renting is better than buying

Let the idiots overpay, so when the crash does come they'll learn a lesson about real estate and prices can then stay down for a long time while everyone is laughing at the fools who got stuck holding the bag.

I can't wait to see all the protests coming about my remark......... Yep its right you people are fools.......... AHAHAHHHAHAHA

I posted this on the other rent vs. buy thread, but here goes again just for the sake of completeness...

The only issue with the rent/buy paradigm that really isn't discussed:

The 'calculator' tells a renter what their potential gain is, if they judiciously saved EVERY SINGLE PENNY that they would be spending to purchase a place over 10, 20, or 30 year timeline (over and above their rent costs). The big problems are that:

1. NOBODY judiciously saves every penny between the cost of renting and buying - money gets frittered away on clothes, cars, vacations, summer rentals, etc. that should have been saved. So at the end of a 10, 20, or 30 year cycle, it is VASTLY unlikely that the renter has scrupulously saved every penney the calculator assumes they will. Or even anything close to it.

2. In addition to saving every penny between the cost of renting and buying, the calculator ALSO assumes the renter is a fiancial wiz who will return a steady after tax profit of 5%, 6%, 7% or more per cent on their money that they've so carefully saved, year after year for 10, 20, or 30 years.

The MAIN REASON most people buy homes is that their home is part of (not entirely) an ENFORCED SAVINGS PLAN for many people. I think that if we seriously look at a renter over a 30 year period, and track their savings (regarding rent vs. buy) and their invesment return, when all is said and done, the person who bought a well laid out/well designed Manhattan condo/coop in a great location will have MUCH more net worth than a comparable renter after the same 30 year period goes by.

I don't see how having a home is more of a forced savings plan than say oh having part of your income automatically deposited into a brokerage account. Any idiot can get a 5% return, and it isn't too difficult to get up to 7-8 and long run around 13 if you just invest in an index fund.

Also, with respect to your first point, people who own homes still do the same things that renters do (clothes, cars, vacations, summer rentals, etc) - and I highly doubt there is much difference in what the renter spends versus what the buyer spends so any potential savings is a null point.

I dont think people are saying never buy #5, I think they mean we are at a high point and wait for things to cool down a little before making the plunge.

#6: 'any idiot' does not have access to trade stocks with 10:1 margin leverage...that would be the brokerage equivalent of buying real estate.

#6, For the most part I disagree with you and agree with #5.
1) Most people don't automatically reinvest their savings. In NYC, it typically goes to a super low interest checking and maybe partially to a savings.
2) In general, most of my renter friends are still spending without discretion and just living large and partying. Whereas the buyers are spending less of their discretionary income.
3) If housing suffers and drops I highly doubt an index fund will return 13%. If bad things happen to the economy, it won't be good for stocks either, so its lose-lose.

#7:

I'm not suggesting buying OR renting as preferable. What I'm saying is that calculator deals only in ideal input, and nobody runs their life in such a manner.

#6:

A home is a forced savings plan because you know what every payment will be (assuming a 30 year fixed rate). Again, IDEALLY renters would do what you suggest and have that portion of their income between the renting and buying calculation deposited into a brokerage account. But I have a snaking suspicion that your ideal plan, is, in reality NOT the majority of cases. And no, NOT every idiot can generate an AFTER TAX return of 5%, year in and year out, every year, for 20 or 30 years straight, contrary to your snarky sounding post. Before tax - maybe. After tax - MUCH harder. And yes, people who own homes take vacations and so forth, but that built in mortgage is another way to pay oneself FIRST BEFORE all the vacations and extras (assuming you don't take out second mortgages and such). Renters don't necessarily have that additional payment that they MUST make every month (or lose all the equity they're building). THAT'S why it's an aditional forced savings plan.

#10, GREAT points on the pay oneself first and after tax returns.

>> but that built in mortgage is another way to pay oneself FIRST BEFORE all the vacations and extras (assuming you don't take out second mortgages and such).

In general, renters do not think this way.

delusional buyers

i am a renter and save 50% of my income directly deposited into a brokerage account. If I bought there is no way I could do that and I'd end up losing all my savings as the housing market plummets. If I put down 100k on a 1M apartment and the market goes down 10% I've lost my entire 100k. If the stock market goes down 10% I only lose 10k. I think renters are the better savers in this environment.

where did u put 100k in the market right now?

... with the fed inflation news.

I am a renter and also have autodirect deposits into brokerage, 529s, 401ks, IRAs, etc. Most of my friends (who are renters) do the same thing. What is the difference between that and the "forced savings" that everyone is talking about? I don't get it??

But they're not building any more land. They're not building any more l-*OOF*!

Proof of a bubble:

multiple price reductions:
http://www.streeteasy.com/nyc/sale/54186-condo-350-west-42nd-street-clinton-new-york

large desperate price cuts:
http://www.streeteasy.com/nyc/sale/61774-condo-150-nassau-street-civic-center-new-york

many, MANY more examples of this. Those who think that manhattan is bubble proof and somehow different from the rest of the country are in complete denial

Do not ask for whom the Little Black Arrows drop. They drop for thee.

http://www.therealdeal.net/breaking_news/2007/04/11/1176319604.php

If the NYT of all papers is telling people to rent you know the market is headed south! They never say ANYTHING bad about real estate and act like everyone in the city has billionaire parents - or are somehow independently wealth (remember the food emporium manager that bought the 2 million apartment?) The sky truly is falling when the NYT says RENT!!

Has anyone ever heard of staying in the market for more than 5 years??? You buy for the long haul, not short term. Even if the market falls in the next few years, so what??? If your in for the long run, no worries.

you 'pay yourself first' if you own? How about 'pay the bank first'... mortgage interest, though tax deductible, is still money you're paying to someone other than yourself.

I am a renter and am saving a huge amount of money each year. Would I like to buy at some point? Definitely. However, all condo prices have to do is correct as little as 4% a year and my 2 year time horizon rent vs. buy a condo decision pays off.

It really bugs me when high and mighty owners that post on this site claim all renters are ignorant, fiscally irresponsible non savers. Some of us simply made an informed financial bet that 2008 or 2009 would be better time to buy than 2006.

you 'pay yourself first' if you own? How about 'pay the bank first'... mortgage interest, though tax deductible, is still money you're paying to someone other than yourself.

I am a renter and am saving a huge amount of money each year. Would I like to buy at some point? Definitely. However, all condo prices have to do is correct as little as 4% a year and my 2 year time horizon rent vs. buy a condo decision pays off.

It really bugs me when high and mighty owners that post on this site claim all renters are ignorant, fiscally irresponsible non savers. Some of us simply made an informed financial bet that 2008 or 2009 would be better time to buy than 2006.

I agree - I save a ton of $$ each year - why buy now? It is a terrible investment. I can rent a place for less than half of what it would cost to own it (including tax deductions) and if you buy you risk losing your entire down payment as prices are almost certain to fall 10% or more. Look at the interactive calcuator on NYT - it shows it really isn't good to buy at all unless you are looking at 15-20 years and sometimes not even then (in my case it said i was far better off to never buy)....prices are out of wack. I honestly think the most fiscially responsible of us are the ones renting now - yes, many of us can afford to buy, but simply choose not to.

#24 and 25. Please define "huge amount" and "ton" w/r/t money you save each year. don't worry. its anonymous.

We'll never all agree about renting versus buying. I bought a house not necessarily because it's the best investment. I bought it because I wanted a really nice space that I can customize as I see fit. What the hell else I'm I going to do with my money if not buy a house?

#21, the NYT article barely mentions NYC where rental costs have appreciated tremendously; this is not true for the rest of the country.

If you use the graph to do you 'rent vs. buy' comparison I think you're perspective will change.

For 2006 I will save more than 400K after tax, before investment any returns.

oops meant: 'before any investment returns'

so with your gobs of money, you think that portfolio diversification is not a smart idea? Cool, just put everything in the stock market then.

oh wait, stock market looks scary too. Hmm, gee what to do? I guess I'll put it in my savings account... hmm great "investment returns".

#25, "why buy now? It is a terrible investment. I can rent a place for less than half of what it would cost to own it (including tax deductions) and if you buy you risk losing your entire down payment as prices are almost certain to fall 10% or more"

Nice argument. You're all but saying my position is right because...its right. prices are certain to fall 10% or so, if you say so. maybe they will but i bet you've been saying they almost every year for last 10 years and whats actually happened. If you had bought a place during those 10 years you would have made a lot of money, period. Doesn't mean it will continue but these statements of certainty are ridiculous.

Beyond that, your comment that you can rent for less than half of what it would cost to own it, is probably bull. Well let me say it this way, every apt is different, and maybe you have a sweat rental deal or some other factor, but for the huge majority that comment is ridiculous.

I have a couple real life examples but lets use a generic one generous to your point. Lets take a million $ place. For ease lets say you finance the whole thing at 6.5% and pay 1500 a month in maintenance/common charges/taxes. thats about $6900 a month before tax savings, lets say 5000 after tax savings. so you're telling me that place is renting at less than $2500 these days? Yeah not so much.

Real life example goes like this. my sister just bought a place for 510k. She financed at 6 1/8. For ease lets say she financed the whole thing (or that she has opportunity cost of 6 1/8 on whatever she put down, of course you'd probably claim to be making 25% in the market right now). I think she pays roughly 1000 a month in maintenance. That puts her monthly cost at about 3600 before tax savings, presumably under 3k after taxes. Before she bought a few months ago she was renting for about 2900. Oh and the new place is bigger and nicer.

Are there lots of apts out there listing or even selling for #'s that imply a cost in excess of what it would seem they would rent for? Sure, but its not nearly double and its far from every case.

33, good post. Not to mention higher inflation means even higher rents.

#29--I would say that qualifies as a "ton". However, 2006 is over. So you banked 400K in 2006 or will bank 400K in 2007? With money like that, I cannot see the point in not taking out 100K and buying a place. Personally, I'm lucky to bank 90K and that includes retirement money. Since I make about 300K all in and i'm a pretty assiduous saver, I'm guesstimating that you make at least $1.2MM? With that kind of salary, I would not live in something I did not own.

I don't know how you can bank 400k and not have an understanding of diversification and tax shielding. Trust fund baby?

#25 here - I'm a renter, salary in the low 200s, spouse is same. Rent is 2400/month, save about 80-85k/year, spouse saves slightly less b/c of student loans. Savings include 401k (I automatically deposit 10% of each paycheck into my 401k and 40% into a brokerage account - usually have some savings left over after rent/expenses/fun and put that in brokerage account as well). If I bought my costs would just about double I'm certain.

renting is also great because when things break (which they always do) I don't have to pay to fix them! Also, don't have to pay any property tax, mortgage interest or maintance! AND I can move to a different city/country/job whenever I want. I don't know why people buy except cuz they want to "own" - certainly not for investment in this market.

I agree with #37/38...the freedom to move whenever I want has always made me not buy and will continue to...

Ummm, if you're not sure you want to be somewhere then yeah you shouldn't be buying. But for the record, my friends haven't been sure they want to stay here and its been almost 10 years now and they still aren't sure.

#40...yes I'm just like your friends but why should I pay $800-900k for a one-bedroom apartment. I'd rather invest my money (not in the stock market) and have FREEDOM.

Why do buyers always assume their costs are fixed for 30yrs (or whatever length of their mortgage is) - it's a very common point they make against renters who they claim are subject to rent increases every year. Taxes and Common Charges increase as well. If buyers think your taxes/CC are going to be same 5 yrs from now, you're insane. I owned 2 condos in the past before becoming a renter, and the % increase in property assessment value and CC was much higher than inflation and much higher than some of the rent increases as well.

#42, while you're correct, cost of owning is not fixed, maintenance/cc and taxes can and likely will go up over time, you're seriously overstating the case. As an example my maintenance has gone from about 1420 when I bought 4 years ago to about 1530, a little less than 8%. But given that my maintenance is about 1/3 of my total monthly cost, the rest being a fixed mortgage payment, my total cost is up about 2.5% in 4 years or well less than 1% per year. Compare that to the 10%+ rent increases per year in some cases. Of course thats just one example but my impression is its not unusual.

#43 - you make a great case for renting! You pay $1530 in MAINTENANCE!!! This is more than most people's rent (save Manhattan) - however, even in Manhattan that is more than half my rent! You still on top of that have property taxes and mortgage interest you have to pay and are probably losing equity in your house as you read this. a 10+ percent increase in rent is nothing compared to what you buyers are throwing away in increased maintenance/property taxes and loss of equity!

44, first of all it depends how big his place is. Secondly, I believe that rent has been increasing close to 10% for consecutive few years. There is no reason to believe that this trend won't continue with inflation rising and housing headlines in the papers every day.

I am own so if everyone is so strong on their beleifs that renting is better than buying I'll just have to jack my rent up another 20% again this year. I love pro renters I am looking for another property so I can rent out. If everyone keeps feeling this way I'll just keep raising my rent year after year. By the way for the past 50 years people have been saying prices are going down and now the new motto is 2008, 2009. What happen to 2006 and 2007.

Why in the world do people who are renting don't think that inceases in Taxes and CC is not going to be passed on them. This is why rents go up as well. Do you really think the owners are going to eat these increases.

#41 here, - #45, my rent has increased 6.25% over 3 yrs/a little over 2% a year, so I don't know where you're getting 10% a yr from. Meanwhile my overall networth/equity has significantly increased by NOT being in the RE market and investing in alternatives.
#46/#47, you guys are proving my point - owners are subject to the same increases as renters. If you are a landlord and own property to rent out, then sure you can pass on the costs - but the vast majority of people in this discussion only own the one property they're living in.

# 41 Are you saying that renting an apt in 2003 going forward to 2006 only went up 6.25%. I rented a one bedroom in 2003 for 2500 per mont, The same apt is now renting for 3300 per month. Thats over 10% per year. Even at 6.25% increase per year that sucks. My dam CD's ar not returning me more than 6.25% a year. I am not a fan of the stock market either because one year you can be up 15% the following year you can be down 15%.

Actually i meant the reply to # 48 not # 41

I am forcasting a drop in the stock market for 2008 and 2009.

Can anyone recommend a stock at can give me 18% return. Thinking about penny stocks but scared.

mortgage lenders!

#44, you know not of what you speak, so you should probably be quiet. "Maintenance" is commonly understood to be a co-op term and to include property taxes. Why would you mention rents outside Manhattan, we're talking about Manhattan. As for 1530 being more than half your rent, then I presume you rent a 1 bedroom, mine is a 2 bedroom, total cost as I said about 4500 a month, 1000 of that is debt repayment (or savings), so you're down to 3500 a month before tax savings. Am I still making a good case for renting? How about if I add in that I'm about to sell at a # that will make me a 20+% annual IRR, tax free? Yeah that buy decision was a disaster wasn't it. Don't speak when you don't know what you're talking about.

#48, thats great for you if your rent is only up 6.25% in 3+ years, but that hardly typical, just this year alone you're hearing stories of 10+% increases all over the place. Furthermore, your statement that your networth has increased over those 3+ years by staying out of RE is very dubious. In those 3+ years RE is up 25-50%. Lever that up 4-10 times and add tax free to the equation. If you're doing better than that in your other investments, god bless, that would make you one of the top money managers in the world. The reality is people who bought 3+ years ago could sell now and probably get back more than their original money down plus all their mortgage and maintenance payments made during the 3 years. In other words they would have effectively paid no rent (lived for free) and also possibly made a nice profit on top of that.

Most people would not dispute that buying 3 years ago on a levered basis would have made you a tidy sum, though #55 above fails to mention the transaction costs - which can be significant. So much for history - the more interesting question is what will happen over the next 3 years and beyond. And yes, leverage can get you great returns - but along with return comes significant risk. So when you compare returns, you should really do so on a risk-adjusted basis. And what if house prices were to fall 5% in nominal terms over the next 3 years? Not saying it will happen, but it could. And if it did, your losses on a round-trip trade would be many multiples of 5%.

The calculation 55 described of being rent free also includes the transaction costs of selling. I bought in 2004 and I have noticed the same thing. As for house prices falling, you are foolish to think that your other investments would not fall either in that scenario. The bottom line is that 55 is right. If you haven't bought and have not been hitting home runs in your other investments the past few years, you've been falling behind in owning here. If real estate were to fall, that would also very likely come with drops in other financial instruments as well.

#55 here - you misunderstood my post, which was about leverage and risk. I wasn't making a forecast about house prices, or saying that other asset classes would not also fall in that scenario. Clearly, that could well happen too. I was merely making an illustrative example about leverage.

Let us - for illustration only - assume home prices were to fall 5%, and also add in a round-trip transaction cost of 10%. If you were levered up 5 times, your loss on initial investment would therefore be 5*5%+10% = 35%. Similarly, if prices went up 5%, you would make a gain of 5*5%-10% = 15%.

Now, if instead of levering up and buying a house, you put the deposit money in the stock market, and stocks fell 10%, or even 20%) at the same time as houses fell 5% - I would still lose less (-10% or 20%) owning equities on an unlevered basis than I would be owning that house on a levered basis (-35%).

If you bought a house 3 years ago, you did great. I'm happy for you. Is it guarranteed the same trade would work again over the next 3 years - maybe, maybe not - I don't have a strong opinion. But at least I undertsnad the risk involved.

sorry, #57 is #56 not #55

1) People always need a place to live. People do not need a piece of paper.
2) Real estate is not that liquid and thus doesn't fluctuate as much as stocks.

If you are examining your purchase as a pure investment play, then you probably shouldn't buy. If you plan to live in it for a while and maybe convert it to a rental property, then maybe you should.

Trying to time the markets isn't necessarily smart as markets seem to move opposite of popular opinion and news.

its probably obvious but #58 was not #55 but rather #56, I'm #55.

Anyway, #58, your point certainly is correct, when you're levered, gains AND losses are multiplied. Your math isn't right though. If I buy at 1 mil, put 200k down, sell at 950 and have transaction costs of 95k (thats actually a little high, in fact its assuming a 6% fee which some people don't pay), I clear 855k, or 55k in equity against an initial investment of 200. Of course you only "lose" if you sell, thats what some people ignore. If you're buying a place that you're happy to live in for quite awhile, you can live through down markets.

And of course you're also right, who knows what will happen the next 3 years, nobody for sure, notwithstanding those who guarantee us 20% decreases in the next year.

Actually - both our math is wrong.

In the example in 61, you lost 50k on the proerty, and paid 95k in round-trip transaction costs as well - that's a total loss of 145k on your intial deposit of 200k. Which is a loss of 72.5%. Ouch.

In my prior example, I miscalculated (oops). The transaction costs should be 10% of the house value, not 10% of the deposit value. That greatly multiplies the loss - to 75% of the initial deposit, which is comparable to your example.

Owners will not easily cave to a loss. The most likely outcomes IMHO are:
1) Economy is fine in fact inflation rises, hurts stock market and rental prices increase. If economy is fine and people have jobs, there will be little urgency to sell your apt so little to no impact to real estate except that rents are catching up to prices faster.
2) Economy is not fine, hurts stock market. Companies falter, people lose jobs then maybe housing prices fall and rents fall if people must move. If you've been in your place for a while, it won't be felt too badly. In fact you can still sell in a manhattan down market and move to a cheaper area and maybe pay all cash.

why will the nyc r.e. market not tank in the short term?

Because that 835K 1 BR at Blue cost $617K to our friends across the pond. end of discussion.

?? How does an $835k apatrment cost anything other than $835k to a European buyer ??
Sure, it might cost him / her roughly EUR 620k, but that's still equivalent to $835k, even if it has cheapened in euro terms. Idiot.

Hey fuckstick, 1 euro is worth 1.35+ dollars. do the math, retard.

The price remains USD 835k, even if the EUR price is EUR 620 k.
Obviously, the appreciation in the euro over the last year has made the apartment cheaper in euro terms, but the dollar price is what it is. Re-read your original post. What do you do for a job? Ever picked up an economics 101 textbook? You are embarrassing yourself.

#62, my math was right, as I said, you'd have 55k back on an initial investment of 200, or a loss of 145k.

#67-- apparently you haven't been laid this century. you know exactly what i mean, douche. i know, i know, you're scary smart and rich beyond belief, right.

Well, I don't like to boast ....

"Because that 835K 1 BR at Blue cost $617K to our friends across the pond. end of discussion."

Would you want to buy something that costs (in this example) 617k euros if everyone under the sun is telling you that real estate in this country is sinking and that 617k may very well turn into 500k?

In other words, FX would have to trump asset depreciation in order for people across the pond to not lose their hard earned money.

Given the already weak dollar with not much more room to go down (and it won't because the CBs will not risk a fiat currency crisis), and the coupling of the ramping up of asset depreciation in real estate, the chances are quite slim.

MMAfia

"Because that 835K 1 BR at Blue cost $617K to our friends across the pond. end of discussion."

Would you want to buy something that costs (in this example) 617k euros if everyone under the sun is telling you that real estate in this country is sinking and that 617k may very well turn into 500k?

In other words, FX would have to trump asset depreciation in order for people across the pond to not lose their hard earned money.

Given the already weak dollar with not much more room to go down (and it won't because the CBs will not risk a fiat currency crisis), and the coupling of the ramping up of asset depreciation in real estate, the chances are quite slim.

MMAfia

Hmm everyone is saying "real estate is going down". Gee last time I listened to "everyone" and the newspapers, my stocks promptly fell over 50%. The news is "old news".

people have been predicting the real estate market to go down for the past 50 years. They have been saying the sme for the past40,30,20,10, and 5 years. Glad I didnt buy NYC real estate 50 years ago.

#74, How many people live in their apts for 30/40/50 yrs then sell, and make a killing? If you fall in that category and can predict you'll stay in your apt for that long then I agree buying now is a smart thing to do. If on the other hand, you live in the real world and are like the avergae NYer - moving every 5/6 yrs, then the rent/buy decision is not so clear cut. At these prices, anyone with a time horizon under 5 yrs, should stick with renting.

"You know something, all of you people sound like a bunch of morons arguing with each other. Arguing is much like running in the special olympics, even if you win, you're still retarded."

holy old skool comment... where's dablackandwhite pic of the retarded kid? dood, get with the program buddy for realz and stop posting old skool played-out '-isms' aiiight?

I like to see how easy it would be for you to get up in the morning if you were disabled, let alone be in the special olympics, #76, you dumb F*#K.

Post #77. So youu agree with me that if you bought 50 or 40 or 5 years ago you'd be way ahead of the game. I realize you can't afford to buy but maybe one day you will because it sounds like you are such a nice boy.

I didnt buy 10 years ago and then again 5 years ago.....AND it was a STUPID move but looking back, I didnt buy because i have a great deal on a rental in murray hill(and it continues).....but even with this great deal....i would be way ahead if I bought....but for now, i might as well wait because it just might come down....otherwise.....well, i dont even know......

It's not about that buying is not good idea but you have firstly set your budget to buy an apartment .For rent their is nothing like this you just have to pay per month or per 6 months.