The article talks a lot about mortgages. How does the math work if you pay in full at the time of purchase?
this post was submitted on 20 Nov 2024
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you divide the amount of money that it costs by the amount of dollars you would pay to rent something like that per month and then figure that's how long it'll take for you to look at a duck instead of a chicken
Then add a few years, since you'll be the one paying to replace wear items like roof, carpets, and appliances.
Not the scenario this article talks about. Most people need mortgages, especially first time buyers.
I might still not understand but... Landlords have to pay insurance as well. Why would they be the exception. They have all the same costs and also want to make a profit. How can rent be cheaper then?
Because if you buy a house, it's just you and the bank, so you need to cover the banks risk for you as an individual, meaning higher interest rates. Larger purchases, or a group of houses are covered by different loan types, flexible rates at for example international rated plus half a point.. and that is mich cheaper. The rate might fluctuate.. but if the government strongarms the fed to keep the loans practically free, companies borrow for free plus half a point. And that is a lot of difference.
Also, the landlord is dropping that money into an asset that often appreciates in value. As long as they otherwise have cashflow to cover it, they can afford to "lose" money each month and make a big payday when they sell it.
Because on average, I imagine very few rental homes are brand new constructions/purchases so their mortgage is a couple years old and lower than if someone bought that same home today.
Highly dependent on where one lives I guess. My friend just rented a new apartment and his rent is over double what my mortage payments are. That's also money he is never getting back where as in my case my house is paid in about 15 years after which I own the damn thing and the monthly mortage payment drops off entirely. Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
That's also excluding regular maintenance or emergency repairs that a landlord would be (often reluctantly) responsible for. It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
Isn't this kind of irrelevant unless you're a house flipper? If you own a house and make renovations to it, it is because you find some practical value in it.
A house flipper would do everything they can to avoid having to do something like this. It's primarily a normal home owner who would have to shell out for this.
Ex. when I bought my house, they told me the roof had recently been redone. I didn't know enough about it, but the pre-inspection didn't see any issues. Fast forward a year later we have someone look at it because it isn't looking right in some places. Turns out it's a very old "torchdown" roof, and by "redone" the previous owners had someone spray it with a silvercoat paint. This is something you do maybe 2-3 times in the life of this kind of roof. The inspector said there were at least 7 layers of paint, the roof itself was way past its recommended lifetime, and if there were any issues it would be impossible to know without taking the whole roof off. They said we could just wait until we have a leak, and then get it replaced, but (given several weather and money factors involved) we chose to go ahead, bite the bullet, and have a new roof installed. This was enormously expensive, but if I were to put the house on the market right after it was done, the state of the roof was already priced in. If someone wanted to pay $X a year ago thinking the roof was already recently "redone", me getting it actually redone isn't going to move that needle for anyone. It was purely for my peace of mind as the home owner who wants to continue living here. Sure that has value to me, but no tangible value that I can use to justify the purchase vs renting. I could have rented in this place for well over a year for the price of that roof.
A house flipper would have said "well, let's try to get rid of this thing before that becomes a problem for us to worry about, shall we?"
The best thing you can do to improve the value of your house is granite countertops and stainless steel appliances. The next best thing is some kind of fancy bathroom. Finally, a fresh coat of beige paint and moving out almost all of your stuff is a big help.
My mortage payments for one year would cover all maintenance I've done to the house during the 8 years I've lived here including an entire bathroom remodel. Obviously someone less handy would need to hire someone to do the jobs I've done myself so that helps a little with the costs, but still. The maintenance costs for my house aren't even in the top 5 expenses I have.
It's not about what your mortgage payment is. Interest rates are significantly higher now. See how much the same house costs at the current price and interest rates. Most likely it's significantly higher now as both rates and prices have increased.
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I am confused, my thought process went like this:
So it's more expensive to own then rent?
Unless you own it and rent it out to others?
Nobody would be a landlord if a dwelling cost more to maintain then to rent out.
So something doesn't add up.
This is only looking at a point in time, not the life of the loan. In the US at least, we have fixed rate loans (many countries do not have that). So your "rent" when you mortgage a home is fixed for 30 years. When you rent, your rental costs increase with inflation every year. While it might be 14% higher to mortgage than rent right now, in a few years your mortgage will stay the same while your rent will have increased. Yes, there are repair/maintenance costs, but after 5 years or so you are saving enough per month to pay for those repairs.
When you mortgage a home as an investment property, you are leveraging your money 5-1 (on a 20% down payment)
If rent covers 90% of the mortgage, you still make an absolutely huge profit amortized over the loan.
If you consider the tax incentives (interest write off, depreciation, capital gains deferment, pass through deduction) the gap in the rent can be covered.
Consider paying 50k down on a 250k house, the. Paying an additional 15 percent over the life of the loan (around 40k) to cover for gaps in rent.
Over the life of the loan you turned 90 grand into 250 grand (and a house is an appreciating asset, so it will likely be worth more than 250 by the end of it all)
Deduct depreciation (value of the home minus land value over 27.5 years) and carry over losses can even make up for the gap of rent you pay entirely over time.
This is exactly the kind of math that normal people don't get when it comes to this conversation. Every industry has some convoluted, obscure, non-intuitive way to actually make money when it doesn't sound like you should. You have to think in different ways and in longer terms.
I believe they are taking into account the cost to purchase these days since interest rates are higher, ergo high mortgage payments.
As someone else mentioned most landlords have locked in rates at this point. Not many new landlords.
I agree, and came in here to say the same thing. I think the data is being skewed by the fact that many (not all, of course) rental properties are subdivided into multiple units (or built that way in the first place). People commenting about how it's considering modern costs, well, they must not have read the first two sentences of the article:
On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
But the difference has grown much more extreme in recent years as just about all homeownership costs have ballooned.
The only way you can arrive at that 14% number is if you're averaging in multi-unit apartment buildings. Very few, if any, landlords are out there subsidizing their non-family tenants by charging less than the normal costs of ownership. If most landlords are losing money year over year, well... at that point just sell the property.
Most landlords bought the place earlier when home prices and mortgage rates were lower, or they just own the place outright and don't make any mortgage payments.
This article is about choosing whether to buy at current rates or rent at current rates. If you bought a place 10 years ago for half the price it's worth now and a 2% interest rate then you're probably going to be paying less then renting
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As a homeowner what weighs me down most is insurance, by a large margin. It keeps increasing while the coverage decreases. It's a huge racket in my opinion
Racket.
A racquet is what you hit your insurance adjuster with when you're tired of his racket.
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