this post was submitted on 20 Nov 2024
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[–] rollerbang 5 points 5 hours ago (2 children)

I might still not understand but... Landlords have to pay insurance as well. Why would they be the exception. They have all the same costs and also want to make a profit. How can rent be cheaper then?

[–] Badeendje 9 points 4 hours ago (1 children)

Because if you buy a house, it's just you and the bank, so you need to cover the banks risk for you as an individual, meaning higher interest rates. Larger purchases, or a group of houses are covered by different loan types, flexible rates at for example international rated plus half a point.. and that is mich cheaper. The rate might fluctuate.. but if the government strongarms the fed to keep the loans practically free, companies borrow for free plus half a point. And that is a lot of difference.

[–] [email protected] 3 points 1 hour ago

Also, the landlord is dropping that money into an asset that often appreciates in value. As long as they otherwise have cashflow to cover it, they can afford to "lose" money each month and make a big payday when they sell it.

[–] Tilgare 3 points 5 hours ago

Because on average, I imagine very few rental homes are brand new constructions/purchases so their mortgage is a couple years old and lower than if someone bought that same home today.

[–] [email protected] 12 points 9 hours ago (2 children)

Highly dependent on where one lives I guess. My friend just rented a new apartment and his rent is over double what my mortage payments are. That's also money he is never getting back where as in my case my house is paid in about 15 years after which I own the damn thing and the monthly mortage payment drops off entirely. Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.

[–] [email protected] 9 points 6 hours ago (2 children)

Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.

That's also excluding regular maintenance or emergency repairs that a landlord would be (often reluctantly) responsible for. It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.

[–] trashgirlfriend 4 points 3 hours ago

It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.

Isn't this kind of irrelevant unless you're a house flipper? If you own a house and make renovations to it, it is because you find some practical value in it.

[–] [email protected] 2 points 3 hours ago

My mortage payments for one year would cover all maintenance I've done to the house during the 8 years I've lived here including an entire bathroom remodel. Obviously someone less handy would need to hire someone to do the jobs I've done myself so that helps a little with the costs, but still. The maintenance costs for my house aren't even in the top 5 expenses I have.

[–] Raiderkev 5 points 8 hours ago (1 children)

It's not about what your mortgage payment is. Interest rates are significantly higher now. See how much the same house costs at the current price and interest rates. Most likely it's significantly higher now as both rates and prices have increased.

[–] [email protected] 2 points 8 hours ago

My mortage payment is 520€/month including interests which are tied to Euribor12 and change once a year. My interests now are less than they were a year ago.

[–] [email protected] 34 points 16 hours ago* (last edited 16 hours ago) (5 children)

I am confused, my thought process went like this:

So it's more expensive to own then rent?

Unless you own it and rent it out to others?

Nobody would be a landlord if a dwelling cost more to maintain then to rent out.

So something doesn't add up.

[–] Takumidesh 1 points 1 hour ago* (last edited 1 hour ago)

When you mortgage a home as an investment property, you are leveraging your money 5-1 (on a 20% down payment)

If rent covers 90% of the mortgage, you still make an absolutely huge profit amortized over the loan.

If you consider the tax incentives (interest write off, depreciation, capital gains deferment, pass through deduction) the gap in the rent can be covered.

Consider paying 50k down on a 250k house, the. Paying an additional 15 percent over the life of the loan (around 40k) to cover for gaps in rent.

Over the life of the loan you turned 90 grand into 250 grand (and a house is an appreciating asset, so it will likely be worth more than 250 by the end of it all)

Deduct depreciation (value of the home minus land value over 27.5 years) and carry over losses can even make up for the gap of rent you pay entirely over time.

[–] LengAwaits 5 points 9 hours ago* (last edited 9 hours ago)

I agree, and came in here to say the same thing. I think the data is being skewed by the fact that many (not all, of course) rental properties are subdivided into multiple units (or built that way in the first place). People commenting about how it's considering modern costs, well, they must not have read the first two sentences of the article:

On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.

But the difference has grown much more extreme in recent years as just about all homeownership costs have ballooned.

The only way you can arrive at that 14% number is if you're averaging in multi-unit apartment buildings. Very few, if any, landlords are out there subsidizing their non-family tenants by charging less than the normal costs of ownership. If most landlords are losing money year over year, well... at that point just sell the property.

[–] Pacattack57 6 points 10 hours ago

I believe they are taking into account the cost to purchase these days since interest rates are higher, ergo high mortgage payments.

As someone else mentioned most landlords have locked in rates at this point. Not many new landlords.

[–] [email protected] 24 points 15 hours ago

Most landlords bought the place earlier when home prices and mortgage rates were lower, or they just own the place outright and don't make any mortgage payments.

This article is about choosing whether to buy at current rates or rent at current rates. If you bought a place 10 years ago for half the price it's worth now and a 2% interest rate then you're probably going to be paying less then renting

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[–] Dorkyd68 51 points 18 hours ago* (last edited 17 hours ago) (8 children)

As a homeowner what weighs me down most is insurance, by a large margin. It keeps increasing while the coverage decreases. It's a huge racket in my opinion

[–] dual_sport_dork 34 points 17 hours ago

Racket.

A racquet is what you hit your insurance adjuster with when you're tired of his racket.

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[–] partial_accumen 44 points 18 hours ago (4 children)

On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.

I'd be interested in seeing how they arrived at the 14% number.

When I bought my first home a couple of decades ago I moved out of my 1 bedroom apartment which I was paying a monthly rent of $700/month into a small starter home with a mortgage of $1000/month. 20 years later that exact same apartment rents for $1350/month. All of the years I lived there my house payment never rose higher than the $1000/month mortgage payment while the rent on the apartment apparently continued to increase year over year. Meanwhile I ended up selling the starter home for $110,000 than my purchase prices nearly 20 years ago.

So is their 14% number just calculated on the first month of each (renting vs buying)?

[–] [email protected] 7 points 13 hours ago* (last edited 2 hours ago)

For me, I'm in a condo that we bought with a 15-year mortgage during the pandemic. My mortgage (including escrow/taxes and insurance) plus HOA fees is about $2100/month. My old apartment (including monthly pet fee) was more than that when I lived there. It's currently listed for $2500/month (big complex, not necessarily my unit).

I promise all y'all I'm not spending $400/month on homeowner-specific costs. And, I could reduce my monthly cost by moving to a 30-year mortgage instead of a 15-year mortgage.

Edit: looked up my old apartment again. Holy shit, it's listed for $2750, which doesn't include a pet fee.

[–] [email protected] 27 points 18 hours ago (7 children)

Once you factor in things it mentions like insurance, taxes, upkeep along with others like a down payment then it's very easy to see where the 14% numbers comes from. Frankly, I'm surprised it's only 14%. There's a lot of additional and hidden costs with home ownership.

[–] [email protected] 31 points 18 hours ago* (last edited 18 hours ago) (3 children)

The difference is those "costs" are going towards buying equity that you then get to keep. Maintaining a house is expensive but it is an asset that maintains value. This article really doesn't seem to understand that which shows a very basic misunderstanding of the wealth math that goes into home ownership.

Renting may be cheaper month to month but you're literally pouring that money down a black hole never to be seen in your hands again.

Granted, building equity doesn't matter when you're already have no cash paycheck-to-paycheck for either.

[–] [email protected] 13 points 17 hours ago (6 children)

No, not all of them. Insurance, property tax, and maintenance do not go to equity.

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[–] fishpen0 11 points 18 hours ago* (last edited 18 hours ago) (3 children)

insurance

I was shocked as a homeowner to find that home insurance is not that much more expensive than renters insurance, especially for a condo where the HOA is sharing a large amount of the cost

taxes

I mean, especially if you’re already a homeowner and your assessment is years old, this amounts to less than $1k/yr.

Using the above poster’s example both of those costs annualize out to still be cheaper than rent

It’s actually horrifying how fast rent has gone up. Our mortgage in Boston went from being $1000mo more than average rent to $500mo under average rent in only two years. Even with the tax hike we just passed in my town, my total cost of ownership is far below renting even accounting for the savings we set aside for upkeep and emergencies

Plus this whole time we’ve been improving the property. We now have solar on a 0% apr loan and don’t have electricity bills anymore and the mo billing for the panels is less than our old electric bills. We also used a state program to replace all the insulation and windows at cost with another 0 apr loan. So our gas bill is now only ~$80-100 compared to the $400-500 gas bill in the shithole apartments around here with 200 year old paper insulation. And if we want we can use another state program to replace our furnace with a heat pump and lower that further.

So our relative cost went down even more as utilities keep going up and renters have zero control over their homes energy usage

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[–] [email protected] 13 points 16 hours ago (3 children)

This ignores the difference after 5-10 years. Rent keeps going up.

[–] bitflag 7 points 15 hours ago (5 children)

Maintenance cost and property taxes too though.

[–] seth 2 points 6 hours ago (1 children)

Still cheaper to own, if you have the initial funds or loan to buy and know you won't be leaving the area for awhile. If you rent a property those maintenance and tax and insurance and interest costs associated with owning it are just passed on to you in to your rent, plus a profit margin so the owner can make money off renting it out to you. Owning the same property would cost less, over time, and not just that, but you would have something to show for it.

[–] bitflag 1 points 5 hours ago (1 children)

What you forget is the cost of opportunity: the money that is stuck in a house is money that would yield income if it was invested somewhere else. Long term stock markets typically return 7%+, while rental return (or the rent you save by buying) can be anywhere from 3 to 7% depending on market, minus maintenance and other holding costs.

So there's no fast and hard guarantee that owning or renting is best - you need to run a proper simulation with the right parametres taking everything into account. In markets with low rental returns, renting is typically optimal.

[–] seth 1 points 1 hour ago

Where is the money that is stuck in the house, that would hypothetically be able to be invested if not spent on the house? You have to pay to live somewhere, and if you're paying less to purchase than rent, that is money saved which is available to invest. Do you mean the up-front downpayment money needed to acquire a mortgage in the first place (typically 10-20% of the purchase cost), that could be invested in the market instead for a higher return than slowly building equity through principal payments?

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[–] TropicalDingdong 24 points 18 hours ago (12 children)

Cost of materials and demand for contractors. Even if you DIY it, everything is 3x as expensive as it was before covid. The price of lumber never really went back to where it was before covid. Its clearly price gouging.

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[–] eran_morad 14 points 18 hours ago

We livin in a new gilded age, bruh.

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