Personal Finance (Not Investing) • Rent versus own, different approaches?

Financially, renting is the winner, provided the investor invests the cash flow difference in the market.

There are significant non-financial, primarily emotional, reasons to buy rather than rent.

Please show the math in this. For this to be true, then the land-lord that owns the house you rent would make more money selling his house and investing. It also doesn’t pass the sniff test that leveraging up an asset class that has performed like real estate has resulted in a worst outcome than someone who isn’t leveraged in the S&P. I would imagine the math only works in the renter’s favor if it’s someone who moves a lot so the transaction cost in a home would be too great.

Do the calculation of the total return of $1 invested in SPY compared to the same $1 invested in a principal dwelling in the average of all non-coastal real estate markets. There is no comparison.

That isn’t at all how you’d make a financial comparison because the renter can’t invest all that $1 in the SP because he’s paying the landlords principle.

But it is.

The key concept is total return.

Invest $1 in SPY then sell at x years in the future and pay LT capital gains tax, and you have amount A.

Invest $1 in principal dwelling RE, pay title fees at purchase, pay property tax, repairs, upkeep, renovations (capital improvements) and mortgage interest (if any), sell the house at x years in the future, pay real estate salesperson commission, and you have amount B.

A>B

It is possible for A >> B

You’re not quite comparing apples to apples. Renter A still has to pay his rent which is going to include his landlord’s taxes, repairs, upkeep, cap improvements, etc etc.

If you actually do a mathematical comparison of a person who buys a house in your area vs one that rents in your area and forecast this over 50-60 years of an average adult life in which renter A has their rent increase with inflation whereas homeowner B only has their insurance and taxes it is almost impossible to come with inputs in which the renter comes out ahead financially purely just from rental inflation.

Statistics: Posted by gch — Mon May 20, 2024 5:45 pm — Replies 19 — Views 1413

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