Renting vs Owning - see the Math - Owning is Superior

You are right ootin and thanks for pointing out the obviouos. GOOG and AAPL win by a wide margin even if you endured the 50% second half decline. Wider if sold this year. Oh, and if you sold this year the Madoff funds did pretty well too, last 10 years.

Yes, I remember Google in 1998, I remember it well, I was listening to 98 degrees on my iPod most of the time.

Oh wait, no Google and no iPods. Anyone want to try again?

"actually, hvd, when a corporation has to pay down its debt it often runs into major problems -- have you been paying attention for the last six months?"

Yes. I have been paying attention since the 90's. I don't think you can claim the same.
I am pretty sure the current credit crisis will not cause FASB to define debt paydown as an expense. Just common sense.

"i certainly know very well how to read a balance sheet."

You should check the income statements instead and see whether you can find an expense item called "principal payment of debt" on there.

"i prefer the tried-and-true discounted cash flow method"

Sounds great. Love to see it. In the owning scenario, don't forget to include a termnial value for the property at the end of the last period. Oh, and don't forget to reduce the debt principal.

"if you want to compare monthly cost to monthly cost, you absolutely have to include principal payments"

Absolutely not. What are your answers for the 3 questions in my post above? Here is another one:
You spend $100 on a nice dinner and charge it to your credit card. I am sure you would count that as an $100 expense. Next month you pay down your $100 credit card debt. Is that another $100 expense? How did a $100 dinner cost you $200 in expenses? Will you tell me it's because many people go bankrupt because of credit card debt?

"if you don't you will convince yourself (as, quite obviously, many people did in this real estate bubble) that you can afford a much more expensive home than you actually can. just like a corporation, you can't take out a huge loan and not consider how you are going to pay it back"

Well, I don't. But I will be fully aware of how much cash I need to set side per month, and I will know how much of it is actual expense. I'd only consider people who have the same capacity.

Good night...

happyrenter: Your principal repayment answer is just reinforcing what I said earlier. You're relying on circular logic - your proof for why there will be a 50% decline assumes the decline is a given, and uses it to argue why the math doesn't work.

If you think a 50% decline is likely, that's fine, but clearly the math alone doesn't support it. You're going to need another reason (even if its just "hope"). I know you're taking this personally since you sold recently - I don't think that was a bad decision at all. By arguing that buy and rent are equal... I'm saying both can be good choices, depending on personal factors. So please, stop taking this so personally. I never said buying was superior.

Sorry you are correct about GOOG. Since you were playing fantasy investor I guess I got carried away. No doubt though there are some in this town who had GOOG at the angel phase. And no doubt AAPL has been a good one. But since its your fantasy and we are cherry picking how about genentech or something real stupid like high fliers Monsanto or Potash. Or a not so sexy energy company like Valero.

happyrenter, I agree with the majority of what you post, but you're simply wrong on the principal payment.

No point trying to explain why, since you brush all those arguments off.

You run your own hedge fund, so finance, cash flows, financial statements, should be second nature to you, as they are to me and several others that have tried to prove the point to you. If you stop to actually think about it, re-read people's arguments, maybe run some examples (real or hypothetical), rather than focusing on defending your position, I suspect you will come around.

Buy a fair group of stocks

Gee ootin purchasing an apartment before the bubble started and selling it right before the bubble bursts is fair? That's real life? Point is that is all old news. Point is, it depends. If you moved in with your parents, used the money you had saved as a down payment to start GOOG or YHOO then yeah its clear that was better than buying the apartment. If you rented and used the down payment 100% to buy AAPL then you won. If you took the down payment and produced the Blair Witch Project you won. Those examples are no more and no less real life then your example. The question is not what happened in the past, where we all have 20/20 vision, but what is going to happen in 2009 and beyond. That is, ATBB. After the bubble bursts.

"I remember having a risk-free premium argument with you. Nothing is risk-free, not even treasuries, as we may have seen today."

steve, isn't that the truth. Who would have thunk it?

Jake, I don't disagree with you that there are additional costs. As I said, over the long-term you can factor in a lot of things (let's say 10 years) but let's look at this another way. First of all, the sellers costs (which admittedly can get high) are something that you are factoring-in at the end (once you sell) - less of an issue if you are holding for the long term. Let's also look at coop vs. condo. The coop closing costs (especially on one like the Tudor City unit) are fairly insignificant ... you don't pay mortgage tax on a coop but to your point, if you have a 1,000,000+ loan you do have to pay the mansion tax 1%.

No matter how you look at it, you have to plan to hold your apartment for a long time to make it worth while. personally, I don't buy apartments to sell them. Once I am ready to buy my next place, I plan to hold my old one and rent it out. So, you also need to know your individual situation. In my case, buying makes more sense than renting because all that really matters to me is my monthly carrying cost - I need a place to live, and I will be spending money on it whether I buy or rent. I could, of course, figure out a way to make more money with my down payment but I'm not making an investment, i'm buying a home. I have plenty of "investments" that serve a totally different purpose.

Obviously the math doesn't work with any unit, but that's why you shop around...to find one that works for you.

"Who would have thunk it?"

The world is upside down.

Assuming that the average guy could have invested his money in Google when it was starting up is laughable and the type of gambling mentality that is wrong in this country. Thanks jake for promoting fantasy.