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https://michaelbluejay.com/house/rentvsbuy.html Just use the Michael bluejay calculator
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Jan 6, 2024 16:16
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This was mostly me deciding I wanted to make a spreadsheet instead of sleeping, I figured there was probably an appropriate calculator out there (thanks for the link though, this is nice) but wanted to run the numbers myself. Edit: Hmm... does this account for rent inflation? That doesn't seem configurable. GlyphGryph fucked around with this message at 16:55 on Jan 6, 2024 |
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Jan 6, 2024 16:53
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GlyphGryph posted:Edit: Hmm... does this account for rent inflation? That doesn't seem configurable.
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Jan 6, 2024 16:58
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Another thing to consider is that most appliances aren't going to last 30 years, nor roofs, hvacs or hot water heaters. So you need to account for at least one major remodel of a house if you stay in it for 30 years. Don't face that problem with renting. I say major remodel because if you're going to go hog wild replacing things an SO will say something like "well I want that over here" or "I wish we had nicer counters" or something to that effect and then your gutting your kitchen.
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Jan 6, 2024 17:56
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*laughs nervously in 78 tile and grout*
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Jan 6, 2024 17:59
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GlyphGryph posted:I was just throwing those (and any initial maintenance) in the deposit column, since mentally I consider it all "the money you need to make this happen". It’s fine to say that this is money that in the rental scenario you’d be able to invest. What differentiates it from down payment is that it doesn’t become equity and so shouldn’t be counted in wealth. It just goes up in smoke as far as you’re concerned. This is a big part of why your analysis is putting the break-even point at like 3 years instead of the usual rule of 5. The usual story for this analysis is: you will live there for N years, and then you will sell whatever you’ve got and leave. This makes it very straightforward to compare the financial impact of renting vs buying because you end up in basically the same situation (you don’t own anything), just with a different amount of money. It is much harder to directly compare having a bunch of money in an index fund with having a house and a partially paid-off mortgage. But to do that, you do have to understand that what matters is not the notional value of your equity but the amount you will actually receive when you sell.
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Jan 6, 2024 18:17
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GlyphGryph posted:This was mostly me deciding I wanted to make a spreadsheet instead of sleeping, I figured there was probably an appropriate calculator out there (thanks for the link though, this is nice) but wanted to run the numbers myself. I think it's wise to do it yourself and not trust someone else's calculator so that you truly understand the problem, and not let someone else do the thinking for you. There's a lot of value in this exercise That said, I suspect a large fraction of the people using "rent vs buy" calculators are unconsciously doing so to to justify renting, for various reasons
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Jan 6, 2024 20:29
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This sheet assumes you can rent a house for $1600/mo that is equivalent to the house you can buy for $350k. That's a big assumption. It also assumes that a house that was $350k can be worth $1.5M in 40 years. That is a very big assumption. It's true that there are for example houses in the SF bay area that have experienced that level of appreciation in 40 years, but it'd be worth looking for other examples. One big part of this is that the house that sold for $350k today likely has low to mid level finish materials, landscaping, etc. whereas buyers of $1.5M houses expect top tier stuff. In other words, an expensive and total kitchen and bathroom remodel, maybe all the walls too (skim coat/resurface textured walls for example), new landscaping, maybe new windows, etc. When you go to sell that $1.5M house as the seller you probably pay 5-6% commissions to the buyer's and seller's agents, plus cleanup/fixup and remodeling potentially, plus fees. I suspect, although I haven't looked at loads of examples, that there are many markets where there's a faster appreciation from $350k to maybe $600k or so and then a much slower appreciation from $600k up to like $1M. The house and the neighborhood gets older, new neighborhoods with larger houses crop up that are more desirable, job locations may change, a lot happens in 40 years and you're not buying "the average american house" you're buying one specific American house in one neighborhood of one city/county/state. It's good to understand viscerally how these two things stack up but there are so many assumptions built in that you can't actually predict which one will be better for you, 40 years in advance, with a high level of confidence. And if you want to really do this sort of calculation at a scientific level, you need confidence intervals with your assumptions, based on historical data. Leperflesh fucked around with this message at 22:45 on Jan 6, 2024 |
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Jan 6, 2024 22:37
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In 40 years 1.5m won't mean the same thing as it does today. Someone looking at 200k houses in 1984 were looking at high end too.
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Jan 7, 2024 02:04
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Leperflesh posted:It also assumes that a house that was $350k can be worth $1.5M in 40 years. That is a very big assumption. Why? If it isn't worth at least a million by then something super duper ahistorically weird has happened and none of the other numbers are gonna mean much either. In most of those situations I imagine the house is way more likely to have been a better investment than the alternative, since property retains value through weird rear end times better than most other things. And there is no assumption that the place you can rent for $1600 is the same as the place you can buy for $350k, those are just "bottom of market" prices in my area, the cheapest move-in-ready place you can rent vs. the one you can buy, for comparison. GlyphGryph fucked around with this message at 03:26 on Jan 7, 2024 |
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Jan 7, 2024 03:23
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Hadlock posted:That said, I suspect a large fraction of the people using "rent vs buy" calculators are unconsciously doing so to to justify renting, for various reasons They're probably doing it consciously, even. "Renting is just throwing away money" has been drilled into the brains of basically everyone in America (thanks, parents) to the point where people have to run calculators just to justify it to themselves. To not buy feels like you're doing something wrong for a lot of people. (And that's as far as I'll go on the discussion to not rehash "rent vs buy" for the 10,000th time in this thread.)
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Jan 7, 2024 05:06
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A 350,000 house with 2% inflation after 40 years, if I did my math right a couple hours ago, would be about 760,000 The likelihood that we end up with another pandemic or economic crisis in that time is probable but also there might be a deflationary effect like, picking something at random, AI takes everyone's jobs I think the best argument for buying a house, particularly in a place like California or Oregon where voters decided to hamstring the government by capping property tax increases to ~2% annually, is that you can project out your non-maintenance living costs out 40 years to the cent. Sure some cities have rent control but usually there's an asterisk* plus the uncertainty of neighbors and if you're not in corporate owned housing you can be evicted at any time so the owners can live there instead
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Jan 7, 2024 05:17
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Rent has also gotten hosed over the last 10 years, home buyers in that time period made out like bandits in terms of money saved. The little 2-BR place that I was renting a decade ago has grown in price by 120% whereas the rent inflation value at michaelbluejay suggests it should have only grown by a mere 35%
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Jan 7, 2024 06:20
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Leperflesh posted:It also assumes that a house that was $350k can be worth $1.5M in 40 years. That is a very big assumption. $350k to $1,500k over 40 years in an annual increase of a little less than 3.8%. Not too unreasonable using the past as a guide unless you’re in the rust or corn belts, and even then… (To put some actual numbers on it: the Fed is showing me 4.4% annual home price appreciation in the 40 years since 1983, but that’s not exactly apples to apples since it includes new builds.)
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Jan 7, 2024 15:01
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It should be noted that that 1.5 million value is not "the value of the home increases" as an assumption but rather "the value of the home stays exactly the same" as an assumption combined with "and this is roughly how much less a dollar will be worth", which is the important core point. You can assume the home will be worth less by lowering the inflation number, but if it is, the investments will also probably be worth less by the same percentage, deflationary periods and whatnot don't really mess the underlying assumption that the stocks will have have steady growth and the home value will be roughly maintained and the actual numerical value of the home is kind of irrelevant, since it's just based on the value of money. If I was calculating actual property value growth in line with my region, the value of the home value would have actually been much higher. I kind of want to add an extra cell for "And this is how much those numbers would mean in today's dollars" now.
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Jan 7, 2024 15:25
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GlyphGryph posted:I kind of want to add an extra cell for "And this is how much those numbers would mean in today's dollars" now. Further to this point, we bought our house in October 2020 for $670k, and best estimates right now put it at about $790k. Checking the inflation calculator and we get… oh.
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Jan 7, 2024 15:43
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Hadlock posted:A 350,000 house with 2% inflation after 40 years, if I did my math right a couple hours ago, would be about 760,000 Random comment, but the Rule of 72 is helpful in quickly estimating questions like this in your head. 72 / interest rate = years until the principal doubles So at 2%, it’d be ~36 years for $350K to double. Just in case anyone finds this helpful
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Jan 7, 2024 16:05
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I assumed the spreadsheet was inflation adjusted. So, $1.5m in 2024 dollars. e. If the $350k house isn't the equivalent home to the rent, then the sheet isn't accounting for whatever value that quality of life offers. So you're literally buying more, or less, home then you are renting, and that has value. Leperflesh fucked around with this message at 00:42 on Jan 8, 2024 |
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Jan 8, 2024 00:38
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QuarkJets posted:Rent has also gotten hosed over the last 10 years, home buyers in that time period made out like bandits in terms of money saved. The little 2-BR place that I was renting a decade ago has grown in price by 120% whereas the rent inflation value at michaelbluejay suggests it should have only grown by a mere 35% This is a very real thing. I've said it before, but the two big things going for buying vs. renting are, in order: 1) lifestyle poo poo like being able to customize your living space 2) the ability to freeze your non-maintenance housing costs, in both absolute terms (no one is going to raise your rent) and inflation-adjusted terms (you're paying year 20 of a 30 year mortgage in 2024 dollars, not 2044 dollars). Now, yes, you have to budget for other stuff. You need to keep an eye on the roof and when the water heater shits the bed at 3AM that's your problem to deal with, not a landlord's. But even setting aside things like appreciating property values having your monthly, repeated payment for housing stay fixed across a very long time line - and eventually drop to zero if you pay off the mortgage - is a loving big deal. My in-laws paid off a late-80s mortgage a few years ago and at the end it was comical what they were paying monthly for housing vs. what I was. IIRC their monthly payment was something like $300 for a two story, 4br, ~4k sqft house in the burbs while my wife and I were living in a 1br 500sqft student slumlord special for almost $1k. This is, of course, contingent on actually being able to stay in one place for a very significant fraction of your mortgage's life span. Buying makes zero sense if you're not staying at least five years, and frankly I don't think the hassle is worth it unless you're there 10. But if you can stay in one place for a decade or more it can be a good deal.
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Jan 8, 2024 14:50
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Cyrano4747 posted:My in-laws paid off a late-80s mortgage a few years ago and at the end it was comical what they were paying monthly for housing vs. what I was. IIRC their monthly payment was something like $300 for a two story, 4br, ~4k sqft house in the burbs while my wife and I were living in a 1br 500sqft student slumlord special for almost $1k. We're at a point in time where due to inflation and interest rates along with a healthy down payment anyone on their second house or so should be able to make (20%) that my house, worth more than double the houses my sister is looking at, will end up with a similar monthly payment (I've been in this place 6 years and refied at near 3%). She is a typical first time buyer putting down something in the neighborhood of 10% and will likely be on the hook for around $200/mo for an HOA because she's looking at condos. It's absolutely astounding and I don't think most people "get" it, because humans aren't good with numbers and timelines like this and they also rarely think about it unless their weirdos like us.
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Jan 8, 2024 14:57
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I've paid three months of my mortgage so far, paid an extra 1.5 months on top of what I owe, and cut like six months off my mortgage. So those dollars are effectively worth 4x right now. Interest rate poo poo adds up quick!
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Jan 8, 2024 15:34
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There is of course a situation where it makes perfect sense to buy a house. Just that there’s so many variables involved and it’s so contingent on chance and the local market that those situations are vanishingly rare these days.
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Jan 8, 2024 15:36
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Pollyanna posted:There is of course a situation where it makes perfect sense to buy a house. Just that there’s so many variables involved and it’s so contingent on chance and the local market that those situations are vanishingly rare these days. Another way of looking at this is: "Does it make sense to buy a house to rent vs the opportunity cost of investing elsewhere" and I think the answer is still a qualified "Yes, that is a viable way to make money". So flipping that around, it seems like it's worthwhile to own vs renting. That's not perfect but I struggle to see owning as a "vanishingly rare situation that makes sense".
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Jan 8, 2024 15:49
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Pollyanna posted:There is of course a situation where it makes perfect sense to buy a house. Just that there’s so many variables involved and it’s so contingent on chance and the local market that those situations are vanishingly rare these days. Oh, I don't know about that--or in any event, over four million people a year disagree with you. Besides, there are factors outside sheer dollars and cents that influence the decision, and they can be very, very important ones.
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Jan 8, 2024 16:10
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Business, Finance, and Careers › House-buying thread - Don't buy a house
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Jan 8, 2024 16:18
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Pollyanna posted:There is of course a situation where it makes perfect sense to buy a house. Just that there’s so many variables involved and it’s so contingent on chance and the local market that those situations are vanishingly rare these days. it can definitely feel like that in  . Something got listed in our neighborhood that was just about what my wife and I would be looking for but at current rates it's not really workable.
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Jan 8, 2024 16:20
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Pollyanna posted:There is of course a situation where it makes perfect sense to buy a house. Just that there’s so many variables involved and it’s so contingent on chance and the local market that those situations are vanishingly rare these days. I don't think it's vanishingly rare at all, but I do think that a lot of people who want to own a home straight up can't afford it, especially first time home buyers. The notion of a starter home seems to have completely vanished, and it's a hell of a lot more of a lift to jump into buying what should be your 2nd or 3rd house (SFH, 3+ BR, multiple baths, the kind of thing a mid-career person would get to house their growing family) from a dead stop. I think a lot of the pessimism in this thread is precisely because it's a thread that sees a disproportionate number of people who want to buy but can't afford to. edit: it's important to remember that life exists outside of HCOL areas too. If you're willing to move to the burbs and commute 45 minutes in to work a whole poo poo ton more options become available, and if you don't have to live in LA/NYC/DC/Boston/Seattle/etc a fuckload more options open up. Which, yeah, loving blows if your job requires you to be in a specific HCOL area but doesn't pay you enough to buy, or if you're unwilling to move out of the city center for lifestyle reasons.
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Jan 8, 2024 16:29
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I also have seen people who say "If I'm renting I am ok with <smaller, cheaper options> but I don't want to buy unless I get <larger, nicer>", which is fine but makes it a lot harder to compare apples to apples.
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Jan 8, 2024 16:40
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Lockback posted:I also have seen people who say "If I'm renting I am ok with <smaller, cheaper options> but I don't want to buy unless I get <larger, nicer>", which is fine but makes it a lot harder to compare apples to apples. I'm weird cause I was specifically looking for a smaller home to buy. Don't want to put in money (and paying for things like furniture and heating/cooling) for space I'm not going to use. And my yard is a bit bigger because the house is smaller!
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Jan 8, 2024 16:51
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Lockback posted:I also have seen people who say "If I'm renting I am ok with <smaller, cheaper options> but I don't want to buy unless I get <larger, nicer>", which is fine but makes it a lot harder to compare apples to apples. The lower end options just don't exist in a lot of areas for homes, too. Just as one data point, the first friend of mine to buy a house got this little ~900sqft dump of a stand alone home in a mildly shady part of a college town. Not a bad neighborhood, but just too close to more industrial areas and with a touch of low grade poo poo like houses dealing pot out the back door. Her and her husband paid just over $100k for it. Pretty typical post-war construction in that the house was smaller but it was reasonable for the lot and had a yard. I talked to her a few years ago and that whole part of town got bulldozed one building at a time and replaced with new homes built right to the lot line, and everything is $300k+ now. It's loving Eugene, Oregon so it's not like there's a huge employer dumping high earners all over the market, either.
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Jan 8, 2024 16:52
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Lockback posted:Another way of looking at this is: "Does it make sense to buy a house to rent vs the opportunity cost of investing elsewhere" and I think the answer is still a qualified "Yes, that is a viable way to make money". So flipping that around, it seems like it's worthwhile to own vs renting. That's not perfect but I struggle to see owning as a "vanishingly rare situation that makes sense". Agronox posted:Oh, I don't know about that--or in any event, over four million people a year disagree with you. KYOON GRIFFEY JR posted:it can definitely feel like that in Cyrano4747 posted:I don't think it's vanishingly rare at all, but I do think that a lot of people who want to own a home straight up can't afford it, especially first time home buyers. The notion of a starter home seems to have completely vanished, and it's a hell of a lot more of a lift to jump into buying what should be your 2nd or 3rd house (SFH, 3+ BR, multiple baths, the kind of thing a mid-career person would get to house their growing family) from a dead stop. Maybe my problem is that the greater Boston area, even places like Malden or Waltham, simply aren’t where I want to settle down given my current means.  Maybe it’s time to move on.
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Jan 8, 2024 17:00
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Lockback posted:I also have seen people who say "If I'm renting I am ok with <smaller, cheaper options> but I don't want to buy unless I get <larger, nicer>", which is fine but makes it a lot harder to compare apples to apples. This is essentially skipping the starter home, so yeah starting with the "forever home" is often something that'll never happen. HCOL area starter homes are now out of reach for a large proportion of the population, but it makes the upgrade so much more doable, or at least attainable. Cyrano4747 posted:edit: it's important to remember that life exists outside of HCOL areas too. If you're willing to move to the burbs and commute 45 minutes in to work a whole poo poo ton more options become available, and if you don't have to live in LA/NYC/DC/Boston/Seattle/etc a fuckload more options open up. This is exactly what I did. Sold the 900sf starter in a HCOL city in a not great part of town, then bought a cheaper 2000sf home in a top neighborhood in another state for less. Zero regrets, as I can easily work remote, but if I need to work local we're comfortable enough to take a big salary cut. The move would have sucked if I gave one poo poo about clubs or nightlife or whatever kids do these days, but I don't.
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Jan 8, 2024 17:01
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Cyrano4747 posted:The lower end options just don't exist in a lot of areas for homes, too. Just as one data point, the first friend of mine to buy a house got this little ~900sqft dump of a stand alone home in a mildly shady part of a college town. Not a bad neighborhood, but just too close to more industrial areas and with a touch of low grade poo poo like houses dealing pot out the back door. Her and her husband paid just over $100k for it. Pretty typical post-war construction in that the house was smaller but it was reasonable for the lot and had a yard. This is what high cost of permitting/high cost of land/single family or low density zoning drives the market to do. Along with putting in barely above builder grade finishes with some crown molding and calling it "luxury" because of the former making "the 4 corners" be the expensive part.
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Jan 8, 2024 17:03
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Cyrano4747 posted:Which, yeah, loving blows if your job requires you to be in a specific HCOL area but doesn't pay you enough to buy, or if you're unwilling to move out of the city center for lifestyle reasons. As is, you're frequently stuck trading lower price per square foot for absolute car dependency, lower availability of daily essentials and basic services, and a larger percentage of regressive neighbors. I don't need to live in a metropolis, but the metropolis is the only spot even vaguely satisfying my idea of good living, unless the alternatives just aren't marketing themselves well.
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Jan 8, 2024 17:07
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Cyrano4747 posted:The lower end options just don't exist in a lot of areas for homes, too. Just as one data point, the first friend of mine to buy a house got this little ~900sqft dump of a stand alone home in a mildly shady part of a college town. Not a bad neighborhood, but just too close to more industrial areas and with a touch of low grade poo poo like houses dealing pot out the back door. Her and her husband paid just over $100k for it. Pretty typical post-war construction in that the house was smaller but it was reasonable for the lot and had a yard. Yeah, it's a two way street though as a lot of those homes got bull-dozed because the demand was so low it made sense to buy them to tear them down. I mean, end of day the problem with housing in the US is 100% supply-side, thats why housing AND rental prices are hosed. But it doesn't help that people are just not as interested in the smaller homes as much anymore.
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Jan 8, 2024 17:10
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Cugel the Clever posted:I'm definitely the latter, though it gets my goat that I don't hear of suburbs or small towns trying to replicate the walkable neighborhoods some young people are increasingly sticking to the cities for. There's nothing stopping Suburb X or Small Town Y from revising their zoning rules, improving their sidewalks and bike paths for a pittance of what their car infrastructure costs, and fighting for dependable transit access to their nearest hub. Dunno where you live, but this has been happening for decades in and around Philadelphia in some of the various larger exurb small towns. Walkable small towns are definitely a thing. It goes along with "revitalizing" what often was just a bunch of closed down businesses that lost against the big box stores you need a car to get to.
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Jan 8, 2024 17:10
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Cyrano4747 posted:The lower end options just don't exist in a lot of areas for homes, too. I've finally come to accept that condo units are the only real starter homes in my HCOL area. SFH (including townhouse) prices are not going to come down in the DC metro area. Just filled out a pre-approval today to get the process started to star the search for a condo in the same neighborhood where we rent.
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Jan 8, 2024 17:12
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Uthor posted:I've paid three months of my mortgage so far, paid an extra 1.5 months on top of what I owe, and cut like six months off my mortgage. So those dollars are effectively worth 4x right now. Careful with this logic, because it can be taken too far. Money you spend paying down a loan early is money that you can't invest. If the interest rate is, say, 4%, and the average return on the stock market is 7%, then you're missing out on 3% of the potential value of your money by spending it early to reduce your interest rate payments. Of course, the higher the interest rate gets, the less sense this makes, and there can potentially be a point where your priority is paying down the loan ASAP. I don't know that we'll ever have interest rates that high again though. Contrariwise, when interest rates are lower, there's even less of a reason to pay off loans early. Back in 2011, I got a 15-year mortgage with a 3% interest rate, and I really should have gotten a 30-year mortgage with a 3.2% interest rate instead.
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Jan 8, 2024 18:38
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New england is chock fill of walkable towns outside the urban areas. They are also stupidly expensive to live in though.
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Jan 8, 2024 18:40
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TooMuchAbstraction posted:Careful with this logic, because it can be taken too far. Money you spend paying down a loan early is money that you can't invest. If the interest rate is, say, 4%, and the average return on the stock market is 7%, then you're missing out on 3% of the potential value of your money by spending it early to reduce your interest rate payments. Of course, the higher the interest rate gets, the less sense this makes, and there can potentially be a point where your priority is paying down the loan ASAP. I don't know that we'll ever have interest rates that high again though. Contrariwise, when interest rates are lower, there's even less of a reason to pay off loans early. Back in 2011, I got a 15-year mortgage with a 3% interest rate, and I really should have gotten a 30-year mortgage with a 3.2% interest rate instead. This is correct but you also have to make sure you're making the correct comparisons. Namely, that hypothetical 4% on your mortgage is guaranteed. You should be comparing it to the most conservative types of investments, because that's what your 4% mortgage fallback essentially is. If your mortgage is 4% and you can get a two year CD at 5.5%? No brainer, pay the minimum on your mortgage, buy a CD, and enjoy the extra 1.5% But if the CDs are yielding the same as your mortgage and the point of comparison is the stock market you need to think much more carefully about what your particular situation is and what your risk tolerance is like, because expecting perpetual 7% returns on the stock market is how you become a California public employee pension with solvency issues.
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Jan 8, 2024 18:52
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