The article talks a lot about mortgages. How does the math work if you pay in full at the time of purchase?
you divide the amount of money that it costs by the amount of dollars you would pay to rent something like that per month and then figure that’s how long it’ll take for you to look at a duck instead of a chicken
Then add a few years, since you’ll be the one paying to replace wear items like roof, carpets, and appliances.
Not the scenario this article talks about. Most people need mortgages, especially first time buyers.
I might still not understand but… Landlords have to pay insurance as well. Why would they be the exception. They have all the same costs and also want to make a profit. How can rent be cheaper then?
Because on average, I imagine very few rental homes are brand new constructions/purchases so their mortgage is a couple years old and lower than if someone bought that same home today.
Highly dependent on where one lives I guess. My friend just rented a new apartment and his rent is over double what my mortage payments are. That’s also money he is never getting back where as in my case my house is paid in about 15 years after which I own the damn thing and the monthly mortage payment drops off entirely. Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
That’s also excluding regular maintenance or emergency repairs that a landlord would be (often reluctantly) responsible for. It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
Isn’t this kind of irrelevant unless you’re a house flipper? If you own a house and make renovations to it, it is because you find some practical value in it.
My mortage payments for one year would cover all maintenance I’ve done to the house during the 8 years I’ve lived here including an entire bathroom remodel. Obviously someone less handy would need to hire someone to do the jobs I’ve done myself so that helps a little with the costs, but still. The maintenance costs for my house aren’t even in the top 5 expenses I have.
I am confused, my thought process went like this:
So it’s more expensive to own then rent?
Unless you own it and rent it out to others?
Nobody would be a landlord if a dwelling cost more to maintain then to rent out.
So something doesn’t add up.
This is only looking at a point in time, not the life of the loan. In the US at least, we have fixed rate loans (many countries do not have that). So your “rent” when you mortgage a home is fixed for 30 years. When you rent, your rental costs increase with inflation every year. While it might be 14% higher to mortgage than rent right now, in a few years your mortgage will stay the same while your rent will have increased. Yes, there are repair/maintenance costs, but after 5 years or so you are saving enough per month to pay for those repairs.
When you mortgage a home as an investment property, you are leveraging your money 5-1 (on a 20% down payment)
If rent covers 90% of the mortgage, you still make an absolutely huge profit amortized over the loan.
If you consider the tax incentives (interest write off, depreciation, capital gains deferment, pass through deduction) the gap in the rent can be covered.
Consider paying 50k down on a 250k house, the. Paying an additional 15 percent over the life of the loan (around 40k) to cover for gaps in rent.
Over the life of the loan you turned 90 grand into 250 grand (and a house is an appreciating asset, so it will likely be worth more than 250 by the end of it all)
Deduct depreciation (value of the home minus land value over 27.5 years) and carry over losses can even make up for the gap of rent you pay entirely over time.
This is exactly the kind of math that normal people don’t get when it comes to this conversation. Every industry has some convoluted, obscure, non-intuitive way to actually make money when it doesn’t sound like you should. You have to think in different ways and in longer terms.
I agree, and came in here to say the same thing. I think the data is being skewed by the fact that many (not all, of course) rental properties are subdivided into multiple units (or built that way in the first place). People commenting about how it’s considering modern costs, well, they must not have read the first two sentences of the article:
On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
But the difference has grown much more extreme in recent years as just about all homeownership costs have ballooned.
The only way you can arrive at that 14% number is if you’re averaging in multi-unit apartment buildings. Very few, if any, landlords are out there subsidizing their non-family tenants by charging less than the normal costs of ownership. If most landlords are losing money year over year, well… at that point just sell the property.
I believe they are taking into account the cost to purchase these days since interest rates are higher, ergo high mortgage payments.
As someone else mentioned most landlords have locked in rates at this point. Not many new landlords.
Most landlords bought the place earlier when home prices and mortgage rates were lower, or they just own the place outright and don’t make any mortgage payments.
This article is about choosing whether to buy at current rates or rent at current rates. If you bought a place 10 years ago for half the price it’s worth now and a 2% interest rate then you’re probably going to be paying less then renting
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As a homeowner what weighs me down most is insurance, by a large margin. It keeps increasing while the coverage decreases. It’s a huge racket in my opinion
Racket.
A racquet is what you hit your insurance adjuster with when you’re tired of his racket.
Do you live in Florida?
Oklahoma 🙃rates go up each year due to tornados, at least that’s what they say. Even though i live in a heavily populated area that’ll never get hit.
I had to put a new roof on cause of softball sized hail caused by the infamous may 2013 storm that damn near leveled Moore Oklahoma. But other than that, no storm damage ever
That’s what the people living in Dallas said. Then a tornado hit the middle of a dense neighborhood.
Have you shopped other companies for rates? I switched earlier this year and cut my insurance costs by more than half! Was fucking ridiculous how it just kept climbing.
Even though i live in a heavily populated area that’ll never get hit.
I don’t think tornadoes care.
On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
I’d be interested in seeing how they arrived at the 14% number.
When I bought my first home a couple of decades ago I moved out of my 1 bedroom apartment which I was paying a monthly rent of $700/month into a small starter home with a mortgage of $1000/month. 20 years later that exact same apartment rents for $1350/month. All of the years I lived there my house payment never rose higher than the $1000/month mortgage payment while the rent on the apartment apparently continued to increase year over year. Meanwhile I ended up selling the starter home for $110,000 than my purchase prices nearly 20 years ago.
So is their 14% number just calculated on the first month of each (renting vs buying)?
For me, I’m in a condo that we bought with a 15-year mortgage during the pandemic. My mortgage (including escrow/taxes and insurance) plus HOA fees is about $2100/month. My old apartment (including monthly pet fee) was more than that when I lived there. It’s currently listed for $2500/month (big complex, not necessarily my unit).
I promise all y’all I’m not spending $400/month on homeowner-specific costs. And, I could reduce my monthly cost by moving to a 30-year mortgage instead of a 15-year mortgage.
Edit: looked up my old apartment again. Holy shit, it’s listed for $2750, which doesn’t include a pet fee.
Once you factor in things it mentions like insurance, taxes, upkeep along with others like a down payment then it’s very easy to see where the 14% numbers comes from. Frankly, I’m surprised it’s only 14%. There’s a lot of additional and hidden costs with home ownership.
Less relevant in a condo
The difference is those “costs” are going towards buying equity that you then get to keep. Maintaining a house is expensive but it is an asset that maintains value. This article really doesn’t seem to understand that which shows a very basic misunderstanding of the wealth math that goes into home ownership.
Renting may be cheaper month to month but you’re literally pouring that money down a black hole never to be seen in your hands again.
Granted, building equity doesn’t matter when you’re already have no cash paycheck-to-paycheck for either.
No, not all of them. Insurance, property tax, and maintenance do not go to equity.
Not to mention mortgage interest.
Property taxes are still partly tax deductible. Also even at my low mortgage rate of 3%, I get about $450/mo. back via the mortgage interest tax deduction, worth about $300/mo. over the standard deduction IIRC. I am not sure if they factor these things into the 14% number.
It’s not common for people to itemize any longer after Trump’s tax updates a few years ago
Those tax updates screwed me. Yes, it temporarily raised the tax deduction, but it also capped the tax deductions if you were above the standard. His changes cost me a couple grand a year.
It’s not common for people to itemize any longer after Trump’s tax updates a few years ago
The Tax Cuts and Jobs Act (TCJA) of 2017 Trump passed put in place permanent tax cuts for corporations and temporary tax cuts for individuals. The individuals tax cuts expire next year in 2025 so in 2026 the current standard deduction for single filers of $14,600 drops to $8,300. For joint filers is currently $29,000 and dropping to $16,600. source
Unless these tax cuts for individuals are renewed, we might see many more folks itemizing again because the standard deduction is too small again.
The part of that which REALLY hurt me was the cap on how much you could deduct. I itemized even with the increase in higher standard deduction, so capping my deduction hurt me a lot.
This is more of a case where the article doesn’t take the time to explain the nuance. Everyone knows home ownership increases equity. Which is why it costs more.
insurance
I was shocked as a homeowner to find that home insurance is not that much more expensive than renters insurance, especially for a condo where the HOA is sharing a large amount of the cost
taxes
I mean, especially if you’re already a homeowner and your assessment is years old, this amounts to less than $1k/yr.
Using the above poster’s example both of those costs annualize out to still be cheaper than rent
It’s actually horrifying how fast rent has gone up. Our mortgage in Boston went from being $1000mo more than average rent to $500mo under average rent in only two years. Even with the tax hike we just passed in my town, my total cost of ownership is far below renting even accounting for the savings we set aside for upkeep and emergencies
Plus this whole time we’ve been improving the property. We now have solar on a 0% apr loan and don’t have electricity bills anymore and the mo billing for the panels is less than our old electric bills. We also used a state program to replace all the insulation and windows at cost with another 0 apr loan. So our gas bill is now only ~$80-100 compared to the $400-500 gas bill in the shithole apartments around here with 200 year old paper insulation. And if we want we can use another state program to replace our furnace with a heat pump and lower that further.
So our relative cost went down even more as utilities keep going up and renters have zero control over their homes energy usage
The property tax on my house is $7000/year… and that is with a fixed assessment from 12 years ago. If I were to buy my house today, my tax would be $21000/year.
These are very region dependant. My state has no income or sales tax, but the property taxes are higher, my 1 acre with a mobile home is basically 3k. It’s almost certainly cheaper than renting, but you can’t just make sweeping statements like that.
At the same time. If sales tax has always been that high then it would be silly to not realize that cost is baked into the local rents in the same region
Certainly in my town where taxes were just hiked, every landlord is going to hike rent accordingly in September (it’s a Boston thing that 90% of leases always end in September)
Sounds like you have the fortune of living where these things are cheaper. In Ontario, home insurance is much higher and property tax being less than 1K a year is completely unheard of.
Once you factor in things it mentions like insurance, taxes, upkeep along with others like a down payment then it’s very easy to see where the 14% numbers comes from.
So you’re agreeing with me that they’re only comparing the first month of ownership of the house with the last month of renting? There’s no factoring in the long term rise in rents to their math?
There’s a lot of additional and hidden costs with home ownership.
There certainly are, but its very situational. A 100 year old home will have very different upkeep costs than a 10 year old home. A home in a hurricane zone will have different upkeep than one that isn’t.
I mean neither of us know how they arrived at the 14% number. So your comparison is not really relevant and I would say it’s not a good one even. But in a generic/average month-to-month overview, home ownership is almost always more expensive.
I had a long reply typed out exploring the various aspects and raising questions to the methodology and applicability of the advice in the article to different groups of people in different geographies and stage of life. However the tone of replies seems to just want to accept the article as is. Its a yahoo finance article, so the depth is pretty shallow and only speaks in broad generalizations. Your reply is doubling down on exactly that. There’s nothing wrong with that per se, but it looks like the there isn’t a desire in this thread to explore it any further.
So we’ll just accept the article answer which you summarize well: “generic/average month-to-month overview, home ownership is almost always more expensive.”
Conventional wisdom says keep renting folks and don’t question it.
Did you not read the comment? Property tax, insurance, and upkeep are all perpetual costs. The down-payment, closing fees, and potential mortgage insurance are the only up-front costs.
Did you not read the comment? Property tax, insurance, and upkeep are all perpetual costs. The down-payment, closing fees, and potential mortgage insurance are the only up-front costs.
I read the comment. It doesn’t address the question. “Over what period of time?”
Are they judging on owing a house for 30 years vs renting for 30 years or are they judging owning house for 1 year vs renting for 1 year?
It’s just talking about the first month / year. Assuming that only inflation is effecting prices to keep things simple the price of renting goes up over time with inflation, while a mortgage stays constant dollar wise, and since a dollar is worth less over time the payment is less.
Combine this with building equity the net cost of owning a home goes down over time while renting goes up. The question is when do those two lines meet, eg. If you bought a home now how long would it take to be paying the same as renting. Maybe it’s 5 years, maybe 10 or 15 depends on the market, judging by the article it seems that period is getting longer as the starting point for a mortgage is really high and will take a while to recover.
Replace central air: $8k Deadwood 40+ year old trees: $6k Remove & replace concrete driveway without killing the 80 year old pine who’s roots are buckling it: $8k Remove particle board siding and replace with vinyl: $12k New water heater (+ new requirements for not having a pressure bomb in the house): $3k
Owning a home for three years has been more expensive than renting for a couple decades. Sure the mortgage is $500 a month less then rent, but the loans/credit card + interest for all the above is killing us.
Seriously considering one of the brand new apartments in the up and coming district for only $2k a month if we can sell the money pit with outdated everything!!
This ignores the difference after 5-10 years. Rent keeps going up.
Maintenance cost and property taxes too though.
Still cheaper to own, if you have the initial funds or loan to buy and know you won’t be leaving the area for awhile. If you rent a property those maintenance and tax and insurance and interest costs associated with owning it are just passed on to you in to your rent, plus a profit margin so the owner can make money off renting it out to you. Owning the same property would cost less, over time, and not just that, but you would have something to show for it.
What you forget is the cost of opportunity: the money that is stuck in a house is money that would yield income if it was invested somewhere else. Long term stock markets typically return 7%+, while rental return (or the rent you save by buying) can be anywhere from 3 to 7% depending on market, minus maintenance and other holding costs.
So there’s no fast and hard guarantee that owning or renting is best - you need to run a proper simulation with the right parametres taking everything into account. In markets with low rental returns, renting is typically optimal.
Seems like inflation goes up faster than long term stocks, especially in 2025-2028
Where is the money that is stuck in the house, that would hypothetically be able to be invested if not spent on the house? You have to pay to live somewhere, and if you’re paying less to purchase than rent, that is money saved which is available to invest. Do you mean the up-front downpayment money needed to acquire a mortgage in the first place (typically 10-20% of the purchase cost), that could be invested in the market instead for a higher return than slowly building equity through principal payments?
What even is maintenance?
Leaky roof? Nah, throw some clear tarp over it and you’ve got a sun roof.
Tenants better appreciate the improvement. If they don’t, their rent should be raised!
Thousands per year, usually.
My rent went down year over year.
What is your mortgage on the tent?
Cost of materials and demand for contractors. Even if you DIY it, everything is 3x as expensive as it was before covid. The price of lumber never really went back to where it was before covid. Its clearly price gouging.
Yeah, it sucks and really fucks with the “building equity in your home” narrative that updating/remodeling has. Now every fucking thing costs so much, that is very unlikely I get back out what I pay for updates in a home sale price later on. It seems like even maintaining your home is for the ultra-rich, now.
Building equity through improvements has pretty much always been a lie, the win was enjoying that improvement. The vast majority of improvements don’t actually net a higher sell value than their cost.
Lumber prices are actually currently where they were for much of 2018.
Yeah thats an interesting statement right?
Because when I look up a chart I see the same thing.
But when I go to buy lumber, and especially sheet materials, its all still 2.5x - 3x what I was paying in 2019. So as an individual which should I believe? The lived experience I have is the one that took the money out of my account when I bought the lumber.
Some examples: This was $15 in 2019/20: https://www.homedepot.com/p/15-32-in-x-4-ft-x-8-ft-Sheathing-Plywood-Actual-0-438-in-x-48-in-x-96-in-20159/206827282
(You might get a different price. For me, its $26)
And this was $25 in 2019/20: https://www.homedepot.com/p/3-4-in-x-4-ft-x-8-ft-Hi-Bor-APA-Rated-Sheathing-Pressure-Treated-Plywood-95360/202087831 (You might get a different price. For me, its $60)
Non-treated 2x4 were $2, and treated were $3.5 in 2019/20: https://www.homedepot.com/p/2-in-x-4-in-x-96-in-2-Premium-Grade-KD-HT-Stud-058449/312528776 https://www.homedepot.com/p/2-in-x-4-in-x-8-ft-Standard-Better-Hi-Bor-Pressure-Treated-Lumber-95344/202087781
(You might get a different price. For me, its $4, and $6)
Its a reflection of the same presentation that the Democrats tried to make about the economy: “Look at these abstract metrics disconnected from your lived experience, they say that the economy is great!”
But thats irrelevant if the most reliable form of data I have, my lived experience, disagrees with it. The reality is I live in an old house and it needs some serious repairs. I have to put some of them off because the cost of materials is just ridiculous, let alone trying to find contractors to do work at anything less than robber baron prices.
You probably have to look at the price that Home Depot is paying for it, not the price they’re charging you.
Why would I or anyone else give a flying fuck what Home Depot paid for the lumber they’re selling me? I can’t buy it at their price; I have to buy it at whatever retail price they (or Lowes, or Ace, or TrueValue, or 84, or whoever…) have set.
If the wholesale price of lumber – which is not accessible to normal people – has fallen but the retail price is still high, all that means is that these retailers are price gouging which is exactly what the original commenter was talking about.
Whoa there, I was just trying to make sense of the discrepancy.
Again. Think about what you are asking.
You are asking me to make some additional abstraction beyond my lived experience. When you ask me to do that, what does that do to my confidence in your rhetoric?
I was just trying to make sense of the numbers. We are all acutely aware of the retail price gouging.
Yeah, those prices are based on wholesale.
We livin in a new gilded age, bruh.
By February, I will have put $100k into a house in stuff that’s nearly invisible - replace fence, repair leaking pool equipment, stabilize foundation, repair plumbing, and replace exterior ‘wood’ that was really watelogged mdf. My mom paid $220k 11 years ago. I’ve inherited it - and the $130k mortgage balance. My son is helping me by living there and covering the mortgage payment and I’m pulling money out of retirement to make repairs. It would likely take another $100k to update the 1980s kitchen, bathrooms, electrical, and 20 yr old hvac. Oh yeah, plus $10k/yr in taxes and insurance! Anyone want to buy a house?
repair leaking pool equipment
You have a pool. You are already head and shoulders above most people, including people who are also mortgaging a property.
It’s green and has been unusable for most of this year. It’s essentially a pond.
But you’re building equity! /s
Yeah, but, after X years you own your house.
After X years of renting, you got nothing.
That’s some rich dad poor dad BS. Means nothing if you can’t afford the additional y cost over renting, plus with interest rates where they’re at……so much of that monthly payment is still going nowhere.
You don’t have to pay the mortgage in thirty years and eat the entirety of the interest. I paid mine off in three.
There’s no way I’m not saving money over renting at this point. I pay less than $1000 a month to live in a place that would cost $4000 a month to rent.
Depending on where you live, much or all of that value goes away if it’s 35-50 percent more expensive to own. Especially if you choose to invest the savings.
My house is paid for so I’m gonna say nope - even with maintenance and taxes, etc
I don’t think your case is what the article describes.
Yeah, if you bought recently, you’re a fucking moron lol
Missing the market is worse than waiting
