Re: Buying vs renting

I can own but typically choose to rent. 

I did buy a place 18 months ago but was renting for several years prior to that. It is a detailed financial modeling exercise; renting wins on a tie because it is less of a hassle. The places I rent/buy are the same kinds of places in the same kinds of neighborhoods — apples to apples. I typically live in the same place for several years at a time.

The major considerations that caused me to buy recently are illustrative. 

Buying a house is a relatively poor investment strategy unless a rare confluence of factors occur. It is worse than average in my case because I handily beat the S&P500 every year and have for a long time with a non-leveraged stock portfolio (e.g. YTD for S&P500 is 1.6% versus 11.0% for me) using a strategy that requires relatively little effort. 

Despite this, I live in a market (Seattle) where conditions made buying a reasonable investment decision. Housing prices are skyrocketing, both renting and buying, but the fully burdened costs have inverted; I saved 30% on my housing spend by buying even after taxes, HOA, maintenance, etc. Price increases are driven by chronic 2-3% year over year population growth, almost all of it affluent — people have significantly more disposable income in Seattle than the Bay Area. Despite the scale of new residential construction, the city ends each year a couple thousand units less than is required to maintain parity with the population growth for that year due to geographical limitations. Given all of this, there is an enormous capacity for further price appreciation in addition to the cash flow benefits. 

In summary, everything lined up so that it was possible to improve returns on capital by mortgaging a house. If I liquidated my house tomorrow the net effect would on the order of 70% return on capital invested over 18 months, with the giant caveat that housing returns are *leveraged* and subject to considerable variability over longer time frames. 

If I move in the next couple years, I’ll probably be renting again. 



> On Feb 20, 2018, at 4:43 PM, Lucas Gonze <[email protected]> wrote:
> 
> Yet I'll bet you own your house.
> 
> Are there any FoRKers who could own who choose to rent?
> 
> On Feb 20, 2018 3:50 PM, "Gregory Alan Bolcer" <[email protected]> wrote:
> 
>> Location, location, location.
>> 
>> The answer is some combination of what's your income, where's your home,
>> what tax bracket are you in, what are your deductions, what is your capital
>> gains situation if you don't turn it over into a like-for-like asset etc,
>> etc, etc.
>> 
>> In Orange County, it's been renter's market for at least 10 years (not a
>> rentee's market).
>> 
>> Greg
>> 
>> On 2/20/2018 3:36 PM, Lucas Gonze wrote:
>> 
>>> Dear FoRKie,
>>> 
>>> If I sell my home (with another 15 years of mortgage left to pay), put the
>>> money in the market, and pay rent instead, will I earn more?
>>> 
>>> By choosing to own, am I being sentimental in the face of my single
>>> biggest
>>> opportunity to profit?
>>> 
>>> =====
>>> 
>>> https://www.usatoday.com/story/money/columnist/2018/02/18/wh
>>> y-your-home-lousy-investment-when-you-think-its-great/340516002/
>>> 
>>> "Having a family home and yard for the kids and dogs is great. Home-owning
>>> neighbors can be wonderful, too, creating community. But the real value
>>> isn’t the investment, it’s the roof over your head, the satisfaction it
>>> brings and the memories it creates. Home ownership doesn’t compare with
>>> real saving and real investment, where real retirement millions compound
>>> over your lifetime.  "
>>> 
>>> https://www.usatoday.com/story/money/columnist/2018/01/28/40
>>> 1-k-savings-buying-home-what-prioritize/1066728001/
>>> 
>>> Buying isn’t always wise. Many cite tax benefits, but Congress just
>>> downsized those, limiting property tax deductibility. Mortgage interest,
>>> too. By doubling the “standard deduction,” Congress shrunk home deduction
>>> attractiveness. These reduced benefits raise the bar on whether a home is
>>> a
>>> good investment. But 401(k) saving remains just as tax friendly.
>>> 
>>> 
>>> Investing in your 401(k) with a globally diversified stock portfolio
>>> likely
>>> renders returns of 5% to 10% annually over the decades. Not spectacular,
>>> but your fortunes won’t be tied to one Zip code.
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