biggest factor. Buying a house makes it a lot harder to move in the future, but it also means you can't be forced to move. I had a horrible rental experience where I suddenly found out I had to move on short notice. It happened right after starting a stressful new job. Combining those two stressors made for some rough months.

I know a lot of other folks with similar stories of having to scramble out of a property on short notice. Maybe the rent gets jacked up to an unaffordable level, or maybe the landlord who said they were renewing the lease suddenly changes their mind.

[esalman]

This.

Our household income is 300k, and I took a big risk purchasing a home in Socal where mortgage is 50% of our take home income. In a space of 1 year or so, we went from saving two out of four paychecks each month, to sinking two into mortgage each month.

For me, we have one kid and we plan to stay put for at least 10 years. It's a good school district. The quality of life is excellent considering the weather, outdoors, cultural diversity, things to do, and proximity to international airport. We have friends and family here.

But to me what mattered most is that I am 40, our income is going to plateau. Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. On the other hand, I can refinance now and bring my mortgage down to what I was paying for rent previously, and in 10-15 years be mortgage free at a place with all the benefits I mentioned above.

[onecommentman]

Maintaining your own home is a great hobby for guys 40 years old and older. The house may age, but your engagement and knowledge of your house steadily grows. Even contracting out the work has its interesting elements. Keeps you active as you age, both mentally and physically.

The key for older homeowners is finding your querencia, the place of your heart. If where you live is your querencia, then countless options open up for you. Simply living in your home and community becomes a joy. Your community becomes an extension of your home and your heart and you become a vital part of that community. In your golden years, that community provides deep meaning and grounding when your work life quickly fades. Building that connection takes time and energy…plopping yourself somewhere else in your 60s, you may not find it. Building it now and in your 50s guarantees it’s there when you want it.

[markvdb]

> Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy.

You don't know if you will get priced out. You don't know how housing prices will evolve in your area. They could as well go flat or fall. That uncertainty about local affordability can suffice as an argument for buying. Just don't confuse it with certainty about your future ability to afford the local area.

[strongpigeon]

> You don't have to worry about rent increases

I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.

[hdgvhicv]

And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school Gets better, prices increase, and you have to move and your kids have to move school.

[ThrustVectoring]

Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.

[danny_codes]

Depends where you live. Any sensible municipality will tax land at it's value, so your costs should rise according to value. Of course most municipalities are failures when it comes to taxation, so probably it's a better deal to own land in those places.

[asdff]

Depends where you live. CA has prop 13 but other places you are reassessed regularly and plenty of homeowners are surprised to get priced out of their homes.

[Aurornis]

One term for this is "price-to-rent ratio" which is as simple as it sounds.

The ratio has a wide range from city to city.

Full financial analysis gets complicated quickly because you have to consider mortgage rates, inflation, opportunity cost of the invested money, and how long you're keeping the house. It's possible to pick the more financially optimal decision using today's numbers and then have your perfect plan clobbered by a collapsing housing market, extreme swings in interest rates, or being forced to move early.

[pixelatedindex]

> But don't do it for financial reasons.

I think I disagree on this front, but that’s probably because I ended up buying a home due to a mix of FOMO, bad landlords and rent not being too far from mortgage.

Plus from a psychological perspective it’s hard to say don’t do it for financial reasons when anyone who bought a home in the last 10 years (forget 20+) has seen insane appreciation. I’m jealous of everyone who got practically free money (2-3% mortgages) on an asset that has increased at least 50%. Life probably doesn’t get better than that and makes me wish for such nice things.

At least my “rent” is “set” for the next 29 years (I just bought last year) so hopefully at some point my mortgage would be something to be envious of.

[kccqzy]

There are plenty of psychological drawbacks as well. Consider for example that the fence between your house and your neighbor has become dilapidated. But your neighbor thinks it is fine and will not pay for a replacement. What do you do? Replace the fence without cost sharing? Argue with your neighbor on the condition of the fence? Or even after your neighbor has agreed, the act of selecting a mutually acceptable contractor to carry out the work? A lot of this feels like being a project manager, and if your day job is a project manager or even a senior engineer who sometimes wears the hat of a project manager, this could feel like a second part-time job.

[rahkiin]

Instead you rent, and your landlord agrees that it is fine.

So now you look at a shitty fence. Which you could have done when owning the house too

[kccqzy]

Well no. If you have home insurance, your insurance provider can deny you coverage based on the dilapidated appearance of the house. If you have renter’s insurance, it only covers your own belongings and won’t be affected. And as a renter you can use it as a tool to negotiate for a lower rent; good luck negotiating a lower mortgage payment or property tax.

Furthermore if neighbor relations deteriorate you can always move; as a homeowner you are still stuck with an expensive asset with large transaction costs after you move.

[sanderjd]

Yep, it sucks to be at a landlord's mercy to determine how nice the place you live remains over time. Things will wear out. If you own the place, yes, it's expensive to fix that stuff up. But if you don't own the place, you may very well just be stuck with it.

From time to time I drive by the place I rented for quite a few years almost a decade ago now. All the visible stuff that needed maintenance when I lived there is still just as it was when I moved out. Maybe they've fixed up the (worse) interior issues, but probably not.

[dennis_jeeves2]

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.

You won't - you got to account for real inflation which is about 7% in US and taxes.

Note that in both cases investing (simple investing like S&P500) vs owning a house you loose. It's just that overall loses will generally be lesser if you purchase and then sell a house. I will need you to to show me figures on yearly basis if you want to tell me otherwise.

[XCSme]

In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)

[DanielHB]

This isn't really true in many HCOL areas, a mortgage payment + amortization can be cheaper than renting an equivalent property. On top of that the amortization of your loan doesn't incur capital gains tax.

Even if your property doesn't appreciate more than inflation you can still profit massively from owning just through the loan amortization. Only being forced to sell during a market crash could realistically cause a big downside, but the upside is substantial compared to the risk.

It is also the safest leverage investment most people can do and the cheapest way to diversify away from stock market.

In fact paying off your mortgage is usually better risk/profit calculation than buying bonds as mortgage interest is usually higher than bond interests[1]. If you hold any significant amount on bonds you are better off using that money for a downpayment.

Everyone here is doing the cold hard math on 100% stocks when every financial advisor says you should diversify to reduce risks. Of course if you go 100% stocks and assume average returns will keep going forever (and not, you know, go full 90s Japan) the math will say stocks. But if you add any sort of risk lowering diversification a mortgage is usually the best one you can get.

[1]: I live in Sweden where almost everyone has floating interest rates for mortgages, I know US people can lock in their interest at low or high rates for decades which can skew the calculations

[thfuran]

In the US, there's a pretty significant capital gains tax exclusion on the sale of primary residence too.

[DanielHB]

In Sweden 30% of interest payments on mortgages is tax deductible.

When I sold my old flat and even though it only appreciated like 10% over 4 years (about the same as inflation) I still got a lot of money when I got the loan settled. 4 years of amortization at 2% per year is 8% of the original value of the apartment, tax free. And my mortgage+HOA fee was actually lower than my rent was before even before the interest tax deduction.

So after sales fees (also tax deductible), moving costs, capital gains, etc I think I saved around 15% after-tax of the total value of the apartment compared to renting over a span of 4 years. Given my downpayment was 15% I roughly doubled my downpayment money in 4 years.

That is a return of ~22.5% compounding per year _after tax_, which is much better than the average stock market returns. Of course I got there is some luck involved (my apartment didn't go down in value, I didn't need to do any renovations, etc), but I could potentially have profited even more if it had appreciated more. And that is on top of the real estate risk diversification benefits compared to stocks.

[thfuran]

In the US, 100% of mortgage interest (for the first 750k of loan) and property tax (up to 40k combined w/ other state/local taxes) is deductible. Property ownership gets such favorable tax treatment that it’s kind of ridiculous.

[modo_mario]

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.

Everywhere here rent has rapidly outpaced the mortgage payments and the down payment also pushed down my monthly payments significantly so it's not like nothing comes out of that.

To top it off my home is far more spacious.

Maybe it could work out if you went for the cheapest rent and invested the difference and happened to be that rare case that avoids a market crash. But then you'd also be living in a small appartment for at least 2 decades.

[sdellis]

I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait until you're 60 years old to spend it!

[Paracompact]

> I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k.

https://www.macrotrends.net/3072/us-house-price-index (~3x in the past 30 years, about 3.7% return per year)

https://www.macrotrends.net/2324/sp-500-historical-chart-dat... (~15x in the past 30 years, about 9.3% return per year)

This is in line with conventional wisdom on return rates for these asset classes: https://awealthofcommonsense.com/2024/01/what-is-the-histori...

Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.

[jstanley]

You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning.

It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.

[Paracompact]

The borrowed money isn't free from interest. There's no numerical sense in borrowing money at 5%+ interest to fund an investment appreciating at 3%. Some schemes might advantage it further (such as leveraging your mortgage with your retirement funds) but then we might as well also discuss further disadvantages compared to renting, such as upkeep and property taxes.

Back around 2020 when mortgage rates very briefly dipped below 3%, there could have been an argument. But such is no longer the case and not likely to return soon.

This guy breaks down the analysis very cleanly to a first-order approximation, using 2019 figures: https://www.youtube.com/watch?v=Uwl3-jBNEd4

> It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.

Just to drive the point home: It would be $100k in stocks appreciating at 9% and monthly rent subtracted, or $1m in housing appreciating at 3% and a $900k debt growing at 5%+ interest.

[sdellis]

I agree with your points. You have to take risks in either case, but some risks are easier to do the math on. And yes, fewer home investment opportunities exist as the interest rates go higher. There may be opportunities for higher gain with stocks, but there are also greater risks for loss. At least if you lose some value in a home, it's practical -- you still have a roof over your head or make money by renting it.

[jstanley]

Fair point!

[jandrewrogers]

The problem with leveraged investments is that they can put you deep underwater.

Many people in Seattle that bought $1M leveraged with $100k now own a $800k asset. They've lost twice as much as they invested. They would have been much better off investing that in stocks without leverage.

[defen]

Multiple people in this thread have mentioned the Seattle real estate market going to shit (for sellers) - is that related to tech layoffs or is something else going on? San Francisco's market is just as crazy as ever.

[jandrewrogers]

Seattle real estate has been trending downward for a couple years now. It isn't a single factor but the confluence of several. Initially it was only in some market segments but seems to have spread to most of them now.

The inventory of housing currently on the market is anomalously high and there are relatively few buyers. I know a few people that will be lucky to sell for as much as they paid a decade ago. People who bought during the COVID bubble are underwater.

This feels more like the beginning of a macro trend than a temporary blip.

[strongpigeon]

I think some of it is due to the lay off, some of it due to the supply situation not being as bad as SF (though construction has slowed recently), and a lot of it due to interest rates making "effective prices" much higher.

[ambicapter]

Yeah, but they still have a place to live. If the landlord is losing money on their asset, what's one place they could make up the difference?

[jandrewrogers]

The landlord isn't losing money. Totally different cost basis. The landlord rarely has a carrying cost that is equivalent to the renter buying the same property with a mortgage. It is frequently half that or less.

I've sold a home I lived in to rent something equivalent because the rental rate was a fraction of my carrying costs. Saving the difference in costs added more to my net worth than the appreciation on the property.

[jedberg]

My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.

[IshKebab]

Well, not historically because for a lot of the last few decades, house prices have gone up dramatically more than average investments. But it does seem like that is coming to and end and of course you can't make decisions based on the future.

Even so, there's still a benefit to owning which is that you aren't paying the agency fees, elevated maintenance fees, and landlord profit, which are all non-zero.

[srinathkrishna]

This!

As someone who moved 6 times in 8 years (admittedly, some of those were for work), and every time, I relied on moving things myself/with friends, I was just tired any more!

For the last move, I hired movers since I was already married by then and our stuff tripled (yes, mine was a very small portion).

The fact that I don't have to move for a while now gives me a lot of peace!

[ChuckMcM]

Yeah this. But some additional flavor to emphasize the 'don't do it for financial reasons' aspect.

In the late 90's I, like a number of my married friends, 'owned' a house in the Bay Area. Dot coms were going crazy, the economy was insane, and people who got big equity payouts were buying places with their stock. At the height of all that, my Sun stock holdings were enough to pay off the remainder of my mortgage but I got the "opportunity cost" talk from my financial advisor about how tech stocks were returning 15 to 20% and more, so what I should really do, is refinance, and put my equity into tech stock! I didn't do that but at least two people I knew did. And when the crash came, the friends that had refinanced ended up selling their houses an moving out of the area, and I was left with the dread associated of being an "older" engineer when tech jobs were on the way out. But I still had a mortgage and kids to support. Had I paid the house off I would be in a position to take a job with much lower pay than my last job and still stay in my house (with just the tax,insurance,utilities and maintenance costs). The psychological cost of 'uncertainty' is especially burdensome on me (which, I suppose, is why I make a good operations person).

I told my wife that if I ever had a chance to pay off the mortgage again (prior to paying it off the old fashioned way of making payments for 30 years :-)) I would. In California, you are required by law to be able to make a payment larger than you requested payment and any excess goes toward the principal. So we started making bigger payments, and between that and some bonuses and stock recovery we managed to pay it off. I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.

Now that story works because I knew that I wanted to stay in the Bay Area, there were jobs that I would be interested in (even if they didn't pay what I would prefer) and that was important to me. A relative who was more management in retail (started at Sears) found owning was a problem because it made relocation harder. As a result, even though they owned now and then, they lost money during the mortgage crisis (needed to move with their house underwater) and didn't get the advantage of just staying in one place.

My wife's parents simply rented out their place and moved to a new place and bought a new house there. They ended up collecting a few properties which were their retirement plan, being sold off over time to pay for expenses when they could no longer work. That was more 'investment like' in my mind. But it was also a lot of accounting work with property managers etc.

Buying a home works really well if you are married and you both have salaries (and initially no kids). The US tax system is set up to 'reward' that behavior with a better rate for married filing jointly and a mortgage deduction for owning a house. It cuts out a lot of uncertainty. But it also means moving is a bigger deal. In today's market, if you bought a house with an < 6% mortgage and are looking at buying with on >9% then they feel a bit locked in.

[pixelatedindex]

Thank you for sharing!

> I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that.

Seems to me that she is the one hurting more because your choice undermined her commission lol

[ChuckMcM]

Not really, she does fine. She really does think I am over conservative in my risk tolerance. Sadly you don't get to re-run the experiment if you don't like the outcome (that being my risk intolerance speaking).

[monegator]

Yeah, no. Fuck renting. It may be ok for 5 maybe 10 years, while you're figuring yourself out, but after that it's just wasted money.

If you buy property it will be yours, forever. You will pass it down, you will be forever part of the community, and your children, and so on.

Both my parents come from big farmer families, and lots of poverty. When my grandparents managed to end serfdom in the late 50's and their rented farm became their it was a huge deal: that became the family home. Like our own castle of sorts.

But i guess it's a different culture, my country has the higher percentage of home owners in europe for a reason, whereas most of northern europe housing marked is dominated by speculation and renting agencies, among the worst sort of leeches that have ever lived.

[ocdtrekkie]

Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass.

Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.

[fragmede]

Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.

[ocdtrekkie]

Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.

[kakacik]

Instructions in the will: 1) sell the house via real estate agency and let them handle the optimal price with view on selling within 6 months (so no surface for arguments when one of heirs want to maximize gain even if it takes 10 years to sell); 2) split what comes back proportionally

It doesn't have to be that hard

[jedberg]

I probably should have put a big caveat in my comment: In the USA. Other countries are a whole other puzzle.

[nazgulnarsil]

the large majority of people do not keep their property until death.

[danny_codes]

On the other hand, buying a home reduces mobility since selling is difficult. Always pros and cons

[bloomca]

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place.

You'd actually end up in a much better place historically, homes were never a particularly good investment in the US, but there are very few people who can pull it off and actually invest the difference and not just spend it.

[notepad0x90]

Even psychologically, i don't get it. you're still renting, except insurance and property taxes replace your rent, even if you pay it off fully.

[strix_varius]

Insurance and property taxes will never decide to occupy the house and force you to move from your home despite being willing and able to pay.

[notepad0x90]

they can and do, if you're past eviction notice.

[strix_varius]

Maybe read the whole sentence?

[notepad0x90]

apologies for misunderstanding, I think you were being sarcastic and agreeing with me?

[hn1986]

most of these articles neglect to mention families. so I downvote for simple lack of completeness.

[Imustaskforhelp]

Yes the benefit is psychological but I think there's more to it as well.

Firstly within investing, I am assuming that a person has safety net amount of money before properly investing. This is something that I have heard some people don't exactly do.

As such, what happens is that, they might lose a job and have to pay rent and might have to sell the stocks or any index fund/investments that they had within the market (which depends on if the market is doing good or bad too) and overall snatches opportunity for money to actually grow for years.

I recommend having a safety net but I must admit that there is still some psychological stress overall due to multitude of factors, as such, if possible, buying a house feels like it might be overall decent choice and the differences might not be so much.

that being said, I do think that it depends upon the land prices and many other things overall too.

Also, this is tangential but I used to be a boglehead, still am but with recent cases of Nasdaq[0] & I think S&P bending towards SpaceX and AI IPO's by literally bending rules, it does feel like the investment markets might be more shaky given other factors

(Not a financial advice at all) but I recommend looking towards dimensional index funds which do just a very bit more than index funds if the addition of floaty investments like SpaceX and other IPO's make you fear similar to me.

But the thing is that the downstream effects of it will still be visible, for example, just imagining if SpaceX gets added to IPO and then quickly added to Nasdaq/S&P and then it falls substantially for any reason. The thing is that the market itself would be spooked and other funds would be impacted too.

I have belied in the market efficiency hypothesis but a lot of it feels like private equity trying to raise evaluations to then push it to index funds (by in this case, asking nasdaq to bend the rules to force passive investors to buy and hold the bags basically impacting retirement accounts too and perhaps even govt bailouts but basically it becomes privatization of gains and socialization of losses and becoming too big to fail.

I must say that it feels a bit of blatant corruption in some instances like the one for SpaceX and this removes my confidence within markets.

I do recommend overall diversification for world stocks and also housing if affordable.

I wish to still invest in markets but with a bit more caution rather than blind optimism. Also no, active investing doesn't quite work either reading john bogle books and other resources and passive investing is still superior to active investing overall but just with more caution. That's all.

[0]: https://www.thestreet.com/latest-news/new-nasdaq-rules-open-...

[littlexsparkee]

for what it's worth for VTI OAI, Anthropic, and SpaceX combined would comprise 0.3% of the index based on float. I was concerned about this at first but running the numbers it doesn't seem like a big issue risk-wise - I agree it's a worry trend to see changes to policy and don't want retail liquidity to cash out privileged investors. Some type of delay where the stock finds its market value before entering the fund is ideal.