alt Hacker NewsIf you buy a house for 500k on a 5% mortgage over 25 years when you are 25, and you plan to live until you are 85, you will live there for 60 years.
It will cost you 35k a year for 25 years, or 875k a year
After 25 years you have no more expenses.
If instead you rent it for 20k a year, increasing with 2% inflation each year, by year 25 you're paying 33k a year in rent, and by year 60 you're paying 66k a year.
Over 60 years you pay 2.4m in rent, or 900k in mortgage (you could also then sell that house for 1.6m with a 2% annual inflation).
You'd have to invest the savings and get way higher than inflation returns to break even.
Of course there's maintenance costs of the house too, but that's with rent far cheaper than the mortgage. In reality rent tends to be a similar amount as a mortgage (in the UK it tends to be higher - as people won't rent places out if they aren't covering their mortgage - at the very least the interest part of it). You'll likely find house prices appreciating more than inflation too - just like stock prices do. Rent tends to track income.
Now you could argue that you'll get more by investing in high return growth stocks. And you might be right. In the 80s there was a whole "endownment" mortgage craze where you paid the interest on the mortgage, and then the rest rather than paying down the mortgage capital, instead was invested.
This was a massive scandal as many investments didn't have enough to cover the mortgage amount upon maturity. With a mortgage you know that no matter what happens with inflation, growth, returns, stock crashes etc, you will own one house after X years.
Replies
> It will cost you 35k a year
> If instead you rent it for 20k a year
Some good numbers, but what is missing is the result of investing $35k-$20k=$15k per year. Let's say you earn a %7 real return on $15k/year invested for 60-25=35 years.
Writing a little program:
import core.stdc.stdio;
void main() {
double d = 0;
foreach (i; 0..35)
d = (d+15000)*1.07;
printf("d: $%f\n", d);
}
I would think twice about buying real estate as an investment.
Personally, I own my home because I want to use it as I see fit, but I recognize that as an investment it's a lousy one.
You can use a rent vs buy calculator to do the math for your situation: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
The parent is minimizing a bunch of coats of owning: maintenance, property tax, included utilities, HOAs, and most importantly opportunity cost.
>After 25 years you have no more expenses.
After 25-50yr (depending a lot on macroeconomic factors and your specific municipality) property taxes will likely be comparable to your mortgage payment.
> You'd have to invest the savings and get way higher than inflation returns to break even.
You say that like it's a difficult thing to do.
S&P500 is up 710% since 1996. Gold is up 92% since 2012.
Personally, the rent control is the best part of a mortgage and even though renting is typically better, I'm fine paying a premium for that. That said, good luck getting somebody to loan you 900k so you can play the stock market; it's much easier to get that for a house though.
No more expenses... Right!
No property tax. No homeowner's insurance. No maintenance. Just living on easy street.
> people won't rent places out if they aren't covering their mortgage
btw this is usually false, and mostly irrational.
1. Realize that every landlord has a different capitalization structure. Many likely bought decades ago and thus only owe a fraction of what the current market selling price is. Additionally we also have had a long period of ultra low interest rates so their interest rate is different than what new entrants are paying. Because their capital cost is lower they can actually offer for far less than the (Interest+Taxes+Insurance+Maintenance) costs that a home owner would have to bear.
2. The rational move of a landlord is to price competitively based on what the market can bear, even possibly losing a little money per month in cashflow (but less bad than the appreciation rate and cost of disposal/selling/defaulting).