If you're asking why I don't own a house, its because I'm not quite ready to make that commitment at this point in my life. :) I'm happy with the flexibility of paying rent, and I pay a REALLY low amount of rent (by San Francisco standards) in a nice place. I'm content.
Renting out a property isn't fun either. Finding suitable tenants and dealing with repairs and other silliness, or paying a property management company that's often despised by tenants, isn't necessarily trivial. Rents might not cover mortgage payments in certain economic periods, especially when factoring in additional expenses. The time that's spent dealing with this headache could be better used doing something else.
Lastly, certain types of mortgages might prohibit renting, and I've seen people caught with their pants down over this.
Owning a place is a burden. It can make financial sense to do so in some situations but I'd be reluctant to buy unless I truly felt I was going to remain in one location for a long (>10 years) period of time. I certainly wouldn't feel like I could just rent it out if I wanted to hop, skip, and jump to a new location after a year or two, or less.
Of course, all my experience is based on buying and renting in the UK. It might be different wherever you are.
I strongly doubt whether the increasing price of housing is sustainable. If it's increasing beyond that of inflation, it's a bubble and people simply just aren't going to be able to afford it. People on the upswing of any market become complacent that prices will always continue to rise, but this isn't necessarily true. The future is yet to be determined, and who knows what will happen.
I have known landlords who have had their properties vacant for several months at a time. Their mortgages continued though and this put a lot of pressure on them financially. There's also the issue of tenants that end up not paying, or paying late, etc.
You're not wrong and your strategy has a strong superficial appeal: property ownership with flexibility! Properties can be rented out, it's possible to find great long-term tenants, and it's even possible to break even or make a slight profit as an amateur landlord. Your strategy can be made to work, it's just the costs probably aren't worth it unless you're a landlord with a good number of properties. I'd argue the actual flexibility is marginal compared to renting; if I want to leave my rented property, I can do so quite easily and with minimal moving costs. I do appreciate the cost of this flexibility too though: I'm paying someone else's mortgage with nothing to show for it in the long term. Also, owning has the distinct advantage of control: nobody's going to be a more accommodating landlord to me than me!
[0] This assumes that the property is a second-hand dwelling, not one bought from a new developer, or been renovated, or any of the other exceptions that come to mind.
The reason I think there's still a bubble is that housing costs are increasing faster than wages. More and more of peoples' budgets are being spent on just protecting themselves from the rain and scorpions, and at some point this cost just becomes untenable and a correction, or worse a crash will occur as the market can no longer bear such prices.
I'm very skeptical when I hear someone articulate that prices must always go up in the long term because they have in the past. They might continue to rise for a while, but eventually ... pop goes the bubble!
Just curious, were your parents an influence in how you view property? I imagine here that many 18-30s whose parents bought property would be more likely to buy for themselves.
Thinking about it, the only friends I can think of immediately who doesn't own their own house here (out of say 20-30 people) are still studying or recently finished. And both would be planning to buy within 2-3 years.
Which isn't to say there is not a speculative bubble - the price of real estate may well be growing faster than it should - but just the fact that it's growing faster than inflation doesn't demonstrate this.
As a result, the price of houses in Australia is completely disconnected from the rental returns, and instead driven by speculators chasing capital gains, and/or income tax minimisation by engaging in negative gearing.
They are. What people neglect to mention is that some investments, houses included, fail to pan out, and leave you worse off than you were before. Simply assuming that a mortgage builds useful equity is financially illiterate: If houses were a sure thing, everyone and every institution would buy them.
The really insidious idea is the idea that buying a house is what a mature, responsible person does, and that you can't be a mature, responsible person unless you're paying down a mortgage. This is marginally less potentially harmful to your future happiness than the idea that mature, responsible people smoke five packs of cigarettes a day.
A lot of people bought a house and fell into the trap you describe. A lot of those people didn't have good job mobility in the local area[1].
1) I would love to see a study from about 2000 to now on all the folks that defaulted and what their down payment was combined with the job outlook for their profession.
We give tax breaks to individuals owning their own home that we don't give to institutions or individuals owning homes to rent. It's conceivable that this makes the difference between "sure thing" and a loss.
This isn't at all to say that buying a house is a guaranteed win - look at it carefully before making any sort of major decision like that - but there's not an automatic theoretical refutation.
There are many cases where renting makes more sense, but the factors are multiple: taxes, interest rates, up front equity, property values, closing costs, rental market, etc.
I was certainly aware it wasn't universal - I should probably have called that out more clearly.
> There are many cases where renting makes more sense, but the factors are multiple: taxes, interest rates, up front equity, property values, closing costs, rental market, etc.
Right, that's pretty much exactly my position.
Case in point: I lost over $100k on my previous primary residence. I couldn't write that off on my taxes because it wasn't an investment. If it were an investment property, I could've.
I have always done the same thing; build something up in a niche, wait until I think it reached it's peak, sell it. Most things I did made between $5k-$10k / month and so sold for a nice amount. With that money I bought a house. Sure you lose some 'freedom' (not really as you can rent something anyway), but you always have the security that you can live somewhere rent and mortgage free. If I would have to do it again, I'd buy several run down houses on big plots of land and one smaller modern house.
Anyway; crisis or no crisis; I don't care; I live for free; next to that there is very little you need (in times of downturn that is; if you make enough next to that you can do anything you like). House IS an investment, but only if you just pay cash (IMHO). With that $100k income/year OP had coming in, in college I would've saved over $50k off that. Few years and plop; cash house. Even if you don't want to live in it the rest of your life it's good to have; takes away heaps of stress later on. At least did for me.
after 10 years of renting you will have nothing
If I would have had the money and foresight to buy the brownstone in Brooklyn that I was renting, I wouldn't have even had to bother with the working and saving for 10 years part, but you don't need to rub that in on a Saturday morning.
A really simple calculation with the numbers from http://homeguides.sfgate.com/calculate-30-year-mortgage-bala... I will be nice and assume that the monthly cost of renting is equal to the monthly mortgage payment. Usually renting is cheaper. I'm ignoring the mortgage interest deduction, but also property taxes, homeowners insurance, maintenance, etc.
After 5 years of renting you have: 5 times 12 times -600 = -36000. After 5 years of owning you have: 5 time 12 times -600 + your equity. your equity is $100,000 - ~$93,000 + difference between what you bought it for and what you sold it for. And that last term can easily be negative. It only takes a 7% decline in value to wipe out the first 5 years of principal payments. If your property declines in value 10% and you sell after 5 years you come out behind.
The numbers for 10 and 15 years respectively are 16% and 29%. Now consider that the average home value in places like Stockton fell over 50% during the great recession.
Given the area and amenities I want from a property, I save significantly more money renting and can live somewhere I actually like; unless I decide to commit to the country for 10+ years -- and I would lose my entire cushion of savings for startup runway funding in the process -- renting makes a ton of sense, even though at the base level the equation of "paying money for someone else's mortgage vs paying money for my own" seems a no-brainer.
http://20somethingfinance.com/a-home-is-not-an-investment/
There was another article aimed at startup founders, but I couldn't find it - found this instead.