Hacker News Reader

Comment by axod | Hacker News Reader

Surely arguing that renting is cheaper than owning implies that landlords make a loss - which I'm sure is very rare.

Isn't it funny how this is never mentioned in these articles. I'm both a homeowner and making a profit on my renters :-). Keep renting guys!!

What makes you think it is rare? Genuine interest, I have no knowledge about it. I know cases were renters pay less than the monthly rates paying of the credit for buying the house.

Wouldn't it be kind of zero-sum? Either you live in the house yourself, than the calculations apply, or you live somewhere else, but then (simplified) your rent equals the rent your renters pay, so it cancels out and the calculations would still be correct.

Of course. I'm sure it's common in some parts that landlords make a loss in month to month terms, but then once the mortgage is paid off they own it and sell it, and it's gone up massively in price. Maybe that's their big pay day.

I'm sure other landlords make a very good profit month to month also. But if landlords were making a loss in real terms over years, they would probably stop doing it.

Even if the property loses money, the owner gets tax deductions for depreciation on the property, and the owner can apply the loss to their own taxes (useful if you have high income like a doctor or lawyer).

What makes you think landlords don't take losses and don't stop doing it? Measuring only active landlords gives you a biased sample set.

It's not that rare in Seattle -- a renter here is paying something like 30-50% less per month than an owner of an equivalent space.

This is one of the principal arguments that the local housing market is overinflated. You can't take out a mortgage to pay rent, so it tends to be better reflect economic fundamentals.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage.

Don't assume everyone has a new mortgage at full market prices!

Okay...if you're arguing that the majority of landlords bought a long time ago, and therefore are profitable, I can't really dispute that point (don't know one way or the other).

That said, I don't see that as being the most important metric. Today, in Seattle, it's cheaper to rent than to buy. It might be cheaper to buy ten years ago than to rent today, but that doesn't have much bearing on a rent/buy decision tomorrow.

You're still looking at it in the short term. A decision to buy/rent should be made based on the fact you might actually spend a few years there. By which time your repayments will be far less than the rent you would have to pay.

...or perhaps not. If you bought in Seattle five years ago, you'd still be on the wrong side of the rent/ownership equation (rents have risen about 5% per year here, whereas houses were expensive relative to rent even in 2003).

I grant you that if you own long enough, your costs will someday be lower than renting the same space. But that's a tricky calculation, and your break-even point depends heavily on your assumptions for inflation, rent increases, interest rates, etc. And over the five-year timespan that most Americans own a particular home (very few people spend 30 years in the same house anymore), it's not even worth considering -- you'll lose far more money to interest payments in the first five years or a mortgage than you'll gain in savings over rent.

My point is that we can both be right. Eventually you'll break even on monthly costs, even if you buy at today's bloated prices. The question is, how long is "eventually"?

It's because landlords bought pre-boom that it's cheaper to rent now. It has nothing to do with what you should do today, just a little background to the situation.

Yes, but if they have significant equity they could make more money selling than renting in an overinflated market.

I know that in the UK at least a lot of landlords get 'buy to let' mortgages, where you only pay off the interest on the loan, which obviously makes the payments (and rent) cheaper than a normal mortgage. This does though rely on the house price remaining the same as when you bought in order to pay the full mortgage off at some point.

It doesn't imply that. Owners and renters have different risk profiles (or ought to). In financial terms, most new homeowners are *highly leveragedC in real estate. Unless you are a skilled speculator, this probably represents more risk than you intended. Landlords absorb this risk, and are compensated for it.

That was supposed to be highly leveraged. Not sure where that 'C' came from.

Renters definitely lost over a short period of time the secret is they do it for the long run, now the article kind of makes logic for your first house.

Reply on news.ycombinator.com