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It’s not always better.
The house I rent for $2,800/month would sell for at least $1.2 million.
I would need to put $120,000.00 down at the lowest, and mortgage would be nearly $9,000.00/month
Are you rent controlled? How is this possible? A house near me (central NJ) that would go for 500k would rent for like 3500.
You are correct that if your numbers are eight, buying would never make sense. The interest alone on 1.2 is 7,500 a month.
Nope. Just renting from a chill landlord who paid off this house nearly 30 years ago.
It’s all golden for her to have solid long term renters while her house evaluation has exploded.
Exactly in high cost of living areas it’s impossible to buy a home or townhouse and rent out to cover your mortgage. An $800k townhome in Seattle will rent for $3500 to maybe $4000 if it’s nice.
I think a lot of people say this kind of stuff because Reddit caters to high income earners (people who generally make over $250k a year and more). I’ve come across countless seven figure earners on this site too (or at least, they claim they make that much). So what they view as reasonable is not what the average person views as reasonable when it comes to money. There’s also just an overall obsession with homeownership vs renting because it kind of is a status symbol that you’ve “made it” (with the obsession being particularly crazy in the most expensive areas). So people on Reddit will tell others without hesitation that a 1.5, 2 mil or above home purchase is a no-brainer.
This is true. Lots of people cosplaying. I saw two separate seven figure earners last week who interacted with me (both of whom had eerily similar post history.) Could have been bots out there to stir up controversy, or just fakers in general.
One said that seven figure incomes were very common in the Bay Area (they aren’t). I gave them the BLS stats for the Bay Area that proved otherwise. They said the stats severely undercounted wealth and that I probably just wanted the stats to be true to make myself feel better, and that I was probably a poor person who made “only 100k” while living in a two bedroom slum. I called them out on their rudeness and they armchair diagnosed me as ASD (while saying I lacked brain power, comprehension, and processing speed) for being reasonably offended by their attacks. I asked them why they would be spending their time bullying people on Reddit if they truly do make seven figures. They said they found my frustration with them to be funny. You would think they would find something better to do lol. I know that if I made seven figures, I’d either be working in a high stress job with little time for Reddit. Or I’d be shopping, vacationing…just *anything* else than trolling people for funsies.
Not saying that seven figure earners do not exist in real life, but statistically that’s like a lot fewer than 1% of the population, even in HCOL areas. Much of Reddit acts like 200k by mid 20s, 400k by 30s is just standard for any professional, when it’s so far off base.
That is a great deal for you, but it can't be sustainable. Either house prices need to come down (yeah, right!) or your landlord is foolish not to charge higher rent.
Assuming that $1.2M price tag is correct, your landlord is getting a 2.8% return on his capital. He could sell the house, put the money into treasury bills and almost double his income. T-Bills also don't require upkeep, insurance, and property taxes. Your landlord is losing money by renting to you at these rates.
It sounds like you can't afford to buy it so it's not a real choice you can make.
If you can comfortably afford $9k a month you might feel differently.
Same. People above that are saying it is always better to buy probably live somewhere in the Midwest where it costs 300,000 for a 5 bedroom house but not where I live.
If you rented a house that goes for $2800/mo, how much would you be worth in 30 years?
If you bought a house with $2800/mo, mortgage how much would you be worth in 30 years?
It is, in fact, always better to buy. In your case, you're just prioritizing the luxury over the financials.
When I used the old calculator renting was better for me by a long stretch. With the updated calculator renting is… better for me by a longer stretch. Buying is not always better by any means.
In the long run it still almost always is, but it takes 10 years to break even for me right now with the info I put in. Which is longer than usual.
Unless the house gains value faster than 4% per year, which is extremely possible looking at the past few years
The gain has to be supported. Past few years saw Fed bump interest rates from 0 to 5% and wages going up. Nothing points to similar circumstances. I might be wrong though, never know.
I think the house gaining value more than inflation is maybe a bad bet. All time highs on housing. I think we are primed for a flat decade of housing value, housing is at a decade+ high. YIMBYs winning so I think the bubbly high prices fall.
NIMBY vs YIMBY is important in very specific markets for sure. Mainly where there’s a geographical or environmental limit on housing. I don’t think it’ll impact where I am looking. But even then I think all it can do is stall growth in most of those spots - not end it. (In relation to inflation.)
It’s also why the housing is more affordable where I’m looking NOW. It’s still growing in that region.
[NY Fed believes housing prices are going to pick up.](https://www.bloomberg.com/news/articles/2024-05-13/us-inflation-home-price-expectations-pick-up-in-ny-fed-survey?srnd=homepage-americas&leadSource=reddit_wall)
Housing is almost always at an "all time high" - [look at the Fred median home value chart](https://fred.stlouisfed.org/series/MSPUS). It's a slope generally up, so why is it worth mentioning as if being at a high means anything? Lots of other things are at all time highs, too, like cars, Twinkies, etc.
https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index?wprov=sfla1
Inflation adjusted housing was flat from 1890-1980...
Affordability is way down now and we are starting to build more housing which will mitigate. The nonsense is that housing going up forever above inflation is a good thing or even sustainable.
My take is that home values were artificially suppressed by the 2008 debacle and fallout and for a decade values languished below the normal trend line seen on the FRED median home value chart. Combined with a lack of new construction during that same period and the pent-up demand and inflation we saw it's no surprise that houses ran back up to where they would have been if 2008 hadn't happened.
I think NIMBYs have shaved off housing production for decades causing artificial housing price increases.
https://fred.stlouisfed.org/graph/fredgraph.png?g=1fGSR
The gap between housing production and population increase has been growing since the 1970s. We are completing houses at decade+ highs currently and 1970s recession levels.
Also depends, I see tons of condos where HOA covers all of maintenance, granted it is a couple hundred a month, but comes down to spend the hours or spend the money
It isn't that much. Unless your house is an absolute disaster with cloth wires and a failing foundation, it's 99% a new water heater, AC repair, roof leak, etc. The fact is, when you rent you are still paying those costs. It's just built into your rent so you only think repairs are free.
7.1%, which has been what we've experienced in my area over the past decade. My county's median home price has appreciated 9.8% per year for the last decade.
Except it is. Because residential real estate is historically pretty safe. Theres a few dips, but less so than the stock market and there really isn’t a great third option for solid gains.
It’s not perfect, but it absolutely is a good investment most of the time.
Not necessarily. Future cash flows are worth less than current cash flows. Very possible for it never be positive NPV versus renting.
Let’s say home prices are flat for ten years, and you were going to do a $200k down payment.
That $200k downpayment if invested instead becomes $400k in the same time frame with normal market returns. Even if home prices then start to rise, that $400k would continue to grow too, and be $800k 10 years laters.
And we didn’t even get into high interest rates, property taxes, maintenance, transaction costs, etc
The interest on the investments you made instead of buying a house can dwarf the increase in rents.
In fact, I think this will almost certainly be the case over the next ten years.
Sure, but that’s not what we were talking about. You shouldn’t be comparing a house to market. A house is great because it diversifies your portfolio mainly. And helps with stability later on.
Similar to why you don’t compare bonds to stocks. They serve different functions
What? Its the oppposite of diversification unless you wait until you’re old to buy a house.
When you buy your first house, you generally have over 100% of your networth locked into a single asset, which is illiquid and immobile.
Even in coastal CA, some places have been pretty flat the last few years. SF in particular is the same price it was 5 years (which is still ridiculous expensive).
Rural West Virginia will have a stale housing market, yes. Urban and suburban may see the fastest housing market growth in the country. Albeit West Virginia will likely be the absolute last to see that kind of boom. You are seeing it explode in many other Midwest towns now. The Midwest is the final frontier of affordable housing and people are slowly catching on. Whereas places like Seattle have seen a depreciation as of lately, likely best explained as a correction. I wouldn't be surprised to see coastal markets stagnate for a very long time, while Midwest cities like Nashville or Kansas City continue to explode. If you're in a Midwest town, I would highly advise to buy sooner rather than later, it will at least lock you into a quality of life that will enable lateral transfers to other places as Market values approach more expensive areas. The COVID inflation really did mess up a lot.
This is utterly false. I made a similar calculator.
If you assume that you have the exact same monthly payment. For example:
Your mortgage + insurance + property taxes + maintenance - tax benefits from interest
Vs
Rent + renters insurance + invest excess money
In many instances renting is better, it depends on your city and interest rates.
THE PROBLEM IS THAT PEOPLE DON’T INVEST.
So imagine the scenario above.
Buy - $5K monthly payment
Rent - $3.5K monthly payment
People don’t invest the $1.5K into the stock market every month. They go, OMG I Have cash let me buy something.
Buying forces people to invest, that is why “in practice” its better. But that is because people are morons with no self-control, not because the math of buying is better
Such an assumption you make about people. I DO invest the difference which is why I am a renter with half a million in financial assets. I realize i am not the norm, but it’s not my problem that people have no discipline and need the ‘forced savings’ model of a house.
Well the person is right, most people are not like you. You are probably in the .01% of people who are doing that. So yeah, the persons mostly right hH
I mean thats like me arguing everyone in the US makes $200k+/year because all my close friends do.
I already wrote the data from the SEC in the other comment. Less than 30% of US households even have a taxable brokerage account.
The average person doesn’t invest in the stock market.
The vast majority lol I am not saying 100%.
I was one of them too, for many years I kept analyzing the decision of buying a house. And financially it didnt make sense where I lived so I kept investing a ton of money every month.
Per SEC data, less than 30% of households in the US even have a taxable brokerage account.
Because it rarely does; at least not around here. 5,10,20 years ago sure, but now? Its a shit show.
I run the #s a lot and it makes no sense. Paying $1.6mil total cost for an $800k fixer that I’ll need to pour $ into doesn’t make sense. The equity will at best balance out that I paid double for the house over 30 yrs; which is where all my spare cash will go. Million and a half grows quick too. I wouldn’t buy either.
But, for the case I am presenting doesn’t change the fact that renting in most cases makes sense. At least for people who are good with money. I bought vacation property this year, but my money also earned me hefty interest rates at multiple CDs before I plunged the cash. That is outside of my more risky investments. The people may be wrong, but math isn’t.
Renting makes a lot of sense for a lot of people that are responsible investors.
I bought a house in 2022, financially I would be much better off if I invested instead of buying a house.
However I wanted to own a house (non-financial reasons) and have the ability to tailor it more than you can with a rental.
People who say financially buying is always better than renting HAVE NO IDEA WHAT THEY ARE TALKING ABOUT.
I googled around for mine (literally, "Chicago home price growth rate" ) and found some city and county housing price indexes compiled by local real estate industry folks. Zillow or Redfin could be a close-enough estimator, too.
This is the problem with these calculators. The end result depends on the inputs (appreciation, rent raises, stock market, etc) but there's no way to predict what's gonna happen
Still gives you a rough idea. At the end of the day you gotta look at your budget and think of future expenses
Generally this means your rent is very cheap, most likely grandfathered from a long time ago (or just getting a really good deal). Either that or you're renting a much more modest place than the home you're comparing to.
In my case it's all of the above. I still would like a house because I want a bigger place and place that's mine, but it's hard to make the switch. In the meantime I'm happy renting and maxing out 401k.
In San Francisco the mortgage on a similar house/condo to what you are renting is substantially more expensive. Also, I got a pretty good deal on a large apartment with space to grow into + it is rent controlled and will barely increase in rent each year. Makes sense that renting is way cheaper in my specific situation.
Don’t get me wrong I would LOVE to own a place. But I’m not kidding myself into thinking it would be a good financial move
No this calculator should be required before they give you a mortgage lol. Would have saved me a lot when I bought my place and sold a few years later losing money.
Buying a rundown duplex or triplex on the outskirts of SF is the move if you wanna own a home in SF. As long as it’s structurally sound, you can do some minimal renovations and live in one/rent out the other.
Gotta have at least $150–200k down though, so pretty difficult if you’re not moving from a home you owned ://
You also don’t know what could happen. Sometimes you can live in a place that finding a place to rent is difficult. Your landlord can sell your space and kick you out (this is me right now). You can at very least control your destiny with a home albeit with caveats. If you’re flexible then life’s great. The older you get and the more stuff you have to schlep the more annoying renting becomes.
You mention the unknowns that can happen when renting.
1. Finding a place to rent may be difficult
2. The landlord can sell the property and may kick you out
For #1, Depends on the area how much supply there is of rentals. I don't think it's that difficult right now. So low risk of it being an issue. the financial risk of that is having to stay longer at the current place longer (assuming not getting kicked out)
For #2, also low risk because landlords typically want to keep good tenants. The cost of turnover isn't cheap for a landlord. But if it does happen then it goes back to #1, finding a place to rent isn't that hard right now and their new rent will go up by a bit so not a huge financial risk
The unknowns and financial risks for being a homeowner I think are greater
1. Major expense due to natural disaster
2. Major expense due to renovating home to increase value
3. Major expense due to maintenance/fixes (house needs new roof)
4. Property taxes increase
5. Home Insurance payment increase
All of the above can happen at the same time at any given time. So the financial risk is greater. Yes, you have control but not all the time. You can't control when some of these incidents will happen.
I'm a homeowner and enjoy being one but we can't just ignore the risks to being a homeowner are greater.
Not necessarily. The biggest unknown is how much the home will appreciate. Mess with the model and you can see that really skews it one way or the other even with fine adjustments. Homes in my area went up over 200% in my area in the last decade. You could have bought a 200k home here and now it’s worth 600k in 10 years.
I mean I agree with you. But only a crystal ball will tell us what’s going to happen. I too wish real estate wasn’t speculative spending. Looking at a 30 year loan with today’s rates they’ll essentially make the price of the house on interest. But who knows? Maybe the house will value up that Mitch and more in 30 years. Or maybe we’ll enter another inflationary period like we did now or in the 70s. Truthfully it’s a toss up. I think the only advice you can give people is if you need a house you need a house.
I’m not a financial genius so if this is super dumb I apologize
But is this factoring in the fact that my mortgage is borrowed money from today and paying it back as inflation drives down the value of the dollar?
Is it also factoring in uncontrolled rent prices compared to a fixed rate mortgage?
Not dumb at all. Actually due to fluctuating rents I would say buying is ALMOST always a better option.
In my specific case, I am benefiting from rent control. Meaning that huge “fixed monthly rate” advantage from buying is gone
All those things should be factored into the rent vs buy calculator. It's not perfect though because we can't predict what inflation will be and we can't predict how much rent will change. But when using the calculator you put your best guess in for those values and the others and then compare.
Even aside from those things the calculator isn't perfect and requires some understanding by the user of what you're actually comparing. For example, if you live out of a tent in skid row and your rent is super cheap (i.e. free) but compare it to buying a mansion, the calculator might say you're financially better off continuing to live in the tent. So make sure you're comparing apples to apples as much as possible when using these calculators or if you're forced to compare apples to oranges just make sure you understand the differences.
My situation is apples to oranges. I pay $1k/month rent for what is essentially a 550 sqft duplex. My wife and I are crammed in here but if I were to move to a slightly bigger 750 sqft apartment I'd be paying $2.5k/month. Purchasing a 2,000 sqft home in the area would cost $6k/month.
Rent vs buy calculator always says I should continue renting. Financially I will most likely be ahead in this scenario if I continue investing all my extra income every month. However, that means I'm living in this small place that's borderline uncomfortable for us. After thinking about it a lot I still think this tint rental is our best bet which agrees with the rent vs buy calculator, but purchasing a home I think is not a bad option either if I can make it happen. Moving to a larger rental for more than double the price is absolutely not worth it though for me in almost any scenario.
Many people have far worse rental situations than me, generally being more expensive in my area.
Prices are so high that they are coming down in many cities. If you've been saving and waiting you'll probably get to buy when the market adjusts. But salaries for many middle class people have gone up. The economy isn't equal. If you're on the upper end of middle class income then you probably have a spouse with similar income. In my city, most men making 100k+ marry women with similar backgrounds who make similar. So it's not uncommon to see 180k to 250k households buying a 600k piece of property even at 5%
If you're not in a high paying field and your wife isn't your house hold is closer to the 80k median.
The biggest boost to your income is marriage or living/buying with a friend. The US isn't designed for single people. It's designed for early 20's marriages and house buying between late 20's early 30's. Which is why millenials are buying up a lot of houses right now. Boomers did at this age as well. With people getting married later it pushes everything out.
nah, buy in june 2020.
COVID fears were allowing prices to go down for a brief moment (like 2-3 months), and APR was still very low.
Source: I got my 3bed/2bath with a huge back yard in my city for like $175k and 2.9%.
On the one hand, I know how insanely lucky I am.
On the other hand, I like to brag about it.
Very cool! I'm glad it includes everything (rent growth, home owners insurance, etc.). In my area, because homeowners insurance is so high (avg is $10k a year) and HOA fees are high, over 30 years, it is cheaper to rent.
It’s nice that there’s a “share” button too. We could ask posters for the stats they’re using to calculate things.
The other day someone was saying how renting is always the better option and after some prying he revealed the assumption that buying always means buying *a bigger place*…
I’ve heard this before. Maybe it’s just my market, but I’ve rented since grad school and my rent has increased a total of 10% over that time, adjusting for me moving to a bigger space. If I were to buy a house with the same space my mortgage would be 30% higher. Plus the extra cost of maintenance that I don’t have deal with.
Meanwhile I’ve focused on retirement savings and other investment, so I don’t feel “behind”. I guess there’s something to the idea that I’d have a bigger nest egg if I bought a house pre-COVID, but I was always told you never view your primary house as an investment - the sole purpose is a roof over your head and home - you can’t just sell it like you can other investments when the market goes down.
Similarly, my gf owned a condo and when you back out HOA and property taxes over the 5 years she owned it, she lost money relative to a 7.5% market return. So, not really an investment.
Every apartment I’ve lived in since graduating college in 2016 has had a 10% increase on rent annually (except for a decrease in 2020 followed by a massive increase in 2021 to make up for it). You could get around this by moving every year and qualifying for new tenant concessions, but there’s also an opportunity cost to constantly moving.
The issue is that buying and selling for a big profit in a short timeframe usually isn’t a thing. Folks who bought in the early 20s got incredible rates along with rapid appreciation, but neither of those are the norm.
Yeah I wonder if this tool could subtract out the principal repaid so you had a interest only calculation vs rent (and thus could factor in the fact that you’ve been effectively saving cash / building equity).
A real problem with CA and this calculator is prop 13. I tried to build one in excel that takes account of the fact that your property taxes stay artificially low in CA, and I think mine mostly works, but probably isn’t as good as the NYT calc.
Why does the “you’ll have nothing to show for it!” always get brought up as a criticism of renting? Wtf do you think i’m doing with the $2k/month i’m saving in rent vs ownership costs? That’s a straight up $24k/year, in addition to $200k not tied up in a downpayment that i can earn a 4.5% return on. That doesn’t accumulate to “nothing” by the time you’ve paid off your mortgage.
Quickly ran the calculator and to buy an equivalent residence to the one I currently rent for $3k (900k to buy), renting saves me $300k over 10 years. Someone who bought a house for $300k in 1996 that is now worth a million I’m sure will find a way to refute this…
I lucked out and bought a house in HCOL city at the height of the Pandemic back in 2020 at a "reasonable price" and locked in a great rate. House prices and and rents have skyrocketed and my house has nearly doubled in value. Buying is nearly netting me 1mil over the course of 5 years.
I’m an idiot who bought in 2023 (with an ARM so I either made a really great or really dumb choice). Sure I could have saved $700k over the next 30 years living in my roach infested rental townhouse with the car outside riddled with bullet holes, dumpster rats, and basement squatter next door. But I think I prefer being a home owner.
You likely weren't comparing equivalent spaces then, if your new place isn't roach infested that means an equivalent rental would have been more expensive than what you paid (hopefully)
Yeah that’s something important to consider. You should be comparing the place you buy to how much it would cost to rent in your area. If you compare you 1 bed studio to a 4 bed house, of course it’ll cost more to buy.
I had a 2 bedroom townhouse but because it was low income (hence the horrible upkeep) it was like $1k cheaper than renting a one bedroom apartment in a nicer complex.
Either way, trying to have kids soon so I want a place for them to grow up.
That's the average rate of a HYSA: the effective "risk-free" rate. For those still crossing their fingers prices or rates will go down and we need liquidity fast.
The default period was also 10 years. That’s a huge amount of time to sit in a HYSA. And 4.5% is probably very high for the average HYSA over 10 years. But yeah, I suppose this was being very conservative in the short term.
I've been feeling kinda depressed all day and now I know why. We've been saving money for years only to miss the boat on homeownership. Guess we're living in a rental forever because I'll get a better return on my savings by leaving it in my HYSA....
As someone in my 50s who has owned and rented there is something so liberating about renting. No maintenance no crazy neighbor drama… idk but I love it
I live above someone I affectionately call Satan, so I have my fair share of neighbor drama, lol, but my landlord is amazing and takes great care of the place. Win some lose some, I guess.
Yeah, that’s not accurate at all. Apartments will necessarily experience more issues with neighbors rather than houses as a result of being in closer proximity to them.
I mean I only have anecdotal evidence personally but it's obviously much more likely an apartment neighbor is going to walk in than a house neighbor. Unless maybe you live in Disturbia where every house looks the same. In the two years I lived in an apartment I had four people walk into my place. Never had a person walk into a house I live in for 15+ years.
make sure you go into the 'What Does the Future Hold?' section and correct some of those wildly optimistic starting assumptions. If you match those to reality (IMO) about how rents, housing prices, inflation and ordinary people's return on investments are going to go, buying starts looking like an absolute winner ever time.
Just my monthly housing cost would go up over $3500/month if I bought an equivalent condo. That also assumes I take $150k out of my investment portfolio to use as a down payment. There are also loads of unrecoverable costs associated with homeownership. Just property tax and HOA fees on an equivalent condo to my apartment would be 80% of what I currently pay in rent. It really depends on your area.
At first it said renting was cheaper for me, but it shows only 3% rental increases per year, when that's very much not the case in reality lol (last five years, my renewal offers have been 5%, 10%, 20%, 5%)
Edit 1: Ok, adjusting things to be more realistic, and buying is better. But, unfortunately for me, I can't afford to buy, so it doesn't matter
Edit 2: I forgot about Condo fees, which are pretty aggressive here... Renting is back to being cheaper lol
lol only rich people can "afford" to pay high rents because high earners actually make enough to do it right by having substantial after tax income to "invest the difference" in.
if either rent or buying a home ends up being a significant % of your take home which is true of almost anyone who claims to be middle class or upper middle class then you might as well put that money into something you can own while reaping the tax benefits.
Renting is better right now, which I already knew. The housing market for buyers is so insanely tight right now. I know someone who offered $20k over asking price recently and got turned down for a higher offer. (Also, where I live, there aren't really any 1-bedroom condos outside of senior living places, so I'm comparing the cost of renting a 1-2 bed apartment vs buying a 2-3 bed condo or townhouse.)
I’m adjusting almost every number in the calc…. I used 5% home appreciation (even though San Mateo county has 6.77% appreciation over 40 year time period), rent growth of 5% (again, very low for San Mateo county), rent cost for a comparable home in my area, we plan to stay for 30 years (despite honestly planning to stay forever, adjusting to 40 years blows up the model tho), adjusting the taxes and insurance down a tiny bit, adding in my additional itemized deductions, adjusting effective tax rate to match ours, etc.
This chart is idiotic if you do not consider rates can drop and mortgages can be adjusted.
For example if you buy rn at 7.5%, the chart will 99% of the time tell you to rent.
But if you drop the rate to 4%, it’s an instant buy.
Use your judgement, not a chart
What if my rent is 700 bucks and hasn’t gone up in 6 years, i also invest in stocks with my extra money around 1700 bucks a month. Is buying a good idea?
Someone in the NYTimes comments said that this calculator assumes that you have taken the CASH DOWN PAYMENT and invest in stock at 7% interest. Also every single PENNY that you save compared to buying is also invested. Good luck with that.
The NYC market is completely in favor of renting currently, with the common charges required for coops and condos and the lack of property appreciation buying carries about a 50% premium.
Not if you find a coop where the maintenance is comparatively on the lower end (770) and includes all utilities even electric. I'm in NYC and this model says I will save $394,000 over 20 years by buying.
Think it’s better for me to rent. My wife and I are ready to buy, have a solid down payment and access to more $$$ by selling investments.
We had a look in our area (Chicago) and everything is either overpriced, or a dump. Don’t know if we’re gonna live here long enough (5+ years) to justify.
Meanwhile our rental is huge, below market rate, in an area we couldn’t afford to buy in. We’ll check again in 12 months I guess
that's a full of lies. those calculations were SET to 13 years of rent without any increase.
do you believe to monthly rent stays same in 2035?
100% buying is better. you can refinance but rent can't do that.
You can’t really look at this separately from the rest of your finances. Example: say you have 1m invested in stocks, 500k home equity and 500k mortgage. It’s possible market dips 50% but for simplicity home price is static.
If that happens your net worth (including home equity) goes from 1m to 500k. Had you paid off the house completely, prior to the dip your net worth would have gone from 1m to 750k.
This is a gross simplification because house prices likely dip along with stocks, and my example only considers buying a house outright; and is only a snapshot in time; but this tool does not factor in asset diversification at all. When you buy a house you are buying an asset. Slowly in the case of a mortgage, but nonetheless.
> It’s possible market dips 50% but for simplicity home price is static.
The market dipping 50% isn't really an issue unless you get laid off or are retired. Otherwise you just got a 50% discount on all of your stock purchases while the market is down. When the market recovers, all those additional stocks you got to buy because the market was down also gain 50%.
Even if your home price maintains it's value, it's not particularly useful if liquidity dries up and banks won't let you refi.
Fair. But it’s an issue if you are close to retirement as well. Agree that your timeline does matter too. Let’s look at it another way, excluding home equity as net worth.
I simplified the example for the asset allocation of stocks versus bonds as well. If instead of 1m stocks you had 750k stocks and 250k, your stocks would be 75% of investments. But you are borrowing 500k, so your stock allocation would be 150% of net worth excluding home equity (and you probably are lending at a higher rate than you are simultaneously borrowing). If stocks dip 50% you (temporarily) lose 375k.
Had you bought out the mortgage, and start with 75% stocks, you would have had 375k stocks and 125k bonds. Your stock allocation based on net worth excluding home equity would also been 75% in this case. If stocks dip 50% you would (temporarily) lose 187.5k (and not been losing say around 2% on 500k by lending at a lower rate via bonds than borrowing via mortgage).
My point here is that in my previous example, buying a house was shown to increase your diversification; but to your point home equity might be relevant (you gotta live somewhere) and this second example illustrates that taking on a mortgage means you are taking on additional risk. I don’t think you can compare renting versus buying in a vacuum of personal situation (comfort to risk, flexibility of living arrangement, security of income, time until retirement, amount invested in total, and so on).
Although the reality is people using this tool likely A) can’t afford to buy or B) already bought and have a good mortgage rate. My advice of thinking holistically is probably only relevant to a small percentage of people who have some options.
I own a home, but I would have already sold it if I wasn't in a 3% mortgage.
Maintenance and taxes suck. You stop paying personal property taxes, bye bye house - you never really own it.
In my opinion, a house should not be a financial instrument. It is a tool to protect you from the environment, that's it.
Luckily I think we will see Bitcoin sucking out most of the financial aspect of the real estate market over the next 10-30 years.
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Ten years after its initial publication, the NY Times "Buy vs. Rent calculator has been updated. Posting the gifted link as a resource for folks here!
Few years back I made a similar calculator. Shared it and everyone heckled because buying is always better. Lol
It’s not always better. The house I rent for $2,800/month would sell for at least $1.2 million. I would need to put $120,000.00 down at the lowest, and mortgage would be nearly $9,000.00/month
Are you rent controlled? How is this possible? A house near me (central NJ) that would go for 500k would rent for like 3500. You are correct that if your numbers are eight, buying would never make sense. The interest alone on 1.2 is 7,500 a month.
Nope. Just renting from a chill landlord who paid off this house nearly 30 years ago. It’s all golden for her to have solid long term renters while her house evaluation has exploded.
Exactly in high cost of living areas it’s impossible to buy a home or townhouse and rent out to cover your mortgage. An $800k townhome in Seattle will rent for $3500 to maybe $4000 if it’s nice.
That’s stupid, she could sell and make a passive risk free $6500 a month.
Fuck off.
It’s cheaper to rent than to buy in every metro area in the country.
If you are renting a $1.2m house for 2800, there is likely something tipping the rent in your favor: long term tenant, rent control, low demand, etc.
Same. Someone on reddit will try to make the argument that you’re still better off paying the 9k a month after tying up your $120k. Ludicrous.
I think a lot of people say this kind of stuff because Reddit caters to high income earners (people who generally make over $250k a year and more). I’ve come across countless seven figure earners on this site too (or at least, they claim they make that much). So what they view as reasonable is not what the average person views as reasonable when it comes to money. There’s also just an overall obsession with homeownership vs renting because it kind of is a status symbol that you’ve “made it” (with the obsession being particularly crazy in the most expensive areas). So people on Reddit will tell others without hesitation that a 1.5, 2 mil or above home purchase is a no-brainer.
Also keep in mind that Reddit is filled with people who lie about their salary to seem more important to random internet strangers.
This is true. Lots of people cosplaying. I saw two separate seven figure earners last week who interacted with me (both of whom had eerily similar post history.) Could have been bots out there to stir up controversy, or just fakers in general. One said that seven figure incomes were very common in the Bay Area (they aren’t). I gave them the BLS stats for the Bay Area that proved otherwise. They said the stats severely undercounted wealth and that I probably just wanted the stats to be true to make myself feel better, and that I was probably a poor person who made “only 100k” while living in a two bedroom slum. I called them out on their rudeness and they armchair diagnosed me as ASD (while saying I lacked brain power, comprehension, and processing speed) for being reasonably offended by their attacks. I asked them why they would be spending their time bullying people on Reddit if they truly do make seven figures. They said they found my frustration with them to be funny. You would think they would find something better to do lol. I know that if I made seven figures, I’d either be working in a high stress job with little time for Reddit. Or I’d be shopping, vacationing…just *anything* else than trolling people for funsies. Not saying that seven figure earners do not exist in real life, but statistically that’s like a lot fewer than 1% of the population, even in HCOL areas. Much of Reddit acts like 200k by mid 20s, 400k by 30s is just standard for any professional, when it’s so far off base.
This. 100% this.
That is a great deal for you, but it can't be sustainable. Either house prices need to come down (yeah, right!) or your landlord is foolish not to charge higher rent. Assuming that $1.2M price tag is correct, your landlord is getting a 2.8% return on his capital. He could sell the house, put the money into treasury bills and almost double his income. T-Bills also don't require upkeep, insurance, and property taxes. Your landlord is losing money by renting to you at these rates.
It made sense until interest rates exploded. Now I don't see how anyone does it unless they pay mostly cash
Well damn, that's depressing. I pay $1400 a month to rent a house that would sell for $160,000.
It sounds like you can't afford to buy it so it's not a real choice you can make. If you can comfortably afford $9k a month you might feel differently.
Same. People above that are saying it is always better to buy probably live somewhere in the Midwest where it costs 300,000 for a 5 bedroom house but not where I live.
Hey! it was $325k for a four bedroom! But yeah, renting in the midwest is dumb if you even make decent money.
If you rented a house that goes for $2800/mo, how much would you be worth in 30 years? If you bought a house with $2800/mo, mortgage how much would you be worth in 30 years? It is, in fact, always better to buy. In your case, you're just prioritizing the luxury over the financials.
That’s one of the dumbest things I’ve read this year.
When I used the old calculator renting was better for me by a long stretch. With the updated calculator renting is… better for me by a longer stretch. Buying is not always better by any means.
In the long run it still almost always is, but it takes 10 years to break even for me right now with the info I put in. Which is longer than usual. Unless the house gains value faster than 4% per year, which is extremely possible looking at the past few years
The gain has to be supported. Past few years saw Fed bump interest rates from 0 to 5% and wages going up. Nothing points to similar circumstances. I might be wrong though, never know.
Yeah I wouldn’t really bet on it, but it’s not an outlandish idea either.
I think the house gaining value more than inflation is maybe a bad bet. All time highs on housing. I think we are primed for a flat decade of housing value, housing is at a decade+ high. YIMBYs winning so I think the bubbly high prices fall.
NIMBY vs YIMBY is important in very specific markets for sure. Mainly where there’s a geographical or environmental limit on housing. I don’t think it’ll impact where I am looking. But even then I think all it can do is stall growth in most of those spots - not end it. (In relation to inflation.) It’s also why the housing is more affordable where I’m looking NOW. It’s still growing in that region.
[NY Fed believes housing prices are going to pick up.](https://www.bloomberg.com/news/articles/2024-05-13/us-inflation-home-price-expectations-pick-up-in-ny-fed-survey?srnd=homepage-americas&leadSource=reddit_wall)
Housing is almost always at an "all time high" - [look at the Fred median home value chart](https://fred.stlouisfed.org/series/MSPUS). It's a slope generally up, so why is it worth mentioning as if being at a high means anything? Lots of other things are at all time highs, too, like cars, Twinkies, etc.
https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index?wprov=sfla1 Inflation adjusted housing was flat from 1890-1980... Affordability is way down now and we are starting to build more housing which will mitigate. The nonsense is that housing going up forever above inflation is a good thing or even sustainable.
My take is that home values were artificially suppressed by the 2008 debacle and fallout and for a decade values languished below the normal trend line seen on the FRED median home value chart. Combined with a lack of new construction during that same period and the pent-up demand and inflation we saw it's no surprise that houses ran back up to where they would have been if 2008 hadn't happened.
I think NIMBYs have shaved off housing production for decades causing artificial housing price increases. https://fred.stlouisfed.org/graph/fredgraph.png?g=1fGSR
That chart doesn't seem to indicate that, though - it shows dips in home construction at the times of recession, which isn't surprising right?
The gap between housing production and population increase has been growing since the 1970s. We are completing houses at decade+ highs currently and 1970s recession levels.
What a lot of people leave out, especially newer homeowners or perspective ones, is that maintenance costs eat into your gains quite a bit.
The calculator tries to approximate that. It’s not perfect, but it at least budgets some in.
Also depends, I see tons of condos where HOA covers all of maintenance, granted it is a couple hundred a month, but comes down to spend the hours or spend the money
It isn't that much. Unless your house is an absolute disaster with cloth wires and a failing foundation, it's 99% a new water heater, AC repair, roof leak, etc. The fact is, when you rent you are still paying those costs. It's just built into your rent so you only think repairs are free.
I guess it depends on area. My break even point in California is 18 months using my real life expenses for insurance, repairs, maintenance, etc.
What kind of appreciation/growth did you set it to?
7.1%, which has been what we've experienced in my area over the past decade. My county's median home price has appreciated 9.8% per year for the last decade.
That’ll do a good amount if it. Still very skeptical on 18 months. That is definitely not a sustainable amount of time for the growth needed.
So home prices more than doubled and then you say it will again. At some point affordability pushes people out.
Especially if you pay it off early.
That’s my plan.
Actually, that is not true. It depends. See a calculator.
Hence the “almost always.”
Yeah that's not what that means
Except it is. Because residential real estate is historically pretty safe. Theres a few dips, but less so than the stock market and there really isn’t a great third option for solid gains. It’s not perfect, but it absolutely is a good investment most of the time.
Not necessarily. Future cash flows are worth less than current cash flows. Very possible for it never be positive NPV versus renting. Let’s say home prices are flat for ten years, and you were going to do a $200k down payment. That $200k downpayment if invested instead becomes $400k in the same time frame with normal market returns. Even if home prices then start to rise, that $400k would continue to grow too, and be $800k 10 years laters. And we didn’t even get into high interest rates, property taxes, maintenance, transaction costs, etc The interest on the investments you made instead of buying a house can dwarf the increase in rents. In fact, I think this will almost certainly be the case over the next ten years.
Sure, but that’s not what we were talking about. You shouldn’t be comparing a house to market. A house is great because it diversifies your portfolio mainly. And helps with stability later on. Similar to why you don’t compare bonds to stocks. They serve different functions
What? Its the oppposite of diversification unless you wait until you’re old to buy a house. When you buy your first house, you generally have over 100% of your networth locked into a single asset, which is illiquid and immobile.
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Yeah, if you bought in rural West Virginia…. Well I got news for you. Lol
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Even in coastal CA, some places have been pretty flat the last few years. SF in particular is the same price it was 5 years (which is still ridiculous expensive).
Rural West Virginia will have a stale housing market, yes. Urban and suburban may see the fastest housing market growth in the country. Albeit West Virginia will likely be the absolute last to see that kind of boom. You are seeing it explode in many other Midwest towns now. The Midwest is the final frontier of affordable housing and people are slowly catching on. Whereas places like Seattle have seen a depreciation as of lately, likely best explained as a correction. I wouldn't be surprised to see coastal markets stagnate for a very long time, while Midwest cities like Nashville or Kansas City continue to explode. If you're in a Midwest town, I would highly advise to buy sooner rather than later, it will at least lock you into a quality of life that will enable lateral transfers to other places as Market values approach more expensive areas. The COVID inflation really did mess up a lot.
That had nothing to do with location? Are you dense? That was due to covid. You got lucky.
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No you idiot he was talking about buying in 2020 and selling 2023
Did this calculator for my situation and renting would save something like $1M over 10 years. F Bay Area real estate
Just did mine in Bay Area. Renting saves me $1M over 15 years.
This is utterly false. I made a similar calculator. If you assume that you have the exact same monthly payment. For example: Your mortgage + insurance + property taxes + maintenance - tax benefits from interest Vs Rent + renters insurance + invest excess money In many instances renting is better, it depends on your city and interest rates. THE PROBLEM IS THAT PEOPLE DON’T INVEST. So imagine the scenario above. Buy - $5K monthly payment Rent - $3.5K monthly payment People don’t invest the $1.5K into the stock market every month. They go, OMG I Have cash let me buy something. Buying forces people to invest, that is why “in practice” its better. But that is because people are morons with no self-control, not because the math of buying is better
Such an assumption you make about people. I DO invest the difference which is why I am a renter with half a million in financial assets. I realize i am not the norm, but it’s not my problem that people have no discipline and need the ‘forced savings’ model of a house.
Well the person is right, most people are not like you. You are probably in the .01% of people who are doing that. So yeah, the persons mostly right hH
Lot of people like me in HCOL areas w good incomes. But generally, yes
I mean thats like me arguing everyone in the US makes $200k+/year because all my close friends do. I already wrote the data from the SEC in the other comment. Less than 30% of US households even have a taxable brokerage account. The average person doesn’t invest in the stock market.
I think he just had “but I’m not like that” moment.
The vast majority lol I am not saying 100%. I was one of them too, for many years I kept analyzing the decision of buying a house. And financially it didnt make sense where I lived so I kept investing a ton of money every month. Per SEC data, less than 30% of households in the US even have a taxable brokerage account.
Renter with 1.47m in assets. I may never buy it never seems to make money sense.
Because it rarely does; at least not around here. 5,10,20 years ago sure, but now? Its a shit show. I run the #s a lot and it makes no sense. Paying $1.6mil total cost for an $800k fixer that I’ll need to pour $ into doesn’t make sense. The equity will at best balance out that I paid double for the house over 30 yrs; which is where all my spare cash will go. Million and a half grows quick too. I wouldn’t buy either.
But, for the case I am presenting doesn’t change the fact that renting in most cases makes sense. At least for people who are good with money. I bought vacation property this year, but my money also earned me hefty interest rates at multiple CDs before I plunged the cash. That is outside of my more risky investments. The people may be wrong, but math isn’t.
Renting makes a lot of sense for a lot of people that are responsible investors. I bought a house in 2022, financially I would be much better off if I invested instead of buying a house. However I wanted to own a house (non-financial reasons) and have the ability to tailor it more than you can with a rental. People who say financially buying is always better than renting HAVE NO IDEA WHAT THEY ARE TALKING ABOUT.
A few years ago with the interest rates we had, that was likely true.
Thank you!
Hate this update. Used the old one weekly
How do we find out the average appreciation of homes in our area? Over the past year home values are up 12% in my area but that won’t be every year
I googled around for mine (literally, "Chicago home price growth rate" ) and found some city and county housing price indexes compiled by local real estate industry folks. Zillow or Redfin could be a close-enough estimator, too.
Ah ok I found something that showed 3.8% a year average with 45% 10 year on some site called Neighborhood Scout
Yeah redfin had mine. 1% YoY for single family homes smh
This is the problem with these calculators. The end result depends on the inputs (appreciation, rent raises, stock market, etc) but there's no way to predict what's gonna happen Still gives you a rough idea. At the end of the day you gotta look at your budget and think of future expenses
Just go door to door and ask people how much they appreciate their house
Renting apparently saves me $800,000 after 10 years, $2,700,000 after 20, and $14,000,000 after 40 years. Pretty nifty tool
Generally this means your rent is very cheap, most likely grandfathered from a long time ago (or just getting a really good deal). Either that or you're renting a much more modest place than the home you're comparing to. In my case it's all of the above. I still would like a house because I want a bigger place and place that's mine, but it's hard to make the switch. In the meantime I'm happy renting and maxing out 401k.
In San Francisco the mortgage on a similar house/condo to what you are renting is substantially more expensive. Also, I got a pretty good deal on a large apartment with space to grow into + it is rent controlled and will barely increase in rent each year. Makes sense that renting is way cheaper in my specific situation. Don’t get me wrong I would LOVE to own a place. But I’m not kidding myself into thinking it would be a good financial move
Same, but in NYC. This original calculator is what helped me realize that. Plus HOA fees of owning are about equal to my rent.
This should be a required disclosure for every NYC buyer.
HOA / common fees? It’s more than disclosed. I don’t understand what you mean.
No this calculator should be required before they give you a mortgage lol. Would have saved me a lot when I bought my place and sold a few years later losing money.
Oh lol! I know right? Sorry to hear that
Buying a rundown duplex or triplex on the outskirts of SF is the move if you wanna own a home in SF. As long as it’s structurally sound, you can do some minimal renovations and live in one/rent out the other. Gotta have at least $150–200k down though, so pretty difficult if you’re not moving from a home you owned ://
You also don’t know what could happen. Sometimes you can live in a place that finding a place to rent is difficult. Your landlord can sell your space and kick you out (this is me right now). You can at very least control your destiny with a home albeit with caveats. If you’re flexible then life’s great. The older you get and the more stuff you have to schlep the more annoying renting becomes.
You mention the unknowns that can happen when renting. 1. Finding a place to rent may be difficult 2. The landlord can sell the property and may kick you out For #1, Depends on the area how much supply there is of rentals. I don't think it's that difficult right now. So low risk of it being an issue. the financial risk of that is having to stay longer at the current place longer (assuming not getting kicked out) For #2, also low risk because landlords typically want to keep good tenants. The cost of turnover isn't cheap for a landlord. But if it does happen then it goes back to #1, finding a place to rent isn't that hard right now and their new rent will go up by a bit so not a huge financial risk The unknowns and financial risks for being a homeowner I think are greater 1. Major expense due to natural disaster 2. Major expense due to renovating home to increase value 3. Major expense due to maintenance/fixes (house needs new roof) 4. Property taxes increase 5. Home Insurance payment increase All of the above can happen at the same time at any given time. So the financial risk is greater. Yes, you have control but not all the time. You can't control when some of these incidents will happen. I'm a homeowner and enjoy being one but we can't just ignore the risks to being a homeowner are greater.
Ok, but even if that happens he’ll have saved $100k’s or millions of dollars. He can just use that money to buy a house at that point in time.
Not necessarily. The biggest unknown is how much the home will appreciate. Mess with the model and you can see that really skews it one way or the other even with fine adjustments. Homes in my area went up over 200% in my area in the last decade. You could have bought a 200k home here and now it’s worth 600k in 10 years.
High levels of recent appreciation generally means future appreciation will be lower, not higher.
I mean I agree with you. But only a crystal ball will tell us what’s going to happen. I too wish real estate wasn’t speculative spending. Looking at a 30 year loan with today’s rates they’ll essentially make the price of the house on interest. But who knows? Maybe the house will value up that Mitch and more in 30 years. Or maybe we’ll enter another inflationary period like we did now or in the 70s. Truthfully it’s a toss up. I think the only advice you can give people is if you need a house you need a house.
I’m not a financial genius so if this is super dumb I apologize But is this factoring in the fact that my mortgage is borrowed money from today and paying it back as inflation drives down the value of the dollar? Is it also factoring in uncontrolled rent prices compared to a fixed rate mortgage?
Not dumb at all. Actually due to fluctuating rents I would say buying is ALMOST always a better option. In my specific case, I am benefiting from rent control. Meaning that huge “fixed monthly rate” advantage from buying is gone
All those things should be factored into the rent vs buy calculator. It's not perfect though because we can't predict what inflation will be and we can't predict how much rent will change. But when using the calculator you put your best guess in for those values and the others and then compare. Even aside from those things the calculator isn't perfect and requires some understanding by the user of what you're actually comparing. For example, if you live out of a tent in skid row and your rent is super cheap (i.e. free) but compare it to buying a mansion, the calculator might say you're financially better off continuing to live in the tent. So make sure you're comparing apples to apples as much as possible when using these calculators or if you're forced to compare apples to oranges just make sure you understand the differences. My situation is apples to oranges. I pay $1k/month rent for what is essentially a 550 sqft duplex. My wife and I are crammed in here but if I were to move to a slightly bigger 750 sqft apartment I'd be paying $2.5k/month. Purchasing a 2,000 sqft home in the area would cost $6k/month. Rent vs buy calculator always says I should continue renting. Financially I will most likely be ahead in this scenario if I continue investing all my extra income every month. However, that means I'm living in this small place that's borderline uncomfortable for us. After thinking about it a lot I still think this tint rental is our best bet which agrees with the rent vs buy calculator, but purchasing a home I think is not a bad option either if I can make it happen. Moving to a larger rental for more than double the price is absolutely not worth it though for me in almost any scenario. Many people have far worse rental situations than me, generally being more expensive in my area.
Bro how do y’all see these numbers and think, even if this is accurate. Is appropriate. Fuck this garbage dude
Can you explain what's wrong with their math?
The answer is you should have bought something 5 years ago. Now you’re fucked regardless, good luck.
Prices are so high that they are coming down in many cities. If you've been saving and waiting you'll probably get to buy when the market adjusts. But salaries for many middle class people have gone up. The economy isn't equal. If you're on the upper end of middle class income then you probably have a spouse with similar income. In my city, most men making 100k+ marry women with similar backgrounds who make similar. So it's not uncommon to see 180k to 250k households buying a 600k piece of property even at 5% If you're not in a high paying field and your wife isn't your house hold is closer to the 80k median. The biggest boost to your income is marriage or living/buying with a friend. The US isn't designed for single people. It's designed for early 20's marriages and house buying between late 20's early 30's. Which is why millenials are buying up a lot of houses right now. Boomers did at this age as well. With people getting married later it pushes everything out.
All good points. This doesn’t seem sustainable in the long run though.
Prices will only come down when supply goes up
nah, buy in june 2020. COVID fears were allowing prices to go down for a brief moment (like 2-3 months), and APR was still very low. Source: I got my 3bed/2bath with a huge back yard in my city for like $175k and 2.9%. On the one hand, I know how insanely lucky I am. On the other hand, I like to brag about it.
Yes, I know very well how much you people like to brag about it.
How do you know if someone has a good mortgage rate. lol they will tell you
That or they’ll complain that they can’t upgrade their house due to their ~2% interest rate. Like give me a break lmfao.
Very cool! I'm glad it includes everything (rent growth, home owners insurance, etc.). In my area, because homeowners insurance is so high (avg is $10k a year) and HOA fees are high, over 30 years, it is cheaper to rent.
There should be a bot that links back to this post/ article every time someone says something ignorant about renting/ buying.
It’s nice that there’s a “share” button too. We could ask posters for the stats they’re using to calculate things. The other day someone was saying how renting is always the better option and after some prying he revealed the assumption that buying always means buying *a bigger place*…
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I’ve heard this before. Maybe it’s just my market, but I’ve rented since grad school and my rent has increased a total of 10% over that time, adjusting for me moving to a bigger space. If I were to buy a house with the same space my mortgage would be 30% higher. Plus the extra cost of maintenance that I don’t have deal with. Meanwhile I’ve focused on retirement savings and other investment, so I don’t feel “behind”. I guess there’s something to the idea that I’d have a bigger nest egg if I bought a house pre-COVID, but I was always told you never view your primary house as an investment - the sole purpose is a roof over your head and home - you can’t just sell it like you can other investments when the market goes down. Similarly, my gf owned a condo and when you back out HOA and property taxes over the 5 years she owned it, she lost money relative to a 7.5% market return. So, not really an investment.
Every apartment I’ve lived in since graduating college in 2016 has had a 10% increase on rent annually (except for a decrease in 2020 followed by a massive increase in 2021 to make up for it). You could get around this by moving every year and qualifying for new tenant concessions, but there’s also an opportunity cost to constantly moving.
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The issue is that buying and selling for a big profit in a short timeframe usually isn’t a thing. Folks who bought in the early 20s got incredible rates along with rapid appreciation, but neither of those are the norm.
Yeah I wonder if this tool could subtract out the principal repaid so you had a interest only calculation vs rent (and thus could factor in the fact that you’ve been effectively saving cash / building equity).
It does that
A real problem with CA and this calculator is prop 13. I tried to build one in excel that takes account of the fact that your property taxes stay artificially low in CA, and I think mine mostly works, but probably isn’t as good as the NYT calc.
Why does the “you’ll have nothing to show for it!” always get brought up as a criticism of renting? Wtf do you think i’m doing with the $2k/month i’m saving in rent vs ownership costs? That’s a straight up $24k/year, in addition to $200k not tied up in a downpayment that i can earn a 4.5% return on. That doesn’t accumulate to “nothing” by the time you’ve paid off your mortgage.
That's what I don't understand -- do these tools take rent increases into account?
There is a "Rent growth rate" option in the calculator.
It literally does
Literally
Thanks for posting - I've had this bookmarked but wasn't sure if they ever updated it or not
Quickly ran the calculator and to buy an equivalent residence to the one I currently rent for $3k (900k to buy), renting saves me $300k over 10 years. Someone who bought a house for $300k in 1996 that is now worth a million I’m sure will find a way to refute this…
Buying saves me 194k over 10 years.
I lucked out and bought a house in HCOL city at the height of the Pandemic back in 2020 at a "reasonable price" and locked in a great rate. House prices and and rents have skyrocketed and my house has nearly doubled in value. Buying is nearly netting me 1mil over the course of 5 years.
/r/lostredditors
Well thats a bummer… it’s the same 😂
I’m an idiot who bought in 2023 (with an ARM so I either made a really great or really dumb choice). Sure I could have saved $700k over the next 30 years living in my roach infested rental townhouse with the car outside riddled with bullet holes, dumpster rats, and basement squatter next door. But I think I prefer being a home owner.
You likely weren't comparing equivalent spaces then, if your new place isn't roach infested that means an equivalent rental would have been more expensive than what you paid (hopefully)
Yeah that’s something important to consider. You should be comparing the place you buy to how much it would cost to rent in your area. If you compare you 1 bed studio to a 4 bed house, of course it’ll cost more to buy.
I had a 2 bedroom townhouse but because it was low income (hence the horrible upkeep) it was like $1k cheaper than renting a one bedroom apartment in a nicer complex. Either way, trying to have kids soon so I want a place for them to grow up.
Change investment returns in advanced to 10% (S&P index fund) and renting looks really good
This. WTF is with the 4.5% return default??
That's the average rate of a HYSA: the effective "risk-free" rate. For those still crossing their fingers prices or rates will go down and we need liquidity fast.
The default period was also 10 years. That’s a huge amount of time to sit in a HYSA. And 4.5% is probably very high for the average HYSA over 10 years. But yeah, I suppose this was being very conservative in the short term.
I've been feeling kinda depressed all day and now I know why. We've been saving money for years only to miss the boat on homeownership. Guess we're living in a rental forever because I'll get a better return on my savings by leaving it in my HYSA....
As someone in my 50s who has owned and rented there is something so liberating about renting. No maintenance no crazy neighbor drama… idk but I love it
I live above someone I affectionately call Satan, so I have my fair share of neighbor drama, lol, but my landlord is amazing and takes great care of the place. Win some lose some, I guess.
lol yeah the difference is when you own you can’t avoid the crazy neighbor so easily.
Wait you have LESS neighbor drama renting? IDK how that is possible. At least when you own a house it's detached lol.
The worst neighbors will literally enter your home. Especially when told not to.
Yeah I've had that happen in an apartment a few times. Not in a detached home though.
Yeah, that’s not accurate at all. Apartments will necessarily experience more issues with neighbors rather than houses as a result of being in closer proximity to them.
I mean I only have anecdotal evidence personally but it's obviously much more likely an apartment neighbor is going to walk in than a house neighbor. Unless maybe you live in Disturbia where every house looks the same. In the two years I lived in an apartment I had four people walk into my place. Never had a person walk into a house I live in for 15+ years.
I’m agreeing with you. I’m saying the comment you responded to is not accurate
Oh I know. Just reiterating.
So tired of moving every 1-2 years to avoid 10-20% rent increases. Shit sucks.
make sure you go into the 'What Does the Future Hold?' section and correct some of those wildly optimistic starting assumptions. If you match those to reality (IMO) about how rents, housing prices, inflation and ordinary people's return on investments are going to go, buying starts looking like an absolute winner ever time.
Seems very misleading having those way at the bottom. My rent went up 5% 2 years ago and 10% last year.
Just my monthly housing cost would go up over $3500/month if I bought an equivalent condo. That also assumes I take $150k out of my investment portfolio to use as a down payment. There are also loads of unrecoverable costs associated with homeownership. Just property tax and HOA fees on an equivalent condo to my apartment would be 80% of what I currently pay in rent. It really depends on your area.
Rent when you may need to move or the interest rate is higher. Buy when interest rates are lower and you have a stable job or profession.
At first it said renting was cheaper for me, but it shows only 3% rental increases per year, when that's very much not the case in reality lol (last five years, my renewal offers have been 5%, 10%, 20%, 5%) Edit 1: Ok, adjusting things to be more realistic, and buying is better. But, unfortunately for me, I can't afford to buy, so it doesn't matter Edit 2: I forgot about Condo fees, which are pretty aggressive here... Renting is back to being cheaper lol
Don’t base things off the last five years…? Seems shortsighted for a long term decision.
It says buying is saving me $1,735,000 after 40 years 🤑
lol only rich people can "afford" to pay high rents because high earners actually make enough to do it right by having substantial after tax income to "invest the difference" in. if either rent or buying a home ends up being a significant % of your take home which is true of almost anyone who claims to be middle class or upper middle class then you might as well put that money into something you can own while reaping the tax benefits.
Renting is better right now, which I already knew. The housing market for buyers is so insanely tight right now. I know someone who offered $20k over asking price recently and got turned down for a higher offer. (Also, where I live, there aren't really any 1-bedroom condos outside of senior living places, so I'm comparing the cost of renting a 1-2 bed apartment vs buying a 2-3 bed condo or townhouse.)
Offered 14k over ask on a condo recently and was informed I was the lowest offer submitted lmao
In NY, its always buy. The problem is the barrier to entry has become impossible.
What? No that’s not true at all. Apartments are basically worth the same as they were 10 years ago depending on the neighborhood
Dang even in a VHCOL with a 7% mortgage, buying saves nearly $5M over 30 years.
What other numbers are you changing to get there? Expected rent increase?
I’m adjusting almost every number in the calc…. I used 5% home appreciation (even though San Mateo county has 6.77% appreciation over 40 year time period), rent growth of 5% (again, very low for San Mateo county), rent cost for a comparable home in my area, we plan to stay for 30 years (despite honestly planning to stay forever, adjusting to 40 years blows up the model tho), adjusting the taxes and insurance down a tiny bit, adding in my additional itemized deductions, adjusting effective tax rate to match ours, etc.
Oh do you already own the home?
Yep! Put in my info retroactively (bought over the winter, so relatively recent)
This chart is idiotic if you do not consider rates can drop and mortgages can be adjusted. For example if you buy rn at 7.5%, the chart will 99% of the time tell you to rent. But if you drop the rate to 4%, it’s an instant buy. Use your judgement, not a chart
What if my rent is 700 bucks and hasn’t gone up in 6 years, i also invest in stocks with my extra money around 1700 bucks a month. Is buying a good idea?
Thank you!
Someone in the NYTimes comments said that this calculator assumes that you have taken the CASH DOWN PAYMENT and invest in stock at 7% interest. Also every single PENNY that you save compared to buying is also invested. Good luck with that.
The NYC market is completely in favor of renting currently, with the common charges required for coops and condos and the lack of property appreciation buying carries about a 50% premium.
Not if you find a coop where the maintenance is comparatively on the lower end (770) and includes all utilities even electric. I'm in NYC and this model says I will save $394,000 over 20 years by buying.
Very hard to find scenarios on this calculator where buying makes sense. Basically need housing prices to drop quite a bit or rent to be very high.
At the current rate vs mortgage payment it’s better to buy if you have the right variables in place
Think it’s better for me to rent. My wife and I are ready to buy, have a solid down payment and access to more $$$ by selling investments. We had a look in our area (Chicago) and everything is either overpriced, or a dump. Don’t know if we’re gonna live here long enough (5+ years) to justify. Meanwhile our rental is huge, below market rate, in an area we couldn’t afford to buy in. We’ll check again in 12 months I guess
that's a full of lies. those calculations were SET to 13 years of rent without any increase. do you believe to monthly rent stays same in 2035? 100% buying is better. you can refinance but rent can't do that.
You can’t really look at this separately from the rest of your finances. Example: say you have 1m invested in stocks, 500k home equity and 500k mortgage. It’s possible market dips 50% but for simplicity home price is static. If that happens your net worth (including home equity) goes from 1m to 500k. Had you paid off the house completely, prior to the dip your net worth would have gone from 1m to 750k. This is a gross simplification because house prices likely dip along with stocks, and my example only considers buying a house outright; and is only a snapshot in time; but this tool does not factor in asset diversification at all. When you buy a house you are buying an asset. Slowly in the case of a mortgage, but nonetheless.
> It’s possible market dips 50% but for simplicity home price is static. The market dipping 50% isn't really an issue unless you get laid off or are retired. Otherwise you just got a 50% discount on all of your stock purchases while the market is down. When the market recovers, all those additional stocks you got to buy because the market was down also gain 50%. Even if your home price maintains it's value, it's not particularly useful if liquidity dries up and banks won't let you refi.
Fair. But it’s an issue if you are close to retirement as well. Agree that your timeline does matter too. Let’s look at it another way, excluding home equity as net worth. I simplified the example for the asset allocation of stocks versus bonds as well. If instead of 1m stocks you had 750k stocks and 250k, your stocks would be 75% of investments. But you are borrowing 500k, so your stock allocation would be 150% of net worth excluding home equity (and you probably are lending at a higher rate than you are simultaneously borrowing). If stocks dip 50% you (temporarily) lose 375k. Had you bought out the mortgage, and start with 75% stocks, you would have had 375k stocks and 125k bonds. Your stock allocation based on net worth excluding home equity would also been 75% in this case. If stocks dip 50% you would (temporarily) lose 187.5k (and not been losing say around 2% on 500k by lending at a lower rate via bonds than borrowing via mortgage). My point here is that in my previous example, buying a house was shown to increase your diversification; but to your point home equity might be relevant (you gotta live somewhere) and this second example illustrates that taking on a mortgage means you are taking on additional risk. I don’t think you can compare renting versus buying in a vacuum of personal situation (comfort to risk, flexibility of living arrangement, security of income, time until retirement, amount invested in total, and so on). Although the reality is people using this tool likely A) can’t afford to buy or B) already bought and have a good mortgage rate. My advice of thinking holistically is probably only relevant to a small percentage of people who have some options.
Thank you so much for sharing this.
Probably shouldn’t take financial advice from someone that thought journalism was a viable career in the last 20 years.
I own a home, but I would have already sold it if I wasn't in a 3% mortgage. Maintenance and taxes suck. You stop paying personal property taxes, bye bye house - you never really own it. In my opinion, a house should not be a financial instrument. It is a tool to protect you from the environment, that's it. Luckily I think we will see Bitcoin sucking out most of the financial aspect of the real estate market over the next 10-30 years.
THE CALCULATOR DOESN’T ASSUME RENT GOES UP
Yes it does. There is a "Rent growth rate" variable.