That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.
It makes absolute sense, because maintenance costs are non-negligible. I just paid a fifteen thousand dollar plumbing bill. Since rent would include the ability to call the landlord to make him fix that, I sure would expect rent to be higher for the same place than my mortgage is.
Last year I spent twenty grand on a new roof. What's next? Idk, but that's why my mortgage isn't half of my salary. If it was rent, these things wouldn't be my problem.
Depending on what you include I figure property taxes, insurance, ongoing maintenance of my house and property are a good $1K/month (obviously with a fair bit of lumpiness for large projects). Some things you can postpone and some things you can trade money for your time & effort but it's still a non-trivial amount.
I'd love if all that was $1K/mo total. My property taxes alone are $1001/mo (for 2021; they went up a little bit last year, but I could quickly look up 2021 online).
Property taxes vary a lot. Mine are about $350/month.
$1K/month is probably low for me though if I added up all the expenses a renter wouldn't generally have although a renter also probably wouldn't be renting a house like mine for an extended period so it's a bit hard to do apples to apples.
In any case, living in a house is very much not free even once you're paid off the mortgage--especially if you make an effort to prevent a lot of maintenance debt from accumulating.
> I just paid a fifteen thousand dollar plumbing bill.
That has to be for commercial real estate, or you've been ripped off. There is no possibility of a single family dwelling ever having plumbing problems of that scale.
But maintenance costs are in general a landlord lie. They wouldn't rent out their properties if costs where anywhere near income. As for my own anecdote, my landlord has spent at most 0,5% of what he's gotten in rent from me on maintenance over the years. A normal tenant won't break anything or induce any maintenance costs.
That is a very believable number. I had a leak in my concrete slab last year. The plumbing bill was $20k, which didn't include fixing all the holes in the drywall nor the bathroom remodel after they went through the shower to jackhammer a hole in the foundation.
Our home was $200K. If we own it for 30 years, the property taxes will average to about $180K over that time. If we have $70K expenses (roof, HVAC, etc.) then the total would be 250K.
If we sell our home at the end of 30 years for exactly what we bought it for, no raise in value at all, 200K, then 250K of maintenance works out to around $700 per month for each month of those 30 years.
Any amount we can sell the house for over the original $200K price, reduces the taxes and maintenance down from $700 potentially to zero.
If we sell at the end of 30 years for $450K, even accounting for taxes and maintenance, we lived rent free for 30 years.
Yes, after 30 years, you came out ahead. But also, you can't sell your house when the drain breaks and you need $10,000 today to pay for fixing it. Especially if you just bought the house.
Also, you forgot to account for the $180K in mortgage interest.
Don’t forgot that rent goes up. Renters pay taxes too.
My apartment that was $900/month in 2001 is $2200 today. Outside of some of the really stupid markets, it’s almost always better to own. You’ll be fixing that drain every year.
I'll throw in the 180K mortgage interest and the mortgage insurance which I also forgot and wager I still come out ahead. Rent would be somewhere between $750K to $1M over that time and none of it is returned.
Since we control our mortgage, we paid it off early, at around 15-16 year mark (due to my wife making me realize the importance of it). We live rent and mortgage free the rest of our lives thank God. I only wish I'd kept either of our 2 former houses instead of taking better job offers requiring moving ultimately to the bay area where we couldn't afford to buy a home. Texas is nice though!
My Dad always said, buy a house as soon as you can.
In most Bay Area markets, it makes more sense to rent than buy from a purely financial perspective. It's only if you value the ability to modify the home or have a sense of permanence that it starts to flip.
Don't forget the opportunity cost of that $200K of equity. If that money invested earned 5%/yr on average that is another $10K/yr bringing your $700/mo to $1,533/mo. If you sell at $450K after 30 years, that mostly just makes up for that opportunity cost (30yrs at 5% would be 432K).
But it's not as though property taxes and ongoing maintenance costs don't exist for apartments. The income the owner receives from the rents has to cover all of that.
Well, yes and no. If you own and the roof needs replacing, you need to have that money on hand (or be able to take out another loan to cover it, which isn't always possible). If you rent, you don't.
I don't see how that's important to the discussion at all. Sure, if you live somewhere, a problem with the roof is "your problem". But if you own, it's also "your responsibility" vs renting where it's "their responsibility". And the person whose responsibility it is is the one that is saddled with the need to acquire that lump sum of money to deal with it.
How much does being able to call an expense an expense figure into things? Like, why wouldn't I set up a company owns my house and rents it back to me?
Also, it's a little easier to just scrape by for 12 months of a rental contract than for a couple of decades of a mortgage, and a lot more difficult to repossess a house.
And I think we all saw why banks should be expected to be a lot more cautious in rating homebuyers' ability to pay than some individual landlords might be about their tenants in 2008
100%. If it's an older house, the mortgage might not even be half your costs for the first few years, while you get everything that breaks back in good condition.
