Real estate is generally a "good" investment as it's considered a relatively safe way to get significant leverage. 5x leverage in the case of a 20% deposit, or even up to 20x leverage with countries that allow for 5% deposits (New Zealand).
In addition, the interest payments almost always end up being near the rent the owner would have paid, so mortgage payments are higher, but that increase is generally (and quickly becomes) principal while being able to counteract inflation of rent.
> Real estate is generally a "good" investment as it's considered a relatively safe way to get significant leverage
Leverage? People don't normally invest in property (normally involves taking out a loan) for the purpose of taking out another loan. That so called "leverage" is being used to buy the house...ie you don't have any leverage
The leverage is the loan taken for the mortgage. If you have a $1M property, $900k loan. If the property's value increases by 5%, that's $1.05M, so you've made 50% returns on your $100k capital invested. That's leverage, the leveraging of $100k to get the returns of $1M asset.
We can estimate this. US median home price right before the crash in 2007 was $240,000. Today, it is about $400,000. Median rent in 2007 was $810. Today, it is $1,698. There's some simplifying assumptions we have no choice but to make. Let's say renter's insurance is negligible enough to ignore. Meanwhile, we'll just let an online mortgage calculator assume a median $50,000 home insurance coverage payment and bake it in. We'll assume 1.1% of assessed value for property insurance, which is currently the US national average (it varies a lot state to state in reality). We'll assume an FHA loan with 4% down.
This gives us a $1,995 a month payment when we purchased and a $2,142 a month payment today, due to higher assessed value for the tax.
We can see upsides and downsides in both cases. Rent would have been quite a bit cheaper in 2007, but it has very nearly caught up by now. Meanwhile, you're probably talking about renting maybe a 2 bed/1 bath apartment, whereas the median single-family house is more like 4 beds/2 baths, with a yard. Whether or not that extra space and privacy matters to you likely depends a lot on whether you're single or have or ever plan to have a family. You could have invested into something like the S&P 500, which has historically returned about 10.5% since 1957 annually in nominal returns. Let's just kind of naively split the difference here and assume you can invest $1,000 saved on rent versus mortage a month for the first 10 years and $200 a month for the next 9. That would have gotten you somewhere around $240,000 by now. Meanwhile, you're looking at about $248,000 in home equity by now for the purchase case.
Choose different parameters if you please, but I'm not really seeing the case for renting here over the long term, and that's in spite of choosing the single worst time in the last century you could have made the purchase.
Oh I don't disagree, I hate real estate as an investment, it's a terrible asset only made "viable" by tax benefits, rent-replacement and excessive amounts of risk via leverage.
It's my shortcut for describing the idea that you'd spend $X a month on either interest lost to a bank or rent lost to a landlord, and therefore you can mostly consider that a constant expense when considering rent versus mortgage.
I’m covering my bases because Chinese real estate has been volatile recently and I’m not sure where the market is at now. It could be that renting is still way cheaper than buying, I just don’t have any direct experience to back that up. If I bought while I was living in Beijing I would probably be underwater with my investment right now, renting for 9 years was the right call and my rent was pretty affordable anyways.
Such cities still exist and have been in such a state for decades. They can change but that's meaningless as they can also change the other way around.
Articles like that still miss a bit of the nuance. Imagine having your house paid for, and you grow old and you have no rent to pay. Yes, you could have invested but likely you would have spent some of that money on something else, or your investments might have not worked out so well, or any other reason. Human reasons, to be specific. Owning property is like a lock.
Imagine having your house paid for, and you grow old and you have no rent to pay.
My home is "paid for". Except for the HOA and property taxes that are not that far off from what I was previously paying in rent, the ongoing maintenance costs with random large spikes, and the opportunity cost of having a large chunk of money in the house and not in the market. It was still probably the right decision, but it's not at all a free lunch.
Surely though, the HOA and all that would likely be baked into a renter's price.
Sure, the same way that the benefits of a fixed mortgage payment are baked into sale prices. The efficient market hypothesis would say that neither renting nor buying should be obviously superior in the long term, because if either was then people would bid up rents/prices until it wasn't.
And you didn't need to go live in a HOA
I pretty much did, unless I wanted to significantly compromise on other factors.
> The efficient market hypothesis would say that neither renting nor buying should be obviously superior in the long term, because if either was then people would bid up rents/prices until it wasn't.
Buying have much higher entry point, need a bunch of cash at start then a ton of paperwork.
It is absolutely possible that local buying market is inflated precisely because the area is so desirable buying to rent is (or was) good investment, but that's rarely is true for a bigger market
And it's gonna be interesting wherever this narrative will shift over the next 5 yrs
I keep hearing that properties are in the biggest bubble yet in the USA - with the affordable housing shortage being a red herring, because real estate managers and boomers are unwilling/unable to reduce their prices - despite not getting renters/buyers because it would kick off a death spiral as their interests would consequently go up (because of lower security). Along with the ai layoffs etc
I'm not American so I only hear the occasional interview so don't have any idea if it's really as pressing as these industry professionals keep saying but I'm definitely at the edge of my seat watching...
It is very close to universal truth, aside some small areas with very warped market.
Even if you move out after 5 years, you still own the place and can rent it out and then it pays for itself, to skip the cost of selling it back to market
It never fails, there's always someone who trots this thing out. We had bought our house, and then had to move and decided to rent. I was APPALLED that they wanted me to fill out an APPLICATION form, where they would decide my worth, and let me know if we would be allowed to live there. When buying a house, my cash was as good as anyone elses'. And then the management company would come inside my house to inspect that I wasn't running a meth lab or something. Thankfully that only lasted two years. I will never rent again. Majority owner-occupied neighborhoods have different characteristics as well.
> I was APPALLED that they wanted me to fill out an APPLICATION form, where they would decide my worth, and let me know if we would be allowed to live there. When buying a house, my cash was as good as anyone elses'.
House sellers receive offers from buyers, sometimes including letters, and can choose to sell to any of them (or none of them), whether or not those offers are higher than the listed price. It's not so different.
> And then the management company would come inside my house to inspect that I wasn't running a meth lab or something.
Yeah that part is different. I also prefer owning.
A seller might prefer a cash offer to an offer contingent on the buyer securing credit (credit might fall through). Or, like landlords, a seller might prefer a buyer with a higher credit score (same reason -- buyer is more likely to be able to secure credit and close the deal). A seller might prefer a slightly lower total offer with a serious amount of "earnest money" over a slightly higher total offer without significant earnest money (buyer might try to back out). A seller might prefer to sell to a family with a nice story in their buyer's letter than someone buying a 2nd or 3rd house. Or the seller may think all offers are too low and they can hold out and get a better offer later.
Real estate transactions are not very straightforward. A seller might accept a lower offer if they feel the buyer is more likely to be able to go through with the transaction or just go through it faster. And sometimes they do just plain like one buyer better.
Except one day the hype will catch up to reality that was always true, people will realize their $20,000 Mac is has less utility as a "way to learn AI" than some kids 3090 fortnite machine, and it'll be back to below MSRP.
