[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.

[jandrewrogers]

Rent is much cheaper than the total monthly purchase costs in many locales. Literally thousands of dollars per month of net cash per month to investments in the renting scenario. And that cash appreciates at equity rates rather than debt rates. This is on top of being able to invest the down payment instead of spending it on a house.

I have decades of data on this in a few locales (including Bay Area and Seattle) based on my own experience and despite buying and (still) owning homes several times. It never pays out better than renting and investing. The math doesn't math. I still buy places occasionally but I am honest about this reality.

For the kinds of places I rent the finance math is so heavily tilted toward renting that it is a no-brainer. I'm not alone in this; I know many people of means that choose to rent even though they could buy any house they wanted.

[mancerayder]

Run the numbers - mortgage with interest deduction, SALT deduction (property taxes apply), appreciation, add the principal as paying yourself back. Compare it to renting comparable home, with the rent going up with inflation (which in some places is being generous). After a few years, you'd be surprised how the math looks.

[mvkel]

Invested capital rises with the S&P (for example). A house's value rises with the rate of inflation (on average)

[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.