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Comment by MikeTheRocker | Hacker News Reader

On timescales less than a decade or so, this idea that rent is "money sent down the drain" is often inaccurate in certain VHCOL markets like the San Francisco Bay Area. Rent typically costs much less than a mortgage payment, and the numbers work out that investing what you save by renting puts you ahead. This is a major reason I've stayed a renter even though I think my quality of life would be higher as a homeowner.

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When you rent, you can do the following:

- Move to a better paying job easily. You make instantly more money.

- Move to a cheaper place when times get tough. This gives security because your life is flexible and can adapt to the ever changing life.

- Change the space if you get a wife, kids, a dog, a parking space, or if they leave you. Well, the parking might stay.

- Leave if a neighbor becomes invasive, if they build a supermarket under your windows, if water gets contaminated...

- Get closer to your job so that you save time, energy and transport money.

- In case of divorce, you don't have to share anything.

- The gap between rent money and mortgage payment money can be used for anything. Sometime you can invest it. Sometime you can buy a gift or holidays. Sometimes it saves your ass for tough days.

Selling a house is hard. It cost money, time, energy, and you still have your loan running after that if you didn't negotiated early repayment. Plus, good luck getting a new loan to buy the next place if you are still paying the first one.

A house is a lot lock in, for the money it provides.

Yeah, it turns out you need to put something on the line to have a huge reward.

To me, home equity is a game changer for this discussion. the ability to open a HELOC and have access to a massive amount of capital is a gateway to real wealth thru various investment vehicles - not the least of which is investing in further real estate.. which will accumulate more equity itself etc..

As I said in the other comment not that huge compared to alternatives with much less troubles:

https://news.ycombinator.com/item?id=36823558

I agree a house is a lot lock in, but there are many other nuanced pros and cons to home ownership.

- Homeowners can modify their dwelling. Renovations, painting, etc.

- Banks lend millions of dollars to ordinary people through mortgages. Subsequent loans can also be taken out against existing properties. This enables enormous leverage, with commensurate risk. A good way to get rich (or lose it all).

- Homeowners can be confident in their cost of living staying static long term, whereas rent typically increases every year. Decades later this can mean an initially pricey mortgage payment looks cheap compared to renting.

- Renters have the risk of being forced to move at the whim the landlord. Usually there are some protections like minimum notice periods and laws against arbitrary evictions, but there's always some chance whereas homeowners can stay put for generations provided they pay their continue to pay their mortgage and property taxes.

Typically, you can save money by buying the exact same situation that you would rent. Whether or not that exact situation is available to purchase, or if you would even want to own it (owning a small studio might not make sense) is a different question.

Unless I’m wrong and SF is actually cheaper to rent always.

Even considering all this, it’s often only a small difference. And renting gives you a different and sometimes advantageous quality of life.

I've run the numbers for SF and even before interest rates went up, the per month carry costs of owning (mortgage, insurance, property taxes, maintenance, etc) are 50-100% higher than renting.

If you include historic price appreciation over certain periods, you can end up ahead owning, but nothing guarantees that same price appreciation going forward.

How does the buy-to-rent market work with those numbers?

It depends.

For non-rent control places new landlords subsidize the cost. It's happening a lot in Toronto right now. Tons of new condos that investors bought where the rent doesn't cover the monthly carrying costs. They are betting that price appreciation will make them whole (and more). That's a risky bet.

For rent controlled apartments, you basically pay based on what the tenant's rent is. So if you have someone paying 50% of market rate, that dramatically bring the value of the house down. I was renting in a 3 unit building that would be worth $6M empty, but with 3 tenants paying below-market rates, it was sold for about $2M.

It mostly doesn’t from what I saw in SF (for single family homes anyway). One issue: Prop 13 means it’s hard to compete as a new purchaser vs. someone that purchased many years ago. For instance, my neighbor rented her ground floor out. Because she had lived there for 40+ years her property taxes were ~$1000/year. Recently sold houses in that area had property taxes of 15-20 times that amount.

Curious, where does rent cost much less than mortgage payments in the SF Bay Area?

San Francisco.

A house that costs $8,000 per month in rent might cost $2M to buy.

At $2M that's $9,500 in mortgage payment at 6% for 30 years, about $2,800 in property taxes, another $300 in insurance, and maybe assume $500 per month maintenance (over the long haul).

That's ~$13,000 per month when rent is $8,000.

You can knock the $1,500 per month off the mortgage payment that is paying off principle, but you'd also need to account for the opportunity cost of a $400,000 down payment at some modest return of say 4% which is ~$1,300, so it's about breakeven.

The you need to account for transactions costs - all the closing fees and the 5-6% realtor fee when you sell.

All in, if you rent in SF, but invest the savings from owning, you're not really far behind someone who buys, but of course it all depends on price appreciation and over what time period.

That's not to say you can't get lucky and buy right before some massive price appreciation then sell and lock in the gains. But unless you have a crystal ball, you can't time that sort of stuff.

Thanks so much for clarifying.

I hadn't adjusted my mental models for the new interest rates, I was still thinking 2%-3%.

Pretty much everywhere at current mortgage rates. Prices have barely budged as rates skyrocketed. My rent is less than half of the mortgage payment needed to buy my current house at its current zestimate price on a 6.7% 30 year fixed mortgage. And that's not even counting property tax and insurance and maintenance and the opportunity cost of the 20% down payment. You'd have to be insane to buy at these prices right now.

not answering the question, but many parts of north brooklyn, NYC are other such areas. I'm looking at the exact same math problem. Paying 7k a month for a place that you couldn't possibly rent for more than 5k.

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