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Comment by jareklupinski | Hacker News Reader

For the price of an apartment, I can put that money into an interest-bearing account, and pay the rent on a comparably sized apartment (or bigger house outside the city) using just the incoming interest, never losing a dime of the original capital (even growing it if I scrimp on the apartment)

why would i ever buy while this holds true

it's free real estate

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Meanwhile I can borrow the money from a bank, buy an apartment, rent it to jareklupinski, gradually raise it over the years, and benefit from the capital appreciation (far greater than interest rates over the past few decades!) as well.

my parents tried that; i got to watch in real-time how landlording is _not_ the 'get comfortable quick' scheme people make it out to be

What were some of the unanticipated challenges they faced?

they lived in NYC and the apartment was in Florida, so even the smallest bumps in the road required a round-trip flight just to start figuring out how to solve the issue

basically if the goal was "to make money", there was never a viable path once the rubber hit the road (if they chose a nearer place, the initial costs would never be realized)

that is a uniquely boneheaded approach to managing a rental property. you can say "there never was a viable path" about anything if you chucklefuck your way through it instead of doing it well.

if "doing it well" means doing what these people are doing: https://news.ycombinator.com/item?id=40254573

it may have been for the best :)

Even when you're not renting remotely (which is the worst possible option in many cases) you still have tons of other things that can come into play:

* Bad tenants (lost rental revenue, eviction costs, property damage, and they're likely judgement proof so that money is just gone)

* No tenants (price too high, nobody wants to move, nobody wants to rent, etc) - rentals should be calculated on 20% vacancy.

* Other property wear and tear and damage (landlords often very badly budget for big ticket items; to be fair, owners are really bad at it too. The IRS depreciation tables are not gifts; you will pay about 1-4% of the value or more a year in repairs, etc.

* Strange legal issues can crop up, not limited to liability, tenant lawsuit defense, etc. But your property can also be eminent domained, declared a superfund site, or more. Sure, it's unlikely, but if you only have one property and it happens, it's going to hurt.

* And the biggest issue from there being a viable path (outside of appreciation gambling) is that you're competing with other single-family landlords who don't account for or care about the issues above, which drives rental prices down to "a bit more than mortgage payment + taxes".

And then if you succeed with the appreciation, unless you relatively constantly churn your property, you're missing out and falling behind what it could do elsewhere. Appreciation when you're 20% down hits 5x harder than appreciation when you're 100% owning it outright, and every payment brings you from one to the other.

There is a reason that professional real estate companies that invest in housing want to invest in multi-family dwellings, because it lets them control for some or all of the risks above. If you want to move from gambling on appreciation to actually being a profitable landlord, you end up imitating them.

The thing is... rents rise over time while a fixed rate mortgage balance doesn't.

So I think you'd need an additional 2-3% return on that interest-bearing account just to account for inflation.

In most cities the price to rent ratio makes no sense so I'm a renter for life. I do fantasize about a 2.5% fixed 50-year interest-only mortgage and never paying it down. If only those existed. I think Sweden comes close but the rates there are adjustable.

> rents rise over time while a fixed rate mortgage balance doesn't

house prices don't necessarily trend upwards either; it's possible to take out a mortgage for something that ends up being worth less over time

ask me how i know about flood zones :)

A mortgage is a huge loan that uses your house as collateral, you can't get a capital infusion of that size and interest rate otherwise. If you use that loan to purchase a house that appreciates at more than the interest rate you come out ahead, sometimes absurdly so if you buy in the right area.

Additionally your housing costs are fixed. It's not ALWAYS a winner, but it's the primary source of wealth for most people for a reason, especially in the regions that won the globalization game in america (Urban ones).

> Additionally your housing costs are fixed

even if this is true (boilers / repairs / maintenance costs rise over time), your income is probably not. I've toured a lot of apartments which are unaffordable for its current tenants, who can't sell at a lower price either because it would put them "under water", leading to otherwise bustling neighborhoods looking like ghost towns when the shops close for the day (the current owners live in a much cheaper area and only come in for showings)

Say your rent is $1,500/month. That adds up to $18,000 per year. That means you'll need at least $450,000 in the bank, assuming a 4% APY, to earn that $18,000 in interest.

So, you'd need a pretty large amount of capital to start with to make this work.

given that a 2 bedroom apartment in nyc _starts_ at 2 million

you can see how the numbers start evening out :)

I don't see how that changes the fundamental issue. You have to have a huge amount of capital to even get this idea off the ground. Say your rent in nyc is $3500/month, that means you'd need around a million dollars in your savings to get started.

right, but you are unable to even think about buying in nyc without two

once you're in a position to buy, it becomes more convenient to rent until things 'even out'

Except you don't need 2 million or even 1 million upfront to buy. That's what a mortgage is for. To pull off your plan, you would need at least a million upfront.

It gets worse when you factor in that the interest is taxed, whereas Owner's Equivalent Rent is not.

Rising house prices gives you 10x leverage on your huge mortgage, that's why.

Sotheby's market update seems to suggest home prices are still falling: https://www.elizabethlorenzo.com/market-update (page 5)

Given that both rent and house price inflation rates often significantly outstrip the interest rates available on most savings accounts, it's hard to imagine this being a particularly viable route in even the medium term.

i take each year as it comes; eventually enough people will find this shortcircuit too and things will 'balance'

Only if you have that capital that generates the rent in the first place.

Put 20% down on a $450k place. Made over $250k in 5 years and we have still saved the capital for an apartment and more. Plus a family needs space and flexibility.

5 years ago the numbers were very different; in 5 years they may change again?

the only constant seems to be that if you didn't already own land x years ago, you can't win, you can only break even (if you're lucky)

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