> Rent shouldn’t be anywhere near comparable to mortgages?
why not? rent probably should not be egregiously larger than the mortgage payment, but rent needs to at least price in the risks related to owning a property long term.
> Rent shouldn’t be anywhere near the cost of a mortgage
Rent (for the same property) should be MORE than the cost of a mortgage (for the same property).
The owner is taking on both risk and maintenance costs.
Now, if you're saying "monthly rent on a 2 bedroom apartment should be cheaper than a monthly mortgage payment on a 5 bedroom house", that's different...
> Why pay to rent when you could pay an equivalent mortgage?
I was always under the impression that a lot of people can't scrape together the 3.5% downpayment or don't have good enough credit.
Plus, I think most landlords who rent out houses are looking for a profit. So it would theoretically always be their expenses (mortgage + taxes/insurance + some repairs) + profit, making rent the more expensive option by nature I figured.
>Rent shouldn’t be anywhere near comparable to mortgages.
How am I supposed to rent you a house if the rent you pay is less than the mortgage I have on the house? How do I build a pool of money to use for repairing the things that inevitably break?
> how could renting ever be reasonable priced in a system that requires those without capital to pay those with capital just because those with money already have enough money.
landlords aren't guaranteed to make money. it's true that monthly rent is almost always higher than the monthly mortgage payment on that property, but the landlord can only profit if, in the long run, the difference between the rent and the mortgage is greater than the overall cost of maintenance and possible devaluation of the property.
personally, I could afford to put a down payment on a mortgage if I really wanted a house where I live, but for now I am happy to pay extra for the ability to relocate at the end of the lease and to avoid the risk of actually owning a house.
> Mortgage rates are lower than rental prices in many places,
its unlikely that mortgage payments are lower than rent - otherwise, it'd be better to pay the mortgage than renting! You would buy a place, and rent out a room or two, and have the rent income plus your own money to pay the mortgage.
I m not against renting - but i just don't want people to think that a mortgage is some baggage that they are better off not having, and instead just pay rent. I want people to make the smartest choices, so that the only way rent rises is because costs to build houses rise, not because the landlord got greedy. To me, rent is like a tax on being alive.
>Probably want to allow for the possibility of rent rises over time.
Most definitely, my apartment before buying a home was ~$100/month less than my current mortgage, now (3 years later) the rent for the exact same apartment is ~$300/month more than my mortgage.
> This argument only makes sense if the (monthly) rent payments are more than mortgage payments + maintenance costs.
> In most cases, that's not true.
In most cases, that's not true initially.
Over time, rents rise substantially but mortgages are fixed and can go lower by refinancing.
When I bought a house, the monthly cost was a bit over 200% of my rent at the time (of a roughly similar-sized rental unit). Yes it was painful in that first year.
It only took ~3 years for the rents in the area to become similar to my then already lowered mortgage via refinance.
Fast forward a couple decades and my housing costs are ~20% of rental rates in the area.
By the time I retire the mortgage will be long gone. It is heartbreaking to watch older people on fixed income having to deal with ever-rising rents.
Broadly speaking, rents are tied to incomes, house prices to the availability and cost of credit (i.e., interest rates). Average income places an upper bound on rents because renters can only pay rent from income (since no bank will lend you money to pay rent).
I'm currently benefiting from this phenomenon myself as I rent a house for ~$25k/year (in Melbourne, Australia). Buying that same house would cost me ~$45k/year.
> I'd argue when the demand is predictable you should never rent, ever.
How is it possible to conclude that without knowing relative cost of renting vs. owning? Where I live, mortgage payment would be 2x-3x the rent for the comparable apartment.
>Unless subsidized or losing money, the rent is more than a mortgage payment would be.
That is demonstrably false. Renting is more than a mortgage interest payment would be. Unless you feel like you have some special knowledge about the local real estate market, your capital is likely better off in the stock market.
> buy an apartment in the suburbs with just 3 years of salary. I rented a nice place with 1/4 of my salary
these numbers aren't directly comparable.
The rent should be compared with the interest cost of the mortgage plus the capital cost of the deposit (which at minimum is the risk-free rate).
So if you paid 1/4th of your salary as rent, but the apartment costs 3x of your salary, this means you're paying 1/12th of the cost of the apartment as rent, aka, an 8% rental yield. This is an amazingly good yield - greater than the stock market expected yield (of 7%-ish). No wonder investors would want to buy.
The general consensus is that if the rental cost is greater than 5% of the property, you're better off paying the mortgage (and conversely, if the rental cost is less than 5%, then rent is cheaper, and invest the difference would yield more financial returns).
> the renter needs to have more to cover future rent.
If you're comparing like for like, then a renter with the same amount of capital as a house owner would work out just as well, because the renter would have invested that capital into the stock market (which, i believe, have out-paced real estate).
If you're comparing a renter who don't own any capital, to somebody who owns a house, then of course the house owner is better off - they have more capital!
>> "This is especially true if the gap between the mortgage payment (plus costs and fees) and rent is well invested."
Firstly, there often isn't a gap, or it's negative - mortgage payments are less than rental payments.
Secondly, you'd be hard pressed to find a better paying investment than property.
House prices always increase in the long term. It's an investment. You buy a property, then a few years later can sell it for quite a bit more than you paid. As long as it's a property that is attractive people will always want it.
Personally I find the economics extremely clear cut. Mortgage payments here are comparable to rental payments, if not lower. So you can either give the money to a landlord and get nothing in return, or you can give it to a bank, pay off the balance (Long terms savings), and benefit when house prices increase if you sell it. Or of course just wait until mortgage is over and then live there rent free for the rest of your life.
I've never understood why the economics are even debated online like this :/
> But then it's in retirement that a lifetime of renting really hurts.
That assumes that the mortgage (+tax, +maintenance, +etc) is the same cost or less than renting is. That almost certainly isnt the case at first - at least in the area I live, I see houses renting for far less than just the interest on the mortgage would be (if purchased today, presumably the owners bought at lower prices and/or lower interest rates).
> - Finding an alternative investment, coupled with a rent payment?
This is the part I don't get. That would require renting to be cheaper per month than having a mortgage, yet it will always be more expensive for the same property because the landlord is paying the mortgage* plus marking up the price to make a profit.
*Or at least charging the equivalent market value since there will be other landlords in the city who are paying a mortgage
> most tenancies involve occupants who permanently live in the area and would buy if it were financially feasible.
What exactly do you mean by “if it were financially feasible”? Like yeah, if a mortgage were cheaper than rent, of course renters would do the cheaper thing.
> renting is extraction of wealth rather than a one-time transfer.
why is that? Renting is merely paying for shelter. The purchase price of a property would match rentals when adjusted for the cost of the capital to purchase (aka, interest payments, lost opportunity cost of capital etc).
The only thing rentals lack is certainty - you cannot get kicked out of your owned home, but could for a rental (even with enough notice - it's still getting kicked out).
Don't you have a 30 year fixed-rate mortgage? The increase in rent every year over the next 30 years is going to be way more than whatever maintenance costs you have.
Rent is "steady" in the short term, but every year you are exposed to market volatility and inflation.
> Problem is if landlords lower rents it reduces the computed capital value of the property. If there’s a mortgage this will trigger Bad Things.
> Btw I also think excessive rents are strangling society, but it’s not as simple as it seems to fix.
But if the property is vacant, isn't the effective rent $0? I have no experience with commercial mortgage lending and appreciate more details on the Bad Things and why they don't occur without repricing rent.
why not? rent probably should not be egregiously larger than the mortgage payment, but rent needs to at least price in the risks related to owning a property long term.
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