Why the New American Real Estate Dream Is Renting(online.wsj.com)
online.wsj.com
Why the New American Real Estate Dream Is Renting
http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html
4 comments
"People who rent talk about the books that they've read, the trips that they've taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner's personality are those which relate to his or her ownership of real estate."
http://philip.greenspun.com/materialism/early-retirement/whe...
http://philip.greenspun.com/materialism/early-retirement/whe...
You could at least make some personal comment about what Philip had to say instead of merely quoting him. Otherwise what's the point?
In any case, I learned about 10 years ago to disregard anything philg had to say unless it was about photography or building websites!
In any case, I learned about 10 years ago to disregard anything philg had to say unless it was about photography or building websites!
Hm. Boring and secure, or interesting and anxious? :)
why would renters be, by default, anxious? I would be anxious if I owned a home and saw the drop in value over the past two years. or if I were upside-down. or if my mortgage rate could reset in the future. or had to worry about fire, flood or earthquake wiping me out.
as a renter, I don't care about any of those things. if my apartment building burns down, the thing I'll be most sad about is my macbook and some personal mementos. if they increase my rent beyond what I'm willing to pay, I just move to a cheaper part of town. maybe I could be evicted, but finding a new place is more of an annoyance than a financial tragedy.
frankly, owning goats and painting walls don't sound terribly exciting to me. OTOH, things I value, like living in the grip of a big city and being able to walk to work are essentially impossible without a fat stack of cash or else renting.
as a renter, I don't care about any of those things. if my apartment building burns down, the thing I'll be most sad about is my macbook and some personal mementos. if they increase my rent beyond what I'm willing to pay, I just move to a cheaper part of town. maybe I could be evicted, but finding a new place is more of an annoyance than a financial tragedy.
frankly, owning goats and painting walls don't sound terribly exciting to me. OTOH, things I value, like living in the grip of a big city and being able to walk to work are essentially impossible without a fat stack of cash or else renting.
As a renter, I am living someplace at the sufferance of someone else. Yes, in some jurisdictions there are legal issues if they want to kick me out, and mostly they wouldn't want to anyway, as long as I pay my rent on time and don't annoy the other tenants too much, but the difference is that if you own a house, it's yours. There's always someplace you can go where no one has the right to make you leave. There's an added level of security to that, even if most renters don't care.
The "ownership" isn't what it used to be - you have to pay property taxes, and if you don't you will be kicked out of "your home". In effect you are renting your home from the government.
not to mention that until you pay off your mortgage, your home belongs to the bank. anecdotally, I know more people who have had to deal with foreclosure than with eviction.
so, OP, would you revise your statement to "boring, but secure in ways nobody really cares about, and even then, not really or interesting, but anxious (if you're prone to be anxious about things that rarely happen and even then are more hassle than hardship)."? I'm not having a hard time with this decision.
home ownership is great if you need lots of space for your things or your kids, or if you want to impress people. but that's not me. and I don't feel the slightest bit anxious about my choice.
so, OP, would you revise your statement to "boring, but secure in ways nobody really cares about, and even then, not really or interesting, but anxious (if you're prone to be anxious about things that rarely happen and even then are more hassle than hardship)."? I'm not having a hard time with this decision.
home ownership is great if you need lots of space for your things or your kids, or if you want to impress people. but that's not me. and I don't feel the slightest bit anxious about my choice.
A little while, back, I subleased a room from a couple of people who had been renting a house for something like ten years. They had made changes similar to the ones you mention (painting, planting produce, raising chickens). You just have to ask, although the answer is probably no more often than not.
Some people have particular tastes that are worth owning a home to satisfy. I doubt ~60% of people do.
Some people have particular tastes that are worth owning a home to satisfy. I doubt ~60% of people do.
This is why I cringe when I hear people say that the current economic crisis is an indictment of capitalism; a proof that free markets behave irrationally. To believe that you have to ignore the enormous distortions government has created, not just with recent legislation but with things like the mortgage tax deduction that are so entrenched and popular we take them for granted.
If the market were so perfect, why wouldn't it cope with distortions perfectly? In other words, why wouldn't it predict the effects of mortgage tax etc., and still come out OK in the end?
I find it very interesting that when this argument is presented, people don't post a counterargument - they downvote instead?
Of course markets aren't perfect. They can cope with distortions like the mortgage tax deduction but the cost is reduced efficiency and resiliency. The mortgage tax deduction didn't trigger the crisis but it amplified the effects by increasing the number and size of mortgages.
(BTW, I'd like to clarify that I didn't downvote you and I agree it was uncalled for. I don't yet have the ability to downvote.)
(BTW, I'd like to clarify that I didn't downvote you and I agree it was uncalled for. I don't yet have the ability to downvote.)
Market is not perfect, it works well under certain assumptions which are not always accurate after government interventions.
I've never understood the point that people who say that sort of thing are trying to make. Unbridled capitalism (which, as noted, this wasn't an example of) has problems. What are they suggesting we do about it? It seems like the idea must be more than just a small increase in regulation. That's already being done, so the point wouldn't be worth the breath.
another disadvantage for homeowner:
in unstable countries, the new government that replace its old one will try to steal the land from owners
if the new gov is democratic, it only honors those who can show certificate on ownership (even the ones granted from old foreign govt -- the countries that gain independence from colonial in ww2 show this trend)
if the new gov is communist, it will simply take the land (worse, the big owners will be labeled capitalist and shot to dead -- happened in china, see the movie 'to live' by zhang yi mou for ref)
those are best and worst case, of course, america is far too remote from civil war or foreign invasion
the renters can just walk away; however, the old money will be of no value ... so it's better to diversify to foreign currencies or precious metal ... or tools
my grandparents actually buried a minivan when the japanese invaded us. once the new govt is set, they resumed the transportation business. it could be more optimal than currencies/metal because ... after a war, the survivor is the only pioneer, no competition -- sufficiently a monopoly by event
in unstable countries, the new government that replace its old one will try to steal the land from owners
if the new gov is democratic, it only honors those who can show certificate on ownership (even the ones granted from old foreign govt -- the countries that gain independence from colonial in ww2 show this trend)
if the new gov is communist, it will simply take the land (worse, the big owners will be labeled capitalist and shot to dead -- happened in china, see the movie 'to live' by zhang yi mou for ref)
those are best and worst case, of course, america is far too remote from civil war or foreign invasion
the renters can just walk away; however, the old money will be of no value ... so it's better to diversify to foreign currencies or precious metal ... or tools
my grandparents actually buried a minivan when the japanese invaded us. once the new govt is set, they resumed the transportation business. it could be more optimal than currencies/metal because ... after a war, the survivor is the only pioneer, no competition -- sufficiently a monopoly by event
Never rent unless in a precarious situation or if just recently moved to a new city. Buy as soon as you can. You will never ever see a penny of what you paid for in rent.
If you buy, even if temporary, you get all your money back, sometimes more, sometimes less, but you always get some.
I lived most of my early adult life renting and I can tell you this, more than $100K wasted and no way at all to get one cent back.
If you buy, even if temporary, you get all your money back, sometimes more, sometimes less, but you always get some.
I lived most of my early adult life renting and I can tell you this, more than $100K wasted and no way at all to get one cent back.
Sorry, that line of thinking is dogma.
Here's an article that explores this argument: http://www.smartmoney.com/personal-finance/real-estate/renti...
Basically, take the "never rent" piece of advice with the same amount of skepticism that you would any other piece of advice that begins with "never."
Summary: average annualized return on investment on owning a home barely beats inflation, dating back way, and that's including the boom times.
Average return on investing in businesses (i.e. the stock market, your own startup), is a much better place to put your money.
Not saying there is no reason to buy a house, there are plenty. But never say never.
Here's an article that explores this argument: http://www.smartmoney.com/personal-finance/real-estate/renti...
Basically, take the "never rent" piece of advice with the same amount of skepticism that you would any other piece of advice that begins with "never."
Summary: average annualized return on investment on owning a home barely beats inflation, dating back way, and that's including the boom times.
Average return on investing in businesses (i.e. the stock market, your own startup), is a much better place to put your money.
Not saying there is no reason to buy a house, there are plenty. But never say never.
Mathematical identity:
An additional problem with owning is that your investments are bound to your living situation. Orthogonality is good. I can change my living situation without even thinking about my investments.
price to own = price to rent + speculative ownership premium + transaction costs
An additional problem with owning is that your investments are bound to your living situation. Orthogonality is good. I can change my living situation without even thinking about my investments.
On average the owner does get something in return for the speculative ownership premium, though, so you have to factor that out.
Ownership and renting do not have that simple a relationship; it's easy for them to get out of sync such that renting is more expensive than owning, for a time.
This is so far from the truth that you couldn't possibly be doing anything but repeating something you've heard without independent verification.
If you have to borrow money, then you have to pay something akin to rent, except you pay it on the money borrowed, not the property itself. Second, under standard mortgage amortization schedules, nearly all of your early payments go toward interest (and by corollary, very little goes toward principal).
Length of ownership, prevailing interest rates, and potential maintenance costs should all be factored into a home-buying decision. It is far from obvious that owning is better than renting.
If you have to borrow money, then you have to pay something akin to rent, except you pay it on the money borrowed, not the property itself. Second, under standard mortgage amortization schedules, nearly all of your early payments go toward interest (and by corollary, very little goes toward principal).
Length of ownership, prevailing interest rates, and potential maintenance costs should all be factored into a home-buying decision. It is far from obvious that owning is better than renting.
I used to think this, until I moved to SF and actually ran the numbers. And running the numbers for rent vs. buy is complicated when you do it right, because you're forecasting things like inflation, interest rates, how long you intend to stay, etc. Here's the best calculator I've seen:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...
Here is something for you to feel good -- http://patrick.net/housing/crash.html
I think this is the guy who from 2005 - 2008, was constantly predicting a 50% collapse in property values in SF within the next few months. Not saying he was wrong about overvaluation (though it wasn't rocket science), but I wouldn't try to time the market based on his advice.
I bought my first house in the city about 12 years ago. First thing I did was paint one bedroom wall cobalt blue cause I loved that color. Lawns are a pain in the ass to take care of (and I don't much care for monocultures anyway), so I began ripping up the lawn in the back and planting veggies, strawberries, raspberries and prairie wildflowers that can take care of themselves. Added a computer room in the unfinished basement.
Sold that house after 5 years and move to the suburbs (bad idea!). I like to cook, so the second house had its kitchen ripped out and replaced with real slate floor tiles, nice countertops and custom cabinets within 2 months of moving in. Built a metal-casting setup behind the house. Bought house #3 way out in the country and rented out house #2 for 2 years then sold it.
Hope to stay in house #3 until economy improves. I have 10 acres to play in and a small machine shop in the basement. We have horses, chickens, large vegetable garden, maybe goats or cows someday and can do whatever we feel like with the property -- like the outdoor clay oven I haven't finished. Next summer I think I'm digging a goldfish pond/water garden.
Try doing any of that with a rental! Not everyone buys to flip or to sell at a profit. Most of us just want a place to live in that we can hack to suit our current mood.