“Normalize mortgage payers to stop saying they’re homeowners, y’all ass renting too”

[Darth Nubian]

My fault, I skimmed over it

Dap + rep for the original analysis by the way.

Alright so I'm using your numbers, plus a few assumptions. I'll list them out:

House price in '89: $120,000
Loan term: 30 years
Down payment: 20%
Mortgage rate: 5%
Closing costs: 4% (buy), 6% (sell)
Property tax: 1.2%
Home insurance/month: 0.04%
Annual home appreciation: 3.8% (this makes the home worth $368,000 after 30 years)

Monthly rent: $600
Security deposit: $530
Renters insurance: $100
Annual rent appreciation: 4.1%
Index fund rate: 10.1%

Alright. A while ago I created an excel sheet to compare the two stances. For the buyer, the calculation is straight forward: price sold - price bought - selling fees. Pre tax.

For the renter, I take the down payment, closing costs for purchase, and throw that in an investment account tracked with index funds to grow for 30 years.

Now here's the tricky part. I assume that if the buyer spends more in a certain month than the renter, the renter can place that delta in the investment account. If the buyer spends less in a certain month than the renter, the buyer can place the delta in an investment account as well.

What you usually see is that in the beginning, the renter has only the rent to worry about. The buyer has to worry about maintenance and home insurance and property taxes and principal and interest. The renter only has to pay the rent and renters insurance. But as time goes on, the rent grows to exceed what the buyer is spending.

In month 2, the buyer will pay $778.98 per month, of which $663.15 is unrecoverable (doesn't go into the principal) The renter will pay $613.38 per month (rent + interest from security deposit + renters insurance.) This means the renter has $49.77 that month to invest. That grows to $1000.22 at the end of the 30 years.

In month 200, the buyer will pay $739.31 in unrecoverable costs. The renter will pay $1166.66. This means the buyer will have an additional $427.35 to invest. That grows to $1633.75 at the end of the 30 years.

So here is the trick: the impact of compound interest is exponential with time. If a renter puts away more in the stock market earlier, he may pay more in expenses later in the 30 years, but he's good, because that money invested earlier on has grown a lot. The buyer may gain the delta advantage later on, but he may not be able to catch up by the end of 30 years. Depends on the numbers. Let's look at the end of 30 years.

The buyer, due to his home appreciation, and ability to invest more funds later in the mortgage, has a net profit pre tax of $666,209.20.

The renter, due to investing his would be down payment and excess funds early on in the 30 years, has a net profit pre tax of $503,609.06.

So given the numbers you provided, the buyer wins. The renter... Doesn't do bad as well though. $500,000, that's good money too.

If I change the rent price to $550, both parties come out about the same. But that's my point, it depends on the numbers, and either way, you're not doing too bad.

Edit: I did the renter a disservice. I'm being generous to the buyer by not including the principal in the delta calculation. If I include the principal, the renter comes ahead. I'll see if I can upload the spreadsheet so you can play around with it if you want, and cross check my analysis.

This is complete bullshyt.
1. You not going to have 4.1% increase in rent each year for 30 years.
2. Your scenatio is predicated on taking every cent of disposable income and investing it which is downright unreasonable.
3. Where is the renter in year 38 when he is still renting and the homeowner been banking for eight years?

On the real, do you own a home? Everybody on this forum who owns a home is saying it was one of the best investments they made. Yet you arguing against it with pollyannaish hypotheticals.

 

[IsThatBrothaMouzone?]

they are two different investment vehicles. I have a portfolio with stocks and mutual funds that I manage myself in addition to my 401K thru work.

however, real estate is probably more attainable for the average person because I bought stocks and investments with discretionary income. housing is something ur gonna pay for regardless, so there's no other wealth building, investement asset that with both allow u to simultaneously build wealth while providing shelter for you. it's a two-for-one deal, and I don't see how people could be against that once they realize the advantage.

Oh agreed people should do both if they can afford it.

My angle is that stocks are generally always a good play while buying a house is case specific. A single dude with a nice job/just starting out but limited savings should invest in various securities and save up for a little while. Someone with cash and other investments that's ready to be a home owner should get into a house.

 

[Conan]

This is complete bullshyt.
1. You not going to have 4.1% increase in rent each year for 30 years.
2. Your scenatio is predicated on taking every cent of disposable income and investing it which is downright unreasonable.
3. Where is the renter in year 38 when he is still renting and the homeowner been banking for eight years?

On the real, do you own a home? Everybody on this forum who owns a home is saying it was one of the best investments they made. Yet you arguing against it with pollyannaish hypotheticals.

1. The 4.1% rent was based on past rental price appreciation in the US over 30 years. Actual data. Similar for house appreciation rate and stock market rate. If you have any concrete reason as to why those numbers should be different apart from your anecdotes, say so.

2. No, wrong. My scenario assumes that every cent that would have been spent on a house otherwise, goes into an investment. That does not equal someone's entire disposable income. And to be fair, I credit the homeowner the same way if over time they start to spend less on a house than they would in rent. That's the only way you can do a fair analysis taking opportunity cost into account.

3. He can continue to rent. Or, check this out... He can buy a house, straight cash, and be in the same position as the home owner... But with more cash in his pocket cause he didn't have to pay interest and taxes and what not all those years.

I don't own property in the US.

I'm not sure why you think I'm saying homeownership is a terrible investment. In the numbers I crunched above, you make good money owning a home. All I am saying is that you can also set yourself up if you rent and invest while renting (including that money you would have otherwise spent on a down payment).

 

[IsThatBrothaMouzone?]

This is complete bullshyt.
1. You not going to have 4.1% increase in rent each year for 30 years.
2. Your scenatio is predicated on taking every cent of disposable income and investing it which is downright unreasonable.
3. Where is the renter in year 38 when he is still renting and the homeowner been banking for eight years?

On the real, do you own a home? Everybody on this forum who owns a home is saying it was one of the best investments they made. Yet you arguing against it with pollyannaish hypotheticals.

I'd say 4.1% is tricky because there are years where rent doesn't go up and years where you get a hefty increase. Also have to factor in that a renter can upscale or downscale which can increase or decrease cash flow. Plus it doesn't look like maintenance costs for the buyer were factored in. In some parts of the country, this will be low while in other places, this can be quite high.

I'd say 95% of folks will buy if money is not a factor. Otherwise, it really depends. Most people don't buy because they simply can't afford it....they would have to live too far out in the boonies to find something decent etc. Also add that a lot of (non Black) people receive cash infusions from family, making it easier to buy. I already have decent savings and investments but Granny gives me $100k for a house and Mom/Dad gives me $20k. Big down-payment and I don't have to touch my own savings? A LOT of people get help but have you thinking they just got it out the mud by themselves.

 

[Conan]

Yea like I hate to make personal attacks but this is peak level smart-dumb. @adexkola if you are smart enough to be writing up excel spreadsheets you need to apply some of those smarts and want-to to link with some folk who been there. Bc you are painfully, painfully wrong.

I’m not even assuming anymore I KNOW you a young ngga. Typing long ass paragraphs of loud and wrong, shyt is disgusting

Why are you getting emotional?

Don't worry about my personal network, I promise you I'm good on this end.

Be blessed tho.

 

[Mr swag]

Rent to buy

 

[Conan]

I'd say 4.1% is tricky because there are years where rent doesn't go up and years where you get a hefty increase. Also have to factor in that a renter can upscale or downscale which can increase or decrease cash flow. Plus it doesn't look like maintenance costs for the buyer were factored in. In some parts of the country, this will be low while in other places, this can be quite high.

I'd say 95% of folks will buy if money is not a factor. Otherwise, it really depends. Most people don't buy because they simply can't afford it....they would have to live too far out in the boonies to find something decent etc. Also add that a lot of (non Black) people receive cash infusions from family, making it easier to buy. I already have decent savings and investments but Granny gives me $100k for a house and Mom/Dad gives me $20k. Big down-payment and I don't have to touch my own savings? A LOT of people get help but have you thinking they just got it out the mud by themselves.

Regarding the 4.1%, I used average statistics because anecdotes are worthless for a conversation like this. People see the rent increases over the last 3 years and go "see that's why you buy" ignoring the home and stock market appreciation that occurred in the same timeframe. But yes, appreciation is more volatile than a flat average.

A renter can upscale or downscale as their life circumstances change, which tilts the balance towards the renter. I guess a home owner can rent out their home but there's less flexibility.

I factored in maintenance costs for the buyer. Tied maintenance to home value.

 

[BaldingSoHard]

Damn....so you mean to tell me I stopped renting for nothing!!!

All this time I never knew I could take withdraw some cash from all the rent I paid!!! Wow!!

Damn, I should just take my equity now, sell my crib and go back to REAL renting!!!!

You coulda had that endlessly-increasing-in-price 1-bedroom, breh.

Now you're stuck with equity, tax breaks, long-standing credit history, a hedge against inflation, and an asset to pass down to your kids.

 

[ReggieFlare]

It's not about downplaying home ownership. Home ownership can be personally fulfilling for a lot of families. It can generate memories, provide you with a permanent anchor to a community, and so on.

Is it one of the best financial moves you can make? That's too broad of a statement. It can very well be one of the worst financial moves you can make. The leverage on a mortgage can make you and it can also break you. There are better moves you can make purely from a financial perspective.

The sooner y'all divorce from this notion of a single family home being a solid investment, the sooner black folk can elevate.

The thing is if you can afford to buy a home and don't need the advantages an apartment provides(primarily flexibility) then there's never a scenario where it's better to rent

 

[BunchePark]

Literally just helped someone last week who rents take down two TV and patch the walls so they could get they security deposit back

Get in where you fit in

 

[Dave24]

Subbed

 

[Peruvian Connect]

If you got $1 million cash and want to buy a $1 million house, what would you rather do, pay all in cash and have your money tied up in one asset that appreciates but doesn't return cash (assuming you're not renting it out)?

Or put $200g's on the house, borrow $800g's at 3% and diversify, put your $800g's into different investments that return cash dividends at 5-8%? In other words you netting a 2-5% return off the bank's money

There's a reason rich folk who could pay $10 million cash for a house still take out mortgages

Math changes with mortgage rates what they are now but when you could borrow at 3% or less like you could past few years it made no sense to buy a house all cash even if you could

if i had a million cash, i'm not buying a million dollar house. i'll buy a 500000 house and call it a day. this ain't like have 100k cash and have to decide on a nice neighborhood or the slums.

 

[Conan]

The thing is if you can afford to buy a home and don't need the advantages an apartment provides(primarily flexibility) then there's never a scenario where it's better to rent

There are several scenarios from a financial perspective where it's better to rent than buy. But this only holds true if you don't fetishize home ownership.

 

[1thouwow]

Tired of these fake deep nikkas

 

[R.E.N. Spells Ren]

My fault, I skimmed over it

Dap + rep for the original analysis by the way.

Alright so I'm using your numbers, plus a few assumptions. I'll list them out:

House price in '89: $120,000
Loan term: 30 years
Down payment: 20%
Mortgage rate: 5%
Closing costs: 4% (buy), 6% (sell)
Property tax: 1.2%
Home insurance/month: 0.04%
Annual home appreciation: 3.8% (this makes the home worth $368,000 after 30 years)

Monthly rent: $600
Security deposit: $530
Renters insurance: $100
Annual rent appreciation: 4.1%
Index fund rate: 10.1%

Alright. A while ago I created an excel sheet to compare the two stances. For the buyer, the calculation is straight forward: price sold - price bought - selling fees. Pre tax.

For the renter, I take the down payment, closing costs for purchase, and throw that in an investment account tracked with index funds to grow for 30 years.

Now here's the tricky part. I assume that if the buyer spends more in a certain month than the renter, the renter can place that delta in the investment account. If the buyer spends less in a certain month than the renter, the buyer can place the delta in an investment account as well.

What you usually see is that in the beginning, the renter has only the rent to worry about. The buyer has to worry about maintenance and home insurance and property taxes and principal and interest. The renter only has to pay the rent and renters insurance. But as time goes on, the rent grows to exceed what the buyer is spending.

In month 2, the buyer will pay $778.98 per month, of which $663.15 is unrecoverable (doesn't go into the principal) The renter will pay $613.38 per month (rent + interest from security deposit + renters insurance.) This means the renter has $49.77 that month to invest. That grows to $1000.22 at the end of the 30 years.

In month 200, the buyer will pay $739.31 in unrecoverable costs. The renter will pay $1166.66. This means the buyer will have an additional $427.35 to invest. That grows to $1633.75 at the end of the 30 years.

So here is the trick: the impact of compound interest is exponential with time. If a renter puts away more in the stock market earlier, he may pay more in expenses later in the 30 years, but he's good, because that money invested earlier on has grown a lot. The buyer may gain the delta advantage later on, but he may not be able to catch up by the end of 30 years. Depends on the numbers. Let's look at the end of 30 years.

The buyer, due to his home appreciation, and ability to invest more funds later in the mortgage, has a net profit pre tax of $666,209.20.

The renter, due to investing his would be down payment and excess funds early on in the 30 years, has a net profit pre tax of $503,609.06.

So given the numbers you provided, the buyer wins. The renter... Doesn't do bad as well though. $500,000, that's good money too.

If I change the rent price to $550, both parties come out about the same. But that's my point, it depends on the numbers, and either way, you're not doing too bad.

Edit: I did the renter a disservice. I'm being generous to the buyer by not including the principal in the delta calculation. If I include the principal, the renter comes ahead. I'll see if I can upload the spreadsheet so you can play around with it if you want, and cross check my analysis.

Since it appears that you are at least trying to comprehend, I'm going to point out the fatal flaw in your analysis: Averaging 10% annual returns over a 30 year period is NOT the same as getting a consistent 10% return each year for 30 straight years.

I'll illustrate this fact by looking at the S&P 500 over the last 30 years (SOURCE LINK):

The green shaded cells show how the S&P 500 really grew over the last 30 years. Column C is the actual closing value was on Jan 1 of each year. In Column D, I calculate the actual annual rate of return (ARR) each year, which as you can see averages out to 10% ARR. The S&P 500 actually rose from 435.23 in 1989 to 4,573.82 in 2022. Your analysis assumes that average ARR happens consistently year over year, and is represented in column E, which would see that 435.23 in 1989 rise to 6,642.17 in 2022. This error results in overstating the value of that investment by a whopping 45%!

This is why the example I took the time to write out uses real data over that 30 year period. The Coli/Xferno doesn't automatically underline hyperlinks for some reason, but nearly ever assumption made in that analysis (home prices, rent escalations, taxes, values of the S&P 500, Dow Jones and NASDAQ, etc.) has a hyperlink to the source website from which I got the value used in that assumption. I purposely compared median rent to median home prices to keep the comparison on the type of dwelling fair. It's not a perfect analysis, as I admit I did not include every single expense (or benefit), but I purposely chose the NASDAQ with its 24% average ARR to stack the deck in favor of the renter, and the renter still lost. Using the S&P 500, with it's "modest" 10% average ARR would have been a better reflection of reality (Warren Buffet already showed that even savvy, expensive, hedge fund managers would struggle to beat the S&P 500 over a long period when he bet them a million dollars and crushed them...SOURCE LINK). If I had used the S&P 500 instead of the NASDAQ, the homeowner would have blown the renter out of the water. Leaving out the closing costs doesn't change the bottom line: For most people, most of the time owning your residence is a better financial decision than renting your residence.