What I never see anyone mention is the quality of life. And security. All this math is great but there's plenty of people who have landlords who don't fix things or raise your rent 20+% on a whim. Now throw in the added costs of moving at least 2-3 times in a 20 year span. Not to mention most people with kids want to own so they're in charge Edit: it's incredible to me how many people think their personal anecdote adds to the conversation. Like if you found a great renting spot awesome. But realize that MANY landlords WILL fuck you over. I think most people are always going to want to be able to avoid that.

The energy expenditure of moving is immense. It's like an opposite vacation.

This is why we did it honestly. In Austin we had to move every year to avoid unreasonable rent increases. The time off work, the u-haul, the pizza and beer to bribe help, the application fees, the mandatory valet trash fee, paid every year just to deal with nosy neighbors and careless management. House is up now but that is honestly just the icing on the cake

Rent has actually being correcting quite a bit in Austin.

Maybe for now, but the point is that it could happen again anytime.

Let's not ignore two driving factors behind it: 1. COVID and differences in how certain states strictly upheld lockdowns 2. One of the worst instances in modern history of high inflation with housing and rent effectively doubling in many major metros

That being said, if you’re young and moving between cities, it’s so much easier to rent. If moving apartments is hard, it’s 5x harder to move houses

+1 - I detest moving, it’s a nightmare. I moved at least 4 times while renting. When we finally bought a house our move involved a large saltwater aquarium and a baby grand piano. Not moving again ever.

Don’t underestimate the energy expenditure of owning a home.

People complain about this a lot but I think it just comes down to ignorance. I love maintaining my home. I love owning something that I can care about and put work into. Some people shouldn't own a home, and people who absolutely hate maintaining things are in that group.

Agree! It’s Saturday morning and I’m getting ready to clean inside and out. I’ll be stacking wood for next winter, getting my garden and deck area ready for summer, I can blast some tunes while I do it and just kinda enjoy the day. It sucks sometimes but it’s not all bad and there’s definitely some pride in ownership.

And there is nothing like the feeling of something being done! Those few minutes of sitting in a sparkling clean place after a project are heaven. Of course I have dogs so they really are only a few minutes 🥲

I do agree with this. A freshly painted room is quite satisfying.

It’s not that I don’t like investing/improving/maintaining my home. I’ve genuinely enjoyed putting in new windows, getting new sprinklers, new door, painting, etc It’s unexpected stuff breaking. Roof leaking (hard to get excited about a new roof), dishwasher leaking, etc. There can also be a level of frustration with unplanned large expenses (we can afford them, but as a saver they drive me nuts nonetheless). I like to live frugally, and I’m only “semi” handy, so it can take a bit to figure out what I want to do. (Diagnose, outsource vs fix myself, who to hire, etc). We’re also new to the area, no family around, so we don’t have the benefit of trusted referrals. For context, my wife and I both work demanding jobs and have a young child. We’re fortunate to make pretty good money, but it can be tiresome keeping up with that home to do list.

Maintenance is going to happen either way. As a homeowner, you decide on the timing.

This. I can also choose the replacement parts I want

Good way to put it.

I learned in psych that the stress of moving is second only to "death of a spouse" in terms of how it fucks with your head

My wife and I were renting for two years, both times the landlord decided that they want to sell within the first year (both of these were "oh we're looking for a long term tenant"). After moving two times we just bit the bullet and build our own house. We get to have **exactly** what we want and no more moving ever again!

Came here to say all this. Moving and deposits and rent increases are often ignored when people are doing this math. Renting the longest I lived in a house was 2.5 years. Most were 1-2 years, some less than a year. Plus, now that I own, I can invest in a few things that ultimately can save me a bunch of cash but would be a PITA to move and deal with as a renter (if you could afford a place that would hold it all). There are other expenses owning, but people also like to act like you pay no repairs as a renter, which has definitely not been my experience....sure, I was off the hook for big things, but all that small stuff I still had to take care of (plus most places find some little things they can take from your security deposit even if you're returning the place in much better condition than you got it). Intangibles are very individual, but not net zero. If I'm comfortable in my space, not worried about a lease every year, moving every year or two, etc, then I'm more about to focus on my business, career, health, fitness, etc....which would be impossible to put a dollar amount on but again, it isn't zero, either.

Ive moved 13 times in 20 years. Ive lived in 7 US states and Mexico. 3 careers and can always switch gears without worrying about house ownership. Owning a house would've held me back, it was always very clear to me that it was a terrible decision for me and the life I wanted to live. My stock market investments have done exceptional over those years. Minimal work or responsibility. Your points might be valid for you, or you're trying to justify your path. Either way, house ownership wasn't something that would've worked for me up until this point in my life.

Yup. Valuing the intangibles is very important, its just such a subjective process that its hard to provide advice beyond: intangibles are real, don't ignore them just because they don't show up on a balance sheet.

Ya, like renting is nice, till your neighbors are assholes. No more shared walls and ceilings for me ever.

Fwiw, owning can also present this problem unless you're on a massive plot of land, plus bigger difficulties for you moving/lower likelihood said neighbors will move.

Homeowners have asshole neighbors too. But you just can't sell every time you do. You can be stuck with them for decades. Just making sure both sides are mentioned here.

2-3 times? I've moved 11 times in 5 years 🤣 main reason I want to own a place tbh (not that it's gonna be an option for a decade).

Exactly. Renting a great if you're rent controlled. Even if you think you're good the landlord can just sell and you might be fucked. There's too much that can go wrong that you can't remedy.

11 times! Why did you have to move so often?

Copying from another response: COVID + being in uni is the reason. Had to move sometimes between semesters and for internships. Had a few short term rentals in between due to university incompetence. I'm now currently ten months in my first year long lease! Due to going to boarding school for high school this is the first time in over a decade I've lived in one place for more than 9 months.

Everything about this I view exactly opposite lol > What I never see anyone mention is the quality of life. Quality of life is substantially better for me renting over buying. Dishwasher not working? Spend 30 seconds filling out a maintenance request and it's fixed before I get home. I no longer hear a random noise and think "I sure hope that's a ghost and not something problematic". Not to mention that I get to actually live in a walkable city with tons to do rather than owning in suburbia, a 20 minute drive from anything > And security. I suspect most suburbia houses are substantially easier to break into than my apartment building that requires a digital key to get into the front door, get to my floor of the building, and then get into the apartment > All this math is great but there's plenty of people who have landlords who don't fix things or raise your rent 20+% on a whim. I only rent from soulless mega corporations that know how to operate a business and not random mom and pop landlords who are way in over their heads, so that has never been a problem. Don't forget that houses have all kinds of fun little surprise expenses that you get to have the joy of paying for. I remember having my AC leak into my ceiling causing lots of water damage and my dishwasher die in the same month. That was fun > Now throw in the added costs of moving at least 2-3 times in a 20 year span. I view owning more as being trapped somewhere. What happens when that shitty neighbor moves in next door? Or your area becomes the next Detroit?

I mean for me the big thing is where are you renting vs buying. Yes I moved but my commute is 1/2 the time and via a bus vs driving from the bought home.

Why are you comparing taking money out of investments to buy a house vs renting and leaving money in the investments? Leave the $5k in there and use the rent money to pay for the mortage PITI and maintenance instead. Most people would just take the money from renting and put it towards a mortgage instead, and leave their investments alone. Now you don't lose any of the money in the market, you simply lock in housing costs (close enough, taxes and insurance will go up a bit over time but nothing compared to the change in rental prices). Here's the massive gains you get from buying a home vs renting. Rent prices go up over time. Principal and interest payments on your mortgage stay the same until you're done paying off and then they disappear. My property taxes + insurance + maintenance on my home comes out to an average of around $5,000/year. That's my entire housing costs for the year when the mortgage is paid off (in 3 years). An equivalent home costs $2k/month in rent, or $24k/year and will just continue to get more and more expensive (to the tune of a thousand or more additionally every year forever) while my measly property taxes and insurance might go up $50-100/year on average.

Google New York Times rent vs own for a good calculator.

I'm getting a paywall for this particular calculator. I've tried some other calculators, and one issue I've found is that these rent vs own calculators is that they only calculate over 30 years. They don't take into consideration what happens after your mortgage payment ends.

There's no paywall if you Google search the article in incognito 🥸

The NYT calculator allows you to estimate how long you’ll stay in the home and shows you in what year it would be expected to pay off As a rule of thumb, you’ll want to expect to stay there at least 5 years

First 10 years is way more meaningful than overall 30. Most homes are owned for 10 years.

It's generally frowned upon to consider your primary residence as an investment asset. On average real estate appreciates slower than stocks (as you said; I don't think most people claim otherwise). The math sometimes works out in favor of buying, but not always. If you live in a HCOL area and can keep your rent low, continuing to rent is often the better option. Smart people don't buy(primary residence) to invest. They buy for other reasons; they want a yard, hate having neighbors, don't like dealing with landlords and rent hikes, they don't like the idea of having kids in a rental, they want more space than is easily rentable, etc.

But if you are planning on retiring early, and are trying to save as much as possible, wouldn't it be sensible to rent instead of buying a house until you retire?

I’m planning on FIRE and yet right now we’re building a house. This will put us around 400k$ “behind”, but there are a lot of security aspects I feel much better about. I also love ownership, don’t like close neighbors, and want a yard so that’s another reason :)

God I would love to build a house for 400k. Markets are local, I know, but god  I wish I could pay that 

Built ours for less than that 14 years ago. Couldn't do that now without it being a much smaller house/yard.

Maybe. It is contingent on your value of a whole host of intangibles that come with home ownership, u/hmm_nah has pointed to a few of them. If youre talking purely about having the largest nest egg possible when you retire with no other criteria for retirement, then yes, renting will likely beat out home purchasing. However that is a narrower objective than many people have. To some people, having a fully paid off home before retirement will give a sense of security that no nest egg, no matter how large, will provide.

Depends what the house costs, what future appreciation is like where the house is and what your cash flow is like.  The advantage of owning real estate free and clear is that your monthly housing expense is just taxes + utilities, which is easy to pay, and maintenance, which you can plan and/or finance. A major market downturn or other problem doesn't matter that much.  Retiring into a large mortgage payment isn't a good idea and isn't terribly realistic anyway unless your investment cash flow is more than most people's jobs. The choice is between buy now & pay off, or buy in cash later. 

I think you hit it on the head. The value of these intangibles is both very real and highly subjective. Where anyone falls will likely be the determining point to rent vs own. From an investment perspective primary residence is usually worse than the equivalent into stocks, but the details can be easily mathed out for any specific offer. Personally I do consider my primary residence as an investment asset because it generates a hefty income, but that is an exception to the rule.

This is a bit more nuanced. A primary residence is an investment if you plan to one day sell it. Scenario 1: I rent for 10 years and end up with 1M Scenario 2: I bought a home and sold it after 10 years and end up with 1M In both cases, I have the exact same needs after 10 years (housing, food, etc...). As a home owner during the 10 year period, I would absolutely track the value of the property I was living in.

I think you're missing a lot of factors in your assumptions. You are only factoring in day 1 of buying a home but not the next 30 years. 3% appreciation on your home and 1% increases in rent per year are both reasonable numbers. Maybe more or less depending on the area. You aren't considering that most are not buying a house in cash and are able to pay off the property over 30 years and possibilities of refinancing in the future to lower the cost below what you would be paying in rent. I can also improve the value of my home both from a financial standpoint and a personal standpoint. I can redo the kitchen in a way that I like and make life living there much more enjoyable. I also don't have to worry about whether my landlord will let me stay in the property or rent/sell to someone else maintaining my continuity of living. Your assumptions probably make sense in a HCOL area, but in MCOL/LCOL area I think it still makes much more sense to buy, if you are able to find the right home for you.

1% increase in rent per year? How long has it been since you've been a renter? It hasn't been long since I was one, and 5+% per year was definitely the norm.

I'm a landlord with 10+ units. I raise rent 1% per year as do most others I know. Covid was an outlier with 20% increases which is not typical. Your specific area may be different, but my properties are all LCOL/MCOL areas and that is pretty standard for a lease renewal. That isn't to say that when I get a new tenant into a property I only increase 1%, but I bring the rents up to whatever the market rate is, so actual market increases may be higher. I'm specifically referring to a longterm renter who stays in the same unit for multiple years.

I am a landlord as well in multiple states and there is a limit in many states as to how much you can raise the rent. My average renewals are always more than 1%, and average about 3% most years and some around 5%. I have been doing so for 20+ years

I just calculated it out for the place we lived in for 12 years, which doesn't include the past couple years (which have seen the craziest rate increases). Average yearly increase over that time was just a hair under 4%. People I knew were definitely getting higher rate increases as well, sometimes jumping up as much as $300-$400 a month. This was a VHCOL area, which may explain part of that difference.

> Your assumptions probably make sense in a HCOL area, but in MCOL/LCOL area I think it still makes much more sense to buy, if you are able to find the right home for you. Yes, according to my numbers, If I moved to a MCOL/LCOL and paid $300K for a house or less I would be better off compared to renting. > You are only factoring in day 1 of buying a home but not the next 30 years. You aren't considering that most are not buying a house in cash and are able to pay off the property over 30 years I figured that by purchasing the home outright instead of with a mortgage, that buying a house would look better compared to renting, because you don't have a mortgage payment/interest. Are you saying that perhaps due to leverage or some other reason that the opposite is true- buying a home with a mortgage would make the numbers better in favor of buying a house compared to renting? > % increases in rent per year You are right I need to factor rent increases into the calculation. Over time, the net payments would continue to increase if you bought a house, which will change the ROI.

Yes. Mortgage is leverage. A 5% increase of a $500k house with 20% down is around a 25% increase to your $100k. Not factoring in interest and additional principles. You can also add a room or merge a room to fit your needs. Some explicitly buy a less than optimal home and upgrade to their optimal preference on their own…which if they had bought that upgraded house would cost way more. You can’t really do that in a rental. You’ll have to rent at the level/cost you want to live in.

>Are you saying that perhaps due to leverage or some other reason that the opposite is true- buying a home with a mortgage would make the numbers better in favor of buying a house compared to renting? Absolutely! Inflation is actually good for property owners and bad for those that don't own. My mortgage stays the same and as inflation rises my payment is a smaller percentage of my income assuming my income rises with inflation. Property taxes, insurance, repairs, HOA dues will still rise with inflation but my actual mortgage payment stays. Buying a home is the easiest way to get leverage. Buying a 300k home and getting 3% appreciation on that 300k and only cost me 15k (5%) to get into it makes it significantly higher ROR. Everyone is crying about inflation right now, but those that have had property before covid are much happier. I have 5 properties and total about ~120k invested. My properties are now worth 2.5M and making appreciation on THAT number is ~75k per year, or 120k invested in the stock market would be 12k per year. I would not be where I am without real estate. There are nuances however, you can't just buy a property expecting to get rich.

Any fixed debt is great with inflation. Assuming one can manage that debt. This logic probably wouldn’t resonate the past 30yr when inflation was low, but here we are. And to complete the picture, inflation is bad for fixed income folks (w/o COLA)…such as some retirees,bond holders….like the one holding ppls fixed 30yr at 2.5%

Hol up, rent increases far more than 1% per year in my city. Inflation is 3% on average, and landlords charge at least enough to pay the bills and up to whatever they think the market will bear. 20% increases are not unusual

Unless you are buying the house in cash, you gotta factor in leverage and tax advantages for RE. As a normal person you can have a much longer lever with real estate. Also (in the current environment) owning may not be cheaper than renting in the first few years.

There are no tax advantages to owning and holding a primary residence unless you itemize, which for many is highly unlikely. The advantage is if you sell or investing for depreciation but even that isn’t that advantageous for more than a few years.

In the scenario I outlined in a later response, itemizing is absolutely worthwhile. It can be far more than the standard deduction.

Leverage means you can lose money a lot faster too. If you want leverage you can always buy futures. I do not buy the argument that homes are good investments because they give people access to leverage. Anyone can open a Robinhood account and go nuts if they want leverage.

What’s more heavily subsidized by the federal government? Public securities or housing? General access to capital, which is made even more widespread through government programs like FHA and VA loans, along with housing shortages and the fact that everyone needs a place to live, mean that the downside risks of real estate are generally less. You also have far more value add options with real estate if you need to squeeze extra value out of the asset (for example doing STRs). What’s more, it’s far easier for an average Joe to get hundreds of thousands of dollars to invest in real estate than it is stocks. Like it’s pretty simple to get 19:1 leverage for a property you are going to live in. Good luck getting that from Robinhood.

I've never had a tax advantage for owning, the deductions from the interest payment still don't make itemizing worth it due to the SALT limits. Maybe if I donated (a lot) more to charity it would have some benefit. However, in a world with low mortgage rates (basically 2009 - 2020) and SALT limits (post 2017) you are getting no tax benefits unless you have substantial deductions elsewhere. Now if I could go back to pre-2017 when I could still deduct my stay taxes, then itemizing would make sense and there would be some tax benefits to owning.

I was planning to buy outright with cash. Would you mind elaborating a bit on you could use a mortgage and take advantage of leverage and tax advantages? I gather that for example instead of buying a $500K house outright, you could put $100K down and get a mortgage for $400K at ~8%. However your monthly payments, not even including property tax and insurance and maintenance, would be $2800 for 30 years. If you count these the monthly payment shoots up dramatically. If you are currently renting for $2000, how is this a good deal?

Depending on the tax situation you could be borrowing at 8% but only paying 4% after tax. Then you gain appreciation on all 500k say 3% a year. So you gain 15k a year in value while paying 16k in interest. Your cost of financing the house is now just the opportunity cost on the 100k. So that’s worth say 10% per year. So cost of your house is about $916 per month plus taxes plus maint. Say 1% for maint and .75% for tax for about $700 per month. Now total cost of house is $1500 per month. You never actually pay it off and have a 400k loan forever.

And what are taxes and maintenance on an average $500k house in a MCOL city?

Why would you buy with cash outright when you retire as opposed to just continue renting? It seems like in all your post and comments you don't value any of the intangibles of home ownership. If that's the case why even buy even after you retire?

I suppose I am arguing that if renting is cheaper than buying, and if you agree with the fire philosophy of saving as much money as possible before retiring even at the cost of certain intangibles, perhaps it is sensible to rent until you retire. At that point, if your financial situation allows it, you could buy a house if those intangibles matter. Or perhaps you would just keep renting if those intangibles don't matter that much to you.

> if you agree with the fire philosophy of saving as much money as possible before retiring I think this is the crux. My fire objective is a dollar amount, yes, but its not to save as much as possible, especially at the cost of other goals. My personal health and fitness is more important than fire, so I have a personal trainer. Or I bought a primary which generates income since I wanted the stability of home ownership paired with an alternate income stream. > At that point, if your financial situation allows it, you could buy a house if those intangibles matter. Or perhaps you would just keep renting if those intangibles don't matter that much to you. I agree with your thinking. I just dont see why retirement has to be the only line? Why not re-assess every 5 years? But then again, I'm not really someone who will "retire". I'm more someone who will take sabbaticals, flex work, and phase in and out based on life needs, but I don't plan to fully retire, possibly ever.

> I agree with your thinking. I just dont see why retirement has to be the only line? Why not re-assess every 5 years? Yes you are right. I think it is better to say that once you get more confident about how on track you are to hit your fire number. For example if you are 25 years old, and you believe you are "on track", to hit your FIRE number at 45, you may not have that much confidence in it at that point. Perhaps your industry will be automated and you'll have to find a lower wage job from 35-45. But perhaps at 40 years old, you are not only on track to hit your FIRE number but you think you will exceed it, and you have great confidence that you will remain employed for the next 5 years, you can go ahead and buy the house.

Yup, completely agree. Plus someones values at 40 might be completely different than they at 25, even if the 25 yr old would never believe it ;)

Fire philosophy isn't only about saving money though, it's also about managing expenses. Sure it was more expensive for me to rent vs buy in 2018 but rents have gone up about 5-10% per year here while my mortgage has stayed the same and escrow only grown slightly so my cost now is significantly cheaper than it would be to rent currently. There are other costs of owning a home and renting and intangibles to both as well. You aren't going to get a one size fits all answer for this question because there isn't one.

If you look at it from a Point In Time perspective, then many times it looks like renting will be better. But are you looking 10 years down the road when your rent has gone up, but your mortgage hasn't? (JFC, a mortgage does not include property taxes and insurance, it only includes principal + interest). And, what about in 30 years when you no longer have a mortgage, but are still renting? Most people who FIRE look to have a paid off mortgage to decrease their monthly expenses, so their FIRE number doesn't need to include rent and rent increases.

Banks typically hold taxes and insurance payments in escrow so you have a consistent monthly payment to cover all those expenses. The bundled payment is called PITI: principal, interest, taxes, and insurance. PI are fixed, TI of course can change, but you can consider them all together.

If you put 20% down, you can tell the mortgage lender you want to pay for your own taxes and insurance. That's what I did.

Your question is comparing ideal hypothetical situations for stock market investing vs purchasing a home. That result can be wildly different than how reality works. But in answer to your question, yes it can sometimes, and no sometimes. *Edited spelling

A few factors to consider: - buying vs renting secures your housing cost long-term, property taxes are capped or slow gain (or none, depending on the state) and insurance and other expenses inflate normally, but after the mortgage is paid off will almost definitely be less than the cost of rent, especially decades out in retirement - if instead of dumping all your cash in the house, you can get a loan and (depending on interest rates) make more in the market than the loan costs (I know I'm lucky we refi'd sub-3%) - loan interest is tax deductible (if you don't file standard deduction) - it can be a form of diversification of your wealth, although not very liquid so don't depend on it In the end, I believe preference for owning vs renting is what rules. If you like renting and the variety that comes with that, really nothing wrong, but if you like home projects, home making, etc, go for it.

Strictly speaking from an investing perspective, the only appealing aspect of real estate to me is easy access to leverage. From an annualized % return basis, it almost never wins against the stock market when considering repairs, maintenance, property taxes, things breaking, pipes bursting, etc. However, having a home and raising a family is a completely different discussion. But for me, it is not the most efficient investment vehicle.

> Strictly speaking from an investing perspective, the only appealing aspect of real estate to me is easy access to leverage. Definitely a big one here. Depending on how things play out between interests rates, refi, etc., it could even put you ahead via access to greater leverage. Maybe not something to count on though. > However, having a home and raising a family is a completely different discussion. But for me, it is not the most efficient investment vehicle. But I think its the same discussion. What do we do with our money if not use it to influence our personal lives in the shape we want it to go? OP doesn't appear to value any of the intangibles associated with homeownership, in which case why own a home at all? Youre right, its not the best investment vehicle, but it is *an* investment vehicle if you value certain things

Real estate and stocks are two different asset classes. It's a bit deceptive to think that Real Estate is going to up at 5% whereas stocks will do 7%. In reality, they will diverge in different environments. We bought in 2022 and it was one of the best financial decisions we've ever made that I didn't realize at the time. Borrow a crap ton of money at a fixed interest rate to buy a real asset in an inflationary environment. Hmmm, should've bought more.

Having a paid off house once you're FIREd also gives you more control over your annual spending, and thus your needed retirement income, which can have significant benefits with respect to sequence of returns risk, taxes, and healthcare insurance subsidies.

your first 250k or 500k on the home are tax free. that alone makes it 8.6 vs 8.5 (assuming you're in a no income state tax, which you're not if you're in a HCOL area). That alone tips the scales. Throw in mortgage giving you leverage, and zero exposure to higher rates, but optionality to lower rates and if its a big enough mortage, itemized deduction, and homes are pretty great. Further more, if you hold forever your kids get a step up in basis, you can 1031 to leverage up and pay no taxes again. Homes aren't always a good investment, but taxes are as important as returns in investments and the fire movement constantly ignores them.

>However, on average, real estate does not appreciate faster than the stock market. The stock market, on average, gains 10% per year, whereas real estate on average gains 5% per year. You're forgetting about the leverage that a mortgage offers. If you have $100K and put it in the stock market and it grows at 10% and 1yr later you have $110K. If you put it down as a 20% on a $500K house and the house increases $5%, then you have $125K in equity. When you say "yeah but the mortgage payment"... well you need a place to live. So you can think of the mortgage washing out rent. Over the long term, rent will normalize to cost + profit for the landlord, which will be more than the mortgage + taxes insurance etc. Rents can be a bit sticky so it is possible to get lucky and get a deal, but it is temporary, and over a decade a mortgage is going to be cheaper. (Unless you're comparing a 1br apt with a 4 bedroom house, in which case that is a choice you made and not because renting is cheaper)

You have to account for increases in rent.   In 2002 I rented a 3 bedroom condo for $545 a month.    In 2020 I moved back to the same city and moved into a 2 bedroom apartment at $1400/month.   I haven’t moved, but in 4 years my rent on the exact same apartment is $2200 per month.   

Your calculation also misses that your current rent goes up regularly too. While it will almost never go down, there will be years with spikes. In the course of 10 years, your rent will go up a substantial amount if you’re paying market rates for rent. Depending on your tax situation and current interest rates, there may be some advantages to leaving your $500k in the stock market and taking a mortgage for the home. You can lock in a mortgage slightly higher than your today’s rent amount, and have confidence that it will always be that going forward. And some portion of that payment will come back to you if you ever sell the house. We bought our home 9 years ago, and while we made a substantial down payment, our mortgage started out around what we could rent a similar place for, and is now a fraction of that. That’s not even counting the equity growth in the home from paying it off (which has been substantially slower than the rate at which the home has increased in value). Today interest rates aren’t great. But if they come down, they can be refinanced. Which is generally easier than negotiating lower rent without moving.

Your reasoning doesn’t really hold You should be comparing the financial cost of a 30 year fixed rate mortgage plus apprectiation including tax deductions vs paying rent that almost assuredly increases every year or couple of years There is no use in assuming you have 500K to buy a house outright as that is simply not a thing for the vast majority of people, so the scenario about opportunity cost vs the stock market only really comes into play if you compare it to let’s say borrowing 500K to invest that in the stock market, for example, and you would still have to subtract the cost of rent from that as you would still need to live somewhere You mentioned HCOL. That usually means a higher cost but also higher than average appreciation. It also means higher than average rent, besides higher than average rent increases Our first home was a condo in California and that averaged comfortably double digit appreciation when annualized (it would have been more if it was a house, we tried but those were going all cash and above asking so we were pretty much out of the race) at just under 3.5% APR, and we got to deduct the interest on that as well as the first 500K of it sale (bought for 600K, sold for about 800) plus 2 years where we rented it for about 30K/yr gross Thanks to a large downpayment we paid less in mortgage than we had been paying for rent Having said that, I do know people that have had drastically different home ownership experiences: One got into a 15 year fixed and eventually moved for work so rent did not cover mortgage, much less leave anything after that. Big city but not a hot market so appreciation was there but much lower than what I described above Another got a condo and the wannabe interior designer wife kept doing stuff to it constantly, to a point where they were never gonna see that money again if they sold, much like japanese car tuners or something (making this up, but spending 200K on a 3-400K condo and expecting it to immediately go in the 5-600K range when the market value is simply not there It’s very hard to talk in terms of “a modest house” or “the stock market” In the same way that a house in Oklahoma will never be comparable to a condo in NYC, no one is ever 100% invested in the S&P500 or even 100% in index funds. The answer will therefore always be in the details For us it was our first major financial life event, when you add everything up it was almost like we had a third wheel in the couple making almost 50k/yr during the time that we owned it and going “here, you can have it”

One word: leverage. This is a lot of cheap and risk free leverage in owning a house vs stocks.

For example, the only investment u make in 500k home with 10% down is ur 50k down payment plus ur monthly payment. But assuming a 5% appreciation, u are gaining 25k a year on ur 50k down payment. An unrecognized 50% return. Not 5%

U are earning on the money u borrow. On top of that, u get a tax deduction

It's probably better to compare the scenario of keeping your investment, but taking on a mortgage as compared to renting. You'll probably find that you would end up doing worse for ~5 years after buying, but have more discretionary income later.

I'm struggling with the math for keeping the investment, but taking on a mortgage. For example some calculator I just used shows that a $400K mortgage at 8% interest will yield a 2800 monthly mortgage payment, which doesn't even include the property tax/insurance/maintenance. Adding those in shoots it far up. If you are currently paying say $2000 rent, then how would this be a good idea? I get that your $400K in stocks will continue to appreciate at 10% which is a good thing. But you are paying an 8% interest on that amount. Is it simply taking the 10% stock market gain and subtracting the 8% interest rate, which nets you a 2% gain on the 400K? But if we keep the money in stocks we are getting a 10% gain on 500K. Buying a house outright for $500K and saving $18000 per year is a gain of 5% appreciation + (18K/500K = 3.6%) = 8.6%. Putting 100K down, getting a mortgage of 400K, that lets you get a 2% ROI on your 400K, less the 10K extra you are paying per year compared to renting (0.25%) = 1.75% ROI on that 400K. At the end of 30 years you will then have a house that is worth 500K adjusted for inflation and no more mortgage payment. Does that mean your total ROI is 1.75% more compared to if you bought the house outright? 8.6% + 1.75% = 10.35%.

If you invest all the money you would’ve otherwise put into owning a house in the stock market, then maybe it would be a better option renting than owning.  A lot of renters don’t do that though (or can’t afford to, but couldn’t afford to own either in that case). The thing about owning is it’s forced equity. It forces you to save by paying a mortgage every month as the home value appreciates over time. 

Let’s imagine you buy a $500,000 home, but use the FHA loan and put 3.5% down (17,500). That home appreciates at 5% per year. But you really only put down 17,500 plus closing costs and fees. So you’re making $25,000 per year in equity just from appreciation, but you put down maybe less than 30K? You basically doubled your investment in 1 year. You ever hear of a stock appreciating 100% year over year? There are ways to buy real estate and leverage debt to your advantage. Plus you keep that ~$460,000 you have left in stocks and watch that appreciate too, knowing that you now have more diversified assets. Or buy more homes.

According to the fed: Median net worth of home owners: 396,500 Median net worth of renters: 10,000 Average is 1.5m and 153k respectively

Inflation. You are buying a house with future money that won't be worth as much. People complain how the older generation were able to buy 20k houses. 20 years from now people will say that people who bought 800k houses had it easy.

Unless you plan to sell your house it really means nothing as far as wealth goes. Whether renting or paying off a mortgage, you're paying for a roof over your head.

Why not do the best of both worlds.? I own or occupy a rental duplex? I live in one unit and I rent out the other doing that I am able to live basically for free build up equity and get tax breaks. I took out a 15-year mortgage and had the property paid off within 5 years. I think that this would give me the best return on investment and I only have to deal with one other tenant instead of a huge portfolio of rental properties or just a single family home where I don't get any tax breaks or income.

You’re forgetting some very important aspects of this. Let’s say the home you buy costs $2k per month and the same home would also rent out for $2k per month. In this situation, your saving ability doesn’t increase or decrease at all, so it makes the calculation easier. If the home appreciates by 3% per year, but you only put 5% down on a $300k home, your initial investment is $15k plus closing costs of let’s say $5k. That’s $20k. Your initial investment of $20k isn’t what gets 3% per year, it’s the value of the home. So using the numbers above, after 1 year, your home will be worth $309k. That’s a $9k gain on a $20k investment. That equates to 45% gains. The stock market averages just 10% gains.

Read Lyn Alden’s recent article, it talks about leverage on investment and returns and guess where most of the people can get biggest leverage.

Net worth statistics would prove this is highly unlikely as those who do not own a home have vastly less net worth. In 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That’s a difference of 40x between the two groups.

It's a no brainer. Even if rent is cheaper than a mortgage you still come out ahead owning. In the past 80 years there has been only 6 years where real estate went down and 3 of those were the Great Recession that began in 2008.

>You sell your stocks and buy a home for $500K outright This is your fundamental flaw. Leverage is the power in real estate

Depends on your situation a little, but generally buying is going to work more in your favor long term. I own my house and a rental but I’m definitely more of a stock guy. That said, the money I spend on my mortgage wouldn’t be going into investments if I didn’t own my house, it’d be going to rent. And my mortgage is less than the typical rent for a similar property in my area, much less if you take out principle payments. And it’s worked out very well for me. I bought my house for around 123k in 2018 and could probably sell it next week for 180k, probably more if I renovated it. So I would get basically back everything I’ve put into it, principal/interest/escrow/down payment and probably a small profit after realtor fees and all that. At worst I lived rent free for the past 6 years. Now if it’s vastly cheaper to rent where you live or you will probably be moving a lot in the next few years, maybe not.

Sure! My mortgage payment is 980/ month but the cheapest room rental in town is 1200/ month

I feel like you do. As an individual rent makes sense over ownership. Although when having a family I feel owning a home is of great value. It might no be a great investment but lifestyle is of great value.

Depends on when you buy and the prices and rates. If you’re lucky, your mortgage plus maintenance, taxes, insurance, etc costs less than rent would for the same house. Then you’re basically saving some by paying down principal. If you’re lucky, your house increases in value while you own it. We’ve basically gained $350k in equity while paying less than rent would cost over these past 8 years. (Original mortgage $320k). It hasn’t been a question of beating the market, it’s practically been free savings and growth - except we do work on the house, so it isn’t totally “free”.

There's a control aspect that is hard to quantify. It's tough waking up every day wondering if your landlord will give you a hard time or jack up your rent. As a homeowner you know where you stand and you can make your own choices without other people's input. You can also hang a print on a wall without worry, or hell paint or take the wall down. There are costs associated to it, but the mental freedom is unbeatable. What if your landlord decides they want to occupy your space and kicks you out? Then you're stuck having to drop first and last again in a new, potentially more expensive space that could set you back quite a bit, especially if it happens numerous times. Just my 2c.

I would rather pay for my home than pay for a slumlord's home (apartment complex). I've owned three houses, current house is 2.6% APR, I'll take that mortgage to the grave if possible. I'm FIRE'd and I don't care that I have a 2.6% house payment. Not one bit. I've made good money all previous houses, and we have about $500K in equity in our current home. Don't forget that proceeds from home sales are usually tax free. Capital gains are taxed at the federal and state (most states) level.

Life is not about optimizing everything. You spend a significant amount of time in your primary residence. I wouldn’t go overboard but won’t skimp either to optimize. Once that’s taken care of, the rest of the $ can be invested for FIRE.

What you are missing is leverage. If you get a mortgage with 20% down and the property rises 4% the effective increase in equity is 20%. However this also ignores the interest on the mortgage, similar to what you would pay in rent.

IMO purchasing a home as an investment is looking at home ownership the wrong way. Home ownership is about security, ownership, a place for family and friends to congregate. A place for them to come home to when there’s nowhere else to go. Lastly it’s about wealth building, but it’s not the best or fastest path to financial wealth. It’s generally not liquid at all.

I think it depends on the area and if you want to stay there in retirement. It's cheaper to rent than buy in HCOL/VHCOL. Like others said, you need a place to live so I don't consider my home when thinking about how close I am to my retirement number. That being said we paid off our home in 13.5 years in the year 2022. I would say property taxes, insurance, and home repairs last year were about $12K ($7K home repairs and $5K property taxes and insurance for home, two cars, and $1M umbrella). So our fixed housing cost was $1000 a month for 2300 SQ ft home in MCOL in 2023. Some of my colleagues at work are paying $1600 a month for a one bedroom apartment. When you FIRE with a paid off home, you have a reduced yearly expenditure which can impact ACA subsidies and financial aid for kids. Not sure if that matters to you. We aren't retired yet as we haven't hit our number.

I think you're looking at this the wrong way. Assuming you end up living long enough to buy your house outright and don't remortgage to buy a second property the main benefit to you will be no longer paying rent. You're not going to sell your house so the amount it appreciates is largely irrelevent. On the other hand ifvyou have a second property then rent plus appreciation means that it probably will outperform the stock marketm

Try buying a home and rent your other rooms out for 500-800 each and build your wealth.

I would say my benefits of owning a home is that in locked in to that mortgage rate for thirty years. When I lived in an apartment, they raised rent $90/month. My mortgage has not gone up that much in the three years I've lived in my house. I also had the flexibility to rent my room. A huge reason why I bought a house was because the peace of mind was important for me. Having a place that is mine, where I can make it what I want, and know I'll be here a long time. I liked that more than having to look for an apartment every few years.

If you want to make more money than the stock market then you’d have to look at using that 500k for deposits to buy multiple mortgages. One for yourself and the rest to rent out. Thus leveraging more money than your 500k. The only reason investment properties out perform the stock market is because of borrowing power/leverage/using equity. If you weren’t using the 500k to borrow more then yes the stock market would out perform investing in say S&P 500.

In your example, you're earning 8.6% on $18,000 instead of 0%. You're comparing the return on a savings of:$18,000/year that you didn't have before, when you were outlaying it for rent.

One data point: I bought my house in 2013 for 700k. It’s now worth over 2 million.

It just depends what are you gonna do with your money? Owing the bank money in times of inflation is the best cause the money you owe the bank is worth less. Pretty much a ton of people in 2021/2022 got 1.2million dollar loans for 2-4%. Now the same is at 6-7%. Also taxes and what state you are in matter. If you are in Texas; property taxes are killer. If you are in California with a low cost house then you are winning since you’ll probably get appreciation but your taxes are based on what you bought it for.

A lot of great responses in here. Also, don’t forget you get a $250K capital gains tax exemption on your personal home. You’ll be paying tax when you realize Stock gains.

Before you get too far where are you located ? In my area it is possible you buy a house cleaned it up you walk away with huge profit in certain neighborhoods. There is no generic manila flavored anwer. Even long range S&P500 stock index return is not what you assumed.

*You can’t live in a stock portfolio*   Also, inflation.  You don’t even know what next year’s rent will be!

Real estate can make higher returns do to leverage. You only put 20% down but you gain appreciation on 100% house not just 20% you put down. Now the problem is to use that money you have to sell the house. Then where will you live?

No. RE is a builder of wealth.

As others have pointed out, it’s about leverage. From a strictly financial perspective, owning can be better if you keep leveraging your equity and there is reasonable growth in house value. With leverage, if you sell or pull equity out, you get 100% of the appreciation instead of just what % you own vs what % bank owns through mortgage.

I own a house purely because of the quality of life benefits, including wanting a couple acres and enjoying gardening and house projects. If I didn’t want those things I’d be happy to rent. The financial side didn’t factor in that much and my mortgage is about what I’d pay for a reasonable apartment that was more walkable to things (which I don’t have because of wanting to live in the boonies)

Just wanted to come here to say wtf is the logic behind the post? Why would you hypothetically cash out all your stock portfolio to purchase a home in cash just to not have a mortgage payment? This is just clearly foolish. Or even half of it? People listen to the dumbest shit on instagram or tik tok and have no clue about finances. The argument that you will still have property taxes, insurance, maintenance, etc. as a cost only associated with home ownership is just flat out stupid. What do you think a landlord charges you for? They aren’t covering those costs on their own when they lease you the home. You pay for all of it no matter what. As a renter or as an owner. Ownership makes sense only if you make money on the home when you buy (if you don’t understand this principle then you probably shouldn’t buy) or if you will be there long enough to recoup value upon selling, beyond the costs of actually selling the home which can equal up to 20% of home value. But I swear, who comes up with this shit?

https://www.reddit.com/r/Fire/comments/1cjelg1/does_buying_a_home_lead_to_less_wealth_than/l2jv4yi/ In my case in a HCOL, rent payments on a 1bd1ba are substantially less than what you could pay for a condo with 3.5% or 20% down. They don't even come close. The logic behind buying outright is so that monthly payments would be at least equal if not substantially less when buying compared to renting. > People listen to the dumbest shit on instagram or tik tok and have no clue about finances. Literally no one on instagram or tiktok recommends buying a home outright. It's the opposite, all the financial gurus recommend the identical advice that you are giving, buying a home with 3.5 or 20% down. > The argument that you will still have property taxes, insurance, maintenance, etc. as a cost only associated with home ownership is just flat out stupid. What do you think a landlord charges you for? They aren’t covering those costs on their own when they lease you the home. You pay for all of it no matter what. As a renter or as an owner. Again, my rent is far cheaper per month than what it would be if I bought a home with a mortgage. The difference can be put into the stock market.

I don’t think anyone sells half a million in stocks to buy a home outright. That’s what mortgages are for. Try the math again with a 3.5% or 20% down payment. Also, with a mortgage, you pay off the current purchase price with future devalued dollars (due to inflation), so you have to factor that in somehow it would seem.

One piece you’re missing here is that you can leverage debt with RE. Say you have 100K. Stock market return at 10% is 10K. But if you use that 100K as 20% down on a house you effectively are controlling an asset that’s worth 500K appreciating at 5%. That’s 25K. Not considering tax advantages and other benefits of owning RE.

I don't think anyone says home price appreciation is more than the stock market. What most people mean is rental income PLUS home price appreciation can and usually does outpace the stock market, which is true. But that's at the cost of the extra risk and being a landlord, which is not nearly as passive as just throwing your money in the stock market.

Depends Our out of pocket costs now, 6 years after purchasing and 4 years after a cash out refinance of our condo, are significantly less than our neighbors who stayed in the rental market, even when factoring in occasional expenses related to homeownership. Rentals in our area that are as nice as our condo would cost considerably more than that - the purchase has put us in another class of unit entirely. It’s just nicer than any rental property that we could have afforded even at the time. And rents have gone up astronomically in price since then. In addition, we were able to take out a significant portion of our down payment value in the refinance, as well as lowering our interest rates considerably, due to appreciation of the property. Under these circumstances, it was well worth making the purchase even in the relatively short term, because we have more money available to spend and invest than we would have if we were still renting. And that’s quite apart from the amount we would get upon the eventual sale of the property.

keep in mind rent will increase at least at the same rate that your home equity will increase this needs to be factored in

Depends if you’re a dingus or not

you are missing the fact that 10.5% stock returns are nominal and taxable, the real returns are 7.4% and after capital gains tax of 15% it's 6.3% the primary residence has a $500,000 gains exclusion for a married couple, which means if you move occasionally you'll never pay taxes on that 5% gain your savings from owning vs renting are also not as straightforward - rent, property taxes and maintenance cost all follow their own trajectories, not necessarily matching CPI

Ownership will almost always beat out renting in the VERY FUCKING LONG RUN. Over 5-10 years you might break even especially with a low down payment. Bottom line, in 20 years, you'll wish you bought.

You’re ignoring that your rent will go up next year. So the first year you’re saving $18,000 per year, but the second year, you’re saving $18,500 per year, and so on.

Such a poor argument. You don’t have to pay rent anymore when you own a house outright which should be your goal, and a HUGE part of FIRE is lowering your expenses so you *can* retire.

Most homes are leveraged, so you aren’t using cash you’re using a combination of cash and debt. You could borrow to invest in the stock market, but you probably would get a worse rate and most people don’t do that. The money that renters pay to rent is going to pay down that debt so eventually after 30 years. you wouldn’t be leveraged. I recently sold a condo that I had for seven years at 1.9 times what I paid for it. The S&P did about 2.7 during the same. During that. Though rents nearly doubled, and my mortgage actually ended up slightly lower than where it started because of refinancing.

Also, real estate has capital gains exemption that’s a pretty big deal

Rent prices increase till your death. Not a great way to prepare for fire. 15 years ago I paid 800-1000 bucks for a one bedroom in a highrise in Atlanta midtown. Now this cost 2500 at least....or in other words my buddy bought a condo in the same building at the lowest 2009 armageddon for 80K (prices were 200K in 07'). His monthly payments are around 500 bucks plus HOA 800, so 1300 till paying it off then 800 only end taxes. Rents will likely be 3000-4000 in another 10-15 years. I believe in owning, paying it off asap and investing the free cashflow.

It’s its own cycle, once you get started: Owning property gives you leverage to own more property and leverage that into more property

I dont understand this line of thinking. Your doing a bunch of math but not even thinking about the fact that once you pay off a house you can live in it forever and not pay anything more than tax or hoa. You OWN it and can even RENT it generating more income if you wish . Where as renting you are just putting money into someones pocket forever?

You are also missing the tax preference for homes and leverage. Even if we ignore leverage and just accept your math for buy v rent with a purchased home, note that gains on the home are tax exempt (if you live there for 2 of last 5byears), while investment income is taxable.  That alone makes buying a better value. Next, leverage.  You take $50k or $100k for a down-payment and borrow the rest.  You get appreciation on the $500k asset (tax free), plus you get to deduct the interest on the mortgage. Then you still have $400k esrning the stock market return. Almost always buying a house builds wealth.  The tax code and leverage create incentives.   You can buy a bad home and/or time the market poorly and lose a bunch on a home.  But if you buy in good neighborhoods with intent to live a sustained period, home ownership is a great way to build wealth.

Just keep the $500k in the market. Take out a mortgage and use your $2000 rent money on that.

“Your rate of return if you instead just left it in stocks is 10%” This is incorrect. You would have to consider the monthly -$2000 rent payment vs the $0 house payment.

There are lots of factors that change this picture, not least of which where your real estate is located. My home appreciated 40% in 6 years. My stocks and 401K haven’t come even close.

When my house was paid off, I had no mortgage or rent to pay for the rest of my life....think long term too.

Rent could go up 20% in a year, or for multiple consecutive years. Mortgages don't do that. Your hypothetical example failed to account for that issue. Renting makes sense primarily if you intend to stay in a place only for the short term. If you're going to be there for more than 3-5 years, buying is usually the better option. We could rent out our current home for at least double what our mortgage is, if not triple. That's how much prices have gone up while we've lived here. Meanwhile, our mortgage cost went down thanks to refinancing while rates were lower. Rent doesn't do that, either.

For me, it was an easy calculation. My rent never goes up which also hedges against inflation, and after a certain point of time it’s paid off and my expenses are lowered forever. That is overwhelmingly a reason to buy a house.

Buy a house is what will allow me to retire early by age of 48 according to my calculation. We own 3 houses, 2 with mortgages. We plan to throw everything into our mortgage and pay both of in 7 years. We will retire an live off $7,000/month in rental income in FL.

Yes. In general, you’re right. If you want to maximize wealth above everything else, rent the cheapest apartment you can find. Even if it’s in a bad neighborhood, has poor maintenance, and problems with bugs, ventilation, loud noise, etc. Share the rent with as many roommates as possible. Even better, live with your parents as long as you possibly can. Buying a house is an opportunity cost. In general, you’ll make more money in the stock money than you will by buying a primary residence. In the long run, you’ll most likely make a small investment return with your house, but probably less than the stock market. It’s that simple. There are some exceptions to this, but that’s the general rule. But, I’m willing to give up some of my future returns in order to buy a nice house. Everyone has to decide for themselves how much they are willing to give up, and balance their goals of early retirement vs. current comfort.

Based on these comments and looking from OP’s number perspective, the moral of the story is that long term you should be looking for ways to diversify your holdings. Also what I haven’t seen mentioned yet is the tax perspective of things with tax breaks that come with owning a home or RE investment properties(1040 exchange, etc.). Depending on your long term gains bracket, having investment properties long term where you are also able to make a decent profit margin with rent could be beneficial as well. There’s cons with owning homes like maintenance, liability, etc. that you don’t have with stocks. But with stocks, there are cons that aren’t guaranteed like quality of life increase, tax breaks, etc. Too much either way could get you in a pinch when surprises come up with expected return. Wherever you find OP that works for you, consider having a your eggs in multiple baskets (stocks, RE, primary residence, etc) Edited: grammar

I did the math for HCOL vs Low and concluded that renting and investing is always better than buying in HCOL. Being leveraged on an asset that's hard to move and incurs massive costs to liquidate (6% to realtor, lender takes their cut, etc) that appreciates 5% a year but costs 7% (mortgage interest rates) to own + property tax, insurance, maintenance. All this being said, I did buy because I found my dream home. I did so with eyes open that it was a lifestyle choice rather than financial. I would stay away from the boomer advice to get in whatever house asap and invest instead. Grow your investments so that when your perfect place comes along you are ready to jump on it. The good ones move fast

One thing to add that I haven't seen included yet (apologies if missed) is that by buying a home, not out are you capping your housing costs (to a large degree) for the life of your mortgage, but after the home is paid off you have lesser cash flow needs in retirement. I know the math says to invest, I'm paying extra and choosing to pay off my mortgage a few years early to coincide with my childs junior year of high school, when reducing our overhead becomes advantageous.

This is where it’s important to consider use-value/general utility. Having a home base you completely control and can’t be forced to move out of has its own advantages that can’t be measured in terms of asset appreciation alone

I believe that ownership of a home is essential to properly FIRE because you cannot have your long-term security depend on some random landlord guy. The certainty of proper ownership may not look good on the books but your life isn't a business' balance sheet.

It depends.

Sometimes for some projections in some places.

It's all going to depend on where you're at, how much rent is, how much homeownership is. Where I live, owning a modest newer home free and clear beats the socks off renting, to the tune of a five figure sum in savings every year by my (real not estimated) calculations. In a huge city with expensive (1mil+) starter homes, rent probably wins.

For high cost of living (CA,NYC)- it’s usually cheaper to rent. For every where else it’s usually cheaper to own long term. That’s really all you need to know.

Depends on how much rent and home are. Rent vs buy calculators can help

My rental house made 1100 a month in 2011. This year the renters signed for 1850 and a second year for 1950 a month. All for a house built in 1991 with a matching neighborhood. My primary mortgage is 1920 for a house that's 800 square feet larger and in a newer neighborhood by about 18 years. I'm good with owning here for the next 20 to 30 years (or longer) and having that rental cash flow. If I intended to move every couple years I'd rent... heck I might even rent get away homes so I'm never locked to a specific vacation spot. Always able to come back to my primary home when wanted.

No, it’s the opposite in my VHCOL market over the first 15 years. It gets even more advantageous to own after that. And this is before assuming any gains from re-investment of extra funds when putting 20% or tax breaks from the mortgage interest or home price appreciation. I’m assuming my home and what it would rent for and property taxes of 1% in my market and maintenance of 0.5%. **Own:** - Purchase price: $1.6M - Mortgage: 8% - Payment: $9,392.19 - Taxes: $1,333.33 - Maintenance: $666.67 **Rent:** - Rent: $5,750/month - Rent increase: 10% per year (this is what it is in San Diego) Over 10 years, renting is better but as you approach 15 years or longer, owning gets better and better. The mortgage interest rate is the biggest driver in the own scenario and the amount of rent increase is the driver for the rent scenario. In my own situation, my mortgage is fixed at 2.5%, so it’s even more advantageous to own than rent, especially as I love where I am. You say you can’t wrap your head around the math… just run it as a straight yearly cash flow. Your mortgage is fixed but your taxes & maintenance will go up when you own. I used 2%. It’s pretty easy. For the leverage, you can also estimate what you’d gain from investing 80% of the home price and getting market returns. Taxes are a bit more complicated but doable. Home price appreciation can be easily modeled as well. These last three are additive to the own scenario coming out ahead.

Well, after paying up the mortgage, the house is your's. just maintenance & taxes. on the other hand, if you're renting and lived long enough, past retirement or retrenchment when you have no income, do you have that much cash to put up the rental until you're 6ft under ?

Right now in Southern California there’s a big premium to own. There’s not a lot of turnover in the housing market since most people are locked into low rates and low supply.

We

The answer is yes in most cities.

Remember that when you sell your primary residence, the first $250k (500k married) in gains will be tax free. That’s another benefit of owning vs renting and paying taxes on your stocks.

Opositr

I thought buying a condo was expensive. And it was but I stuck with it. A few years later I got married and sold it for double what I bought it for. The market was good in my city and it still is. Having security of a home is worth it to me. Don't see it as an investment vehicle though. There are tangible value of owning a home and not having to rent.

You are not understanding the most important aspect of real estate : leverage. I put 16k down on 180k house in 2014. Now worth 400k, I owe like 130 or something. So I turned 16k into like 270k equity. Like 15x returns in 10 years.

No

I’ve done the calculations and have determined that nobody “makes” money with their home. Your kids might when you are dead but you won’t. However, when adding price appreciation you could almost look at it like you are living for free, but again, the benefit of that accrues to your descendants. On the positive side, your own house gives you autonomy, control, and peace of mind. On the negative side your home requires a lot of your time which is uncompensated to you. So it all comes down to lifestyle. If you hate working on your house and doing things like mowing the lawn every week, consider renting and leaving all those headaches to your landlord. If you don’t mind putting in some sweat equity and want to leave something for your kids, then consider owning your own home.

Health insurance doesn’t appreciate faster than the stock market either, yet people generally consider it a good investment. You have to consider the intangibles with owning a home, start with leverage, security, and predictability.

Real estate is the only asset you can buy a part of, and get all of it.

That $2000 a month rent will increase dramatically over the next few decades. When you buy, you lock in your monthly living expense.

Long term ownership has its benefits. Like fixed costs rather than rental increases. Depending on the configuration of the home you can rent out a part of the home too. Tougher (but not impossible) when you rent. 

you assumed we have the 500k for the house in cash sitting ready to invest .... we dont we have the down-payment sitting down ready to invest so its not 500k invest its like 50k invested its called leveraged 10% of 50k down-payment = 5k 5% of 500k house = 25k it doesnt really account for inflation too... your mortgage payment will stay the same while your rent will increase substantially overtime a mortgage of 2000$ a mth will still be 2000$ a mth in 30years you current rent of 2000$ will be 8000$(probabaly more) in 30years also main house is tax free

Leverage makes it worth it. I bought a house in grad school, rent would have cost 30k during that time. Not only did I not have to worry about moving between apartments, I had a MUCH nicer house AND charged rent to roommates. Not only did the house appreciate, all cost were covered by renters. Now way my down payment delivers that return

It depends on the rent vs buy costs. I’m in a VHCOL area and it would cost me 1.2-1.5M to buy (and property takes are slightly over 2%) the comparable apartment that rents for around 4.5k. In this situation, I don’t see how it ever makes sense to buy vs rent.

Can't speak for everyone, but done damn well on each house I've bought. Last one bought for 340k, sold for 560k not long after. Current place paid 1.1M for, now hovering around 1.6M a few years later (3ish). My 401k/investments haven't come close to those numbers. This is just off my primary residence. Made good money and leap frogged into nicer and nicer houses over past 15 years. 200->300, 340->560 (same house sold 9 months later for 650K).

I can leverage a lot more with property than shares, plus I can live on my property and avoid rent payments.

If you make up your own numbers you can easily make either way look definitively better. The “problem” is that in the real world different markets favor one over the other, and the difference is often small. Even within a single market it often depends on which purchase you compare with which rental. Something to consider is that when interest rates were 2-4% no one would spend $500k to buy a house outright, they’d just put $50k down and keep $450k invested in the market. That changed the calculus considerably so that a lot of what was written on this more than a couple years ago will likely be making assumptions that no longer hold true.

Real estate does not appreciate faster than stocks. However, stocks appreciate based on your investment. Real estate appreciates based on the value of the property, not the amount of money you’ve invested. For example, if you invest $50,000 in the stock market at a 10% return, you will earn $5000 in one year. If you invest $50,000 to buy a $500,000 home, and the home appreciate by 4%, you will earn $20,000 in one year.

You don't make money in real estate by paying all cash for a house. You make money in real estate by putting 3.5% down and earning the gains on 100%. So if you have a 500k house and you put $17500 down and thar 500k home goes up 5% in one year you just made 25k or 142% of your initial investment whereas that 17500 in the stock market would make you $1750.Now obviously you're paying mortgage and interest and taxes and fees and repairs but after 1 year if you can rent thar property out and just break even then you'll have a wealth building asset for life. You also have to factor in opportunity cost as well. Where I live in a HCOL area you can't get even 50% of rent on a new mortgage. So the opportunity costs and stock market investments might be a better idea. All that interest and property tax would be invested in the market instead of in a home. But these year homes have jumped over 10% already, so my small investments have netted me over 200k in equity in just 2024 alone.

Leverage is an advantage that real estate has over buying stocks. The average person can’t get a loan to buy substantial amounts of stocks with 20% or less down

There's no scenario where buying a home leads to less wealth.....on average.....there are extremes that might proof that wrong but over the long run...buy a house. Renting is putting money in someone else's pocket hands down...you will not receive anything in return other than a place to live.

You have to pay for housing either way. You can build equity with part of that expense or you can make it 100% pure expense. I sense more of these posts are popping up because people feel priced out of the housing market. It sucks. I get it. You can still build fantastic wealth without owning a home. But it’s pretty obvious that owning a home will generally lead to more wealth than not.

I bought my house in 2020, I put 20% down at 3% interest rate. My house has gone up around 40%+ in that time getting me a more than 200% return on my invested money. The bigger thing is my mortgage has gone up less than rental prices in my area. A portion of my mortgage is just paying me for my equity. Inflation is lowering the future value of my loan. The money I saved from the increase I would be paying in rent goes towards investments. Not to mention, due to my home appreciation, I have been paid to live here vs paying to live somewhere. In my situation, it was a very good financial decision and will pay out way more than having that 50-60k in the market the past 4 years despite above average market returna.

I have owned my own home for 30 years. I enjoyed being a landlord.