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Comment by ryandrake | Hacker News Reader

One mistake a lot of people make is comparing their monthly mortgage payment to rent. You're not comparing apples to apples. You should be comparing only the interest portion of the payment to rent. The principal portion is money you're paying back into your own pocket in the form of home equity. Your actual "money that goes away like rent" expense is the interest. When you use this as your comparison, a lot more rent-vs-buy decisions swing over to "buy". Of course you also need to factor in amortized taxes, maintenance, and so on, but mortgage principal is not an expense.

EDIT: Plus, if you want to get even more exact, you should be comparing the interest portion minus the tax deduction to rent, because (at least in the US) the government lets you deduct mortgage interest from your income.

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The "principle" amount on a 30 year is negligible for the first 7-10 years or so, which coincidentally is about how long the average homeowner owns a house.

People also wildly underestimate just how much taxes and maintenance can be, because they're not monthly - if you have to escrow taxes it's more noticeable, and if you correctly account for maintenance it's surprisingly high, even on relatively new homes.

The mortgage deduction only applies if you are not taking the standard deduction, and even then only the differential really applies (as otherwise you'd take the standard deduction) - something like 87% of filers will take the standard deduction.

Remember that if you have a copy of TurboTax or something similar laying around, you can do "what if" scenarios by inventing various 1099-INTs and playing around with them.

>People also wildly underestimate just how much taxes and maintenance can be, because they're not monthly - if you have to escrow taxes it's more noticeable, and if you correctly account for maintenance it's surprisingly high, even on relatively new homes.

Even if a house is fully paid off, there are a ton of expenses that relate to ongoing maintenance of a house and property that really can add up--plus taxes and insurance as you say. The details vary by age, location, type of property etc. But $1K/month is not unreasonably high especially given that a lot of homeowners will have some sort of expensive job (some of which are admittedly upgrades) every handful of years or so which will easily chew through a year of that budget.

Yeah, even a furnace replacement (was about $8k let's say, including AC) that should be done every 20-30 years is $25-35 a month - those things start to add up if you account for all of them. Roofs are 40 year so you might escape that one, but all the appliances are probably 10-15 year lifespan, and most people wouldn't even think of a new fridge as "maintenance".

One thing to note is you can put things off. My furnace is from the early 80's, I'll replace it when it dies but it works fine. I'm kinda looking forward to it so I don't have to use window units for AC anymore.

If the idea is you want a immaculate house with everything perfectly maintained then you can have high costs, but for example my microwave door handle busted off, I rigged up a fix, it looks terrible but not bad enough that I want to spend the money to replace it until it is completely dead.

The recommend replacement interval is useally a little pessimistic especially if you buy quality meterials and pay to do the job right.

You can incur "maintenance debt" like anywhere else and some cans kicked down the road end up not needing to be done or being done in a different/better way. But as someone who lives in an old house, you do need to keep up to some degree especially with things that are only going to get worse if left alone.

I agree the parent lifetimes are probably a bit low. But the basic point that annual costs for a house/property are significant even if you can trim a bit at the margins.

I agree you have to think about it, but things like appliances generally don't cost more to replace if you wait. If you have leaky roof or a wet basement take care of it as it will be cheaper to do now but those types of things don't make up the bulk of the maintenance costs, it's mostly little stuff that you can let slide if you need to. Other things like pest control you can do yourself with a little reading and call someone if it gets out of hand.

My point is mainly maintenance costs are a lot more flexible than rent. You don't fix a washing machine, you won't have a washing machine. Don't pay the rent and your out on the street.

Your old furnace may well be costing you more in fuel than the cost of replacement. A 1980s furnace is likely well under 60% efficient, plus it drafts inside air up the flue. A new furnace will be 90%+ efficient and the firebox will use outside air.

My house is under 1200 sqft and at night in winter we turn the heat down real low and just use space heaters in the bedrooms to take the chill off. We also got new, high end windows in the bedrooms so the space heaters run for about 15 minutes total. Also I like to sleep cold. Payback time is something like 10 - 15 years if it was twice as efficient given the math I did. Instead of a heater I got the basement redone as that was becoming a issue.

Part of me is also sort of thinking that each year I wait the heater I will get in the future will be a little more efficient. I've been thinking about replacing it since I moved in but just recently I'm hearing people in my area talking about heat pumps so I might see if I can give it another year or two and see if that becomes more mainstream and go that way.

Rent vs Buy has fairly standard calculators, especially when you're wealthy enough to factor in opportunity cost.

If you're able to take a 30 year loan w/ a 2.7% interest rate and invest the rest of the equity, your house is cheaper than someone who buys it outright in cash.

The only time I would disagree with you, however, is for poor people. "Mortgage principle is not an expense" is correct over a long-horizon, but families living month-to-month that somehow managed to purchase a house are severely unlikely to be able to really capitalize on any value generated from that. I think your comment primarily applies to upper middle-class and wealthy people.

The key for the people who are poor is they need to stay in the house much longer than normal, so that they begin to get the advantages of inflation and growing principle payments.

But the working poor are also the most likely to have to change jobs, which either forces them into a long commute or having to sell the house before they're really built any equity.

>but mortgage principal is not an expense.

this isn't entirely true either. You need to live somewhere. Yes you own the equity, but it's always going to be locked away as "home equity". It has an advantage of giving you higher debt flexibility by taking loans out against it - but to say it is the same as banking cash as compared to renting is wrong.

Unless you downsize your living or sell the house without buying another one (which means you will be renting) that money is effectively gone as far as liquid cash is concerned

> … minus the tax deduction to rent.

Make sure to not use the deduction verbatim, but calculate the amount that the deduction reduces your actual tax bill.

Treating a mortgage payment as "money I'm lighting on fire" is the safe way to do it if the mortgage is on an asset that you can't liquidate in order to get access to the equity (because you're living in it).

Yeah you can. Boomers who hate their children do it all the time, it's called a reverse mortgage. You stay in the house until you die, then the bank takes it.

It’s also important to include a sinking fund for expected maintenance costs when you own.

And property taxes, insurance, utilities (which you may have in an apartment but will probably be lower than a house) etc. I live in an older house on a reasonable bit of land so my expenses are probably on the higher side. But I figure $1,000/month is a reasonable round figure for budgeting. Condos will be lower in general--though there's a condo fee in that case.

You can discount the principal payments somewhat, too, because you'll lose 10% of total value selling.

Why do you lose 10% selling? 6% for real estate cartel commission I guess. If you are in a hot market you can use redfin or similar low rate companies, don't pay the buyers agent. I'm trying to talk myself into it. No one is doing $60k of work selling your million dollar place.

6% to the cartel and another 3-4% in other transaction fees (title fees and insurance, excise tax, etc).

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