FIRE & property

[Deleted User]

AnotherJoe wrote: »

Many of the American FIRE blogs ive read that favourably compare rental over purchase do, as you suggest, talk to a very different house market and environment to the U.K. both in finances and legalities. They also tend to be written by younger childless people who haven't considered the practicalities of moving children from one school to another every few years. Also maybe it's different in the US but over here my experience was, a mortgage was cheaper than renting for a comparable house.
They also all make the mistake that they compare rental vs purchase over the lifetime of a mortage, typically 30 years in the US. Whereas it should be compared over your lifetime, let's say 60 years. The results woudl be very different if they did that.

The costs of owning go beyond mortgage. There is council tax and costs of repairs. There is also the cost of lost revenue if the same money you used to purchase the house went into the stockmarket instead.

Mnd

Don't people renting have council tax?
I know I couldn't afford to rent my home, but we are mortgage free and there is no way I would prefer to rent to owning my own home

AnotherJoe

Deleted_User wrote: »

The costs of owning go beyond mortgage. There is council tax and costs of repairs. There is also the cost of lost revenue if the same money you used to purchase the house went into the stockmarket instead.

The house next door to me is renting for £1400/month.
Ive just looked up a 350k mortgage at 2%. £1,483.

So the only "excess" money would be the £50k deposit.

Whatever £50k at say 5% would rise to, i think its reasonable to think that £400k at less than that (lets say HPI is 4%) would be much less in 25 years than the £400k woudl appreciate to.
Council tax, usually paid by renters.
Maintenance, yep. What is that. Maybe a couple thousand a year if you thrown bathroom and kitchen replacement in over the years.? Similar to what you'd spend on costs with rentals I'd think what with new agreements legal arrangements etc. In any case its incidental.

And then at 25 years with a mortgage all that happens is your maintenance continues, whereas with renting you continue to pay £1,483. Forever.

[Deleted User]

AnotherJoe wrote: »

The house next door to me is renting for £1400/month.
Ive just looked up a 350k mortgage at 2%. £1,483.

So the only "excess" money would be the £50k deposit.

Whatever £50k at say 5% would rise to, i think its reasonable to think that £400k at less than that (lets say HPI is 4%) would be much less in 25 years than the £400k woudl appreciate to.
Council tax, usually paid by renters.
Maintenance, yep. What is that. Maybe a couple thousand a year if you thrown bathroom and kitchen replacement in over the years.? Similar to what you'd spend on costs with rentals I'd think what with new agreements legal arrangements etc. In any case its incidental.

And then at 25 years with a mortgage all that happens is your maintenance continues, whereas with renting you continue to pay £1,483. Forever.

Not sure about maintenance. I paid over 20,000 pounds to replace doors and windows last year. And this year will likely spend something similar to refresh the kitchen.

Someone who is renting can leverage his 50k in the exact same way a house buyer does and then use the 350k to invest in stocks. The return is uncertain but 7%/yr would have been modest by recent standards. In 25 years the poor sod would end up with 525k cash.

Sure, he’d be taking a risk by leveraging. So does anyone with a mortgage. Anyone who has all his assets leveraged to get a single property is taking on A LOT of risk. Someone who holds a diversified portfolio of stocks and bonds limits his risk.

Don’t get me wrong, I own a house (outright). I just don’t think it’s really an investment. Certainly a good idea for families who can afford it, but it’s a major expenditure item.

And I don’t get the fundamental difference between buying a house in London vs New York or Vancouver, or Cheshire and Pennsylvania.

bostonerimus

FIRE and housing discussions in the US are usually about paying off the mortgage early or not. rather than between renting and owning.

It's hard to ignore the advantages of a mortgage in the US when interest rates are so low. Remember a US mortgage rate can be fixed for the term ie the rate never changes so you know exactly what you'll pay for the next 15 or 30 years. and it's always possible to refinance if the rate goes down. Also mortgage interest can be deducted from your taxes and the first $250k ($500k for a married couple) in capital gains is tax free. There are fewer ways and lower thresholds for tax free saving and investing in the US than the UK so the potential tax free gains of home ownership are attractive.

AnotherJoe

Deleted_User wrote: »

Not sure about maintenance. I paid over 20,000 pounds to replace doors and windows last year. And this year will likely spend something similar to refresh the kitchen.

But if you are in the house for 10 years that's £2k a year. [/

Someone who is renting can leverage his 50k in the exact same way a house buyer does and then use the 350k to invest in stocks.
Buying on margin is much more problematic with shares than a house. There's no margin call on at house and you can only buy shares on margin, not funds and shares are much riskier . The return is uncertain but 7%/yr would have been modest by recent standards. In 25 years the poor sod would end up with 525k cash.
Except with shares it's more likely to be double that or be bankrupt because of the risk. Oniy grouped shares (ie funds) are liable to rise in that manner. . A very big gamble. Witha house if the price falls after buying you've still got somewhere to live and even negative equity doesn't have anyone wanting money back as longa s you can pay the mortgage. . With shares you have someone demanding their money back.

Sure, he’d be taking a risk by leveraging. So does anyone with a mortgage. Anyone who has all his assets leveraged to get a single property is taking on A LOT of risk. Someone who holds a diversified portfolio of stocks and bonds limits his risk.
Not on margin
Don’t get me wrong, I own a house (outright). I just don’t think it’s really an investment. Certainly a good idea for families who can afford it, but it’s a major expenditure item.

And I don’t get the fundamental difference between buying a house in London vs New York or Vancouver, or Cheshire and Pennsylvania.

Different tax regimes and laws regarding rental make a big difference

[Deleted User]

AnotherJoe wrote: »

Different tax regimes and laws regarding rental make a big difference

Governments everywhere encourage people to borrow to buy houses. This can be in the form of preferential tax treatment, government guarantees/mortgage insurance, partial ownership to subsidies house buying etc.

These measures tend to have one-off effects of raising house prices; often just in time for elections. The effect on changing the balance between renting and buying is small compared to the other costs and benefits involved. Gets lost in the noise.

In my list of house buying costs I managed to forget the cost of actually buying and selling a house, such as stamp duty, real estate agent fees, legal fees, searches, etc. House buying is particularly bad “investment” for those who have to relocate soon after buying. It becomes more viable if you know for sure that you won’t be moving for a very long time. People tend to move every 7 years. Young people move more often. People who own may miss on more profitable job opportunities because they are tied to a house.

A nice comparison of buy vs rent maths: https://www.physicianonfire.com/rentvsbuy/ (US).

Worth noting that on average housing has done well over the past 10 years. QE has pumped assets all over the world. UK pound dropped in value, which made houses appear more expensive when counted in sterling. So we have a “recency” bias.