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Interactive Rent vs Buy calculator from NYT


Evolveus
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The problem with these calculators and all the stories claiming renting is more affordable than buying is the assumption that 1) people will reinvest the savings from renting vs buying and 2) for the minority that does invest, that they can generate a decent market return, also not likely. Renting is likely cheaper for most on this board but not for others. See what happens when you slide the "investment return rate" to zero or near zero. It ruins the entire premise. Meanwhile, the over 150 million Americans that don't invest (45% according to Gallop, and that includes 401k and IRAs) read articles proving that renting is cheaper than buying and they believe it and act on it, while they keep their savings in their US Bank account. Is there a name for this bias?

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basicly

young and will likely move, and making a return otherwhise = rent

young and will likely move, no investing otherwhise = still rent, for practical reasons mostly

young and likely stay but no investing = buy

young and likely stay and decent investor = rent

older almost always better to buy unless your a good investor.

 

But I think with a large networth if maximizing returns isnt that important buying is better because you dont have hassle and limitations because of landlord.

 

Or wahtever age and regularly posting in SHLD or JCP thread = buy for sure! jk jk  :P

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The problem with these calculators and all the stories claiming renting is more affordable than buying is the assumption that 1) people will reinvest the savings from renting vs buying and 2) for the minority that does invest, that they can generate a decent market return, also not likely. Renting is likely cheaper for most on this board but not for others. See what happens when you slide the "investment return rate" to zero or near zero. It ruins the entire premise. Meanwhile, the over 150 million Americans that don't invest (45% according to Gallop, and that includes 401k and IRAs) read articles proving that renting is cheaper than buying and they believe it and act on it, while they keep their savings in their US Bank account. Is there a name for this bias?

 

Yeah, if I were to recommend an investment for an ordinary person, I would probably tell him or her to buy a house. Renting and putting the excess money into an index fund may be expected to do much better, but even the vast majority of indexers greatly under-perform the market because when that crisis ultimately comes and they see a -50% across the board like in 2008-2009, they end up selling out in panic. Sadly, I know a lot of people who did that right around the bottom in 2009. To most people, stocks seem intangible and difficult to understand. They can't see or touch it, so they lose faith in the system when the headlines are all calling for the end of the world. Real estate, on the other hand, is very tangible as they can see and touch it. Also, the difficulty of selling a home often prevents people from being stupid.

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Another important factor is your primary residence in Canada is tax free - pretty good vehicle for long term wealth creation if bought at reasonable price and held until retirement

 

True. That time isn't now, though, IMO.

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Rent is paid with after-tax dollars.  The higher your marginal tax rate, the better it looks to buy.  You earn tax-free imputed income by occupying your owned home.

 

The calculator doesn't recognize this. 

 

In other words, owning a rental (as a landlord) is not as good of an investment as owning your own home.  The rent on the former is taxed, and the imputed rent on the latter is tax-free.

 

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Another important factor is your primary residence in Canada is tax free - pretty good vehicle for long term wealth creation if bought at reasonable price and held until retirement

 

True. That time isn't now, though, IMO.

 

If you are living in it - might as well be now -  this is like waiting to buy Berkshire A in the 1970s at low valuation.

 

Here's the competitive advantage of real estate in Vancouver (i can't speak for the rest of the country):

- the warmest city in Canada

- protection from the US (real or not - that's how Asians perceive this)

- 1st world country

- decent education

- within 10h to Asia (where healthcare wait time is 1h)

- diversity

 

The condo market will definitely correct - but if you think about where the top 1% of the world wants to live -- you know, those sitting on over $50M in asset no where else to spend - they don't mind dropping $5M for a piece of land in Vancouver      most of these buys we are seeing are all cash purchases too - so it's not 100% leveraged like it was in the US.

 

I agree things are expensive; but if you look hard there's still "reasonable" prices out there and can be a good long term tax free investment..... 

 

Gary

 

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Another important factor is your primary residence in Canada is tax free - pretty good vehicle for long term wealth creation if bought at reasonable price and held until retirement

 

True. That time isn't now, though, IMO.

 

If you are living in it - might as well be now -  this is like waiting to buy Berkshire A in the 1970s at low valuation.

 

Here's the competitive advantage of real estate in Vancouver (i can't speak for the rest of the country):

- the warmest city in Canada

- protection from the US (real or not - that's how Asians perceive this)

- 1st world country

- decent education

- within 10h to Asia (where healthcare wait time is 1h)

- diversity

 

The condo market will definitely correct - but if you think about where the top 1% of the world wants to live -- you know, those sitting on over $50M in asset no where else to spend - they don't mind dropping $5M for a piece of land in Vancouver      most of these buys we are seeing are all cash purchases too - so it's not 100% leveraged like it was in the US.

 

I agree things are expensive; but if you look hard there's still "reasonable" prices out there and can be a good long term tax free investment..... 

 

Gary

 

Also best Chinese food in North America?

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Another important factor is your primary residence in Canada is tax free - pretty good vehicle for long term wealth creation if bought at reasonable price and held until retirement

 

True. That time isn't now, though, IMO.

 

If you are living in it - might as well be now -  this is like waiting to buy Berkshire A in the 1970s at low valuation.

 

Here's the competitive advantage of real estate in Vancouver (i can't speak for the rest of the country):

- the warmest city in Canada

- protection from the US (real or not - that's how Asians perceive this)

- 1st world country

- decent education

- within 10h to Asia (where healthcare wait time is 1h)

- diversity

 

The condo market will definitely correct - but if you think about where the top 1% of the world wants to live -- you know, those sitting on over $50M in asset no where else to spend - they don't mind dropping $5M for a piece of land in Vancouver      most of these buys we are seeing are all cash purchases too - so it's not 100% leveraged like it was in the US.

 

I agree things are expensive; but if you look hard there's still "reasonable" prices out there and can be good long term tax free investment..... 

 

Gary

 

Personally, I think Canada is in a pretty big real estate bubble (compare to historical rates for rents, incomes, compare to US, compared to after-tax income even at these low interest rates, compare to anything). Some places are worse than others (Vancouver, Toronto), but it's not just a local thing, the whole country is too expensive and people are piling up more debt than the US had before their bubble burst. What can't go on will stop at some point. I plan to keep renting until things get more affordable.

 

The argument that Vancouver is so great so that explains why crack houses from the 60s are selling for a million bucks isn't convincing, IMO. A lot of great US cities with a long list of attractive characteristics had huge declines in 2008-2009.

 

It's all about sentiment. People feel things can't decline so it's worth paying anything because you'll pay more later anyway. Once sentiment turns...

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Rent is paid with after-tax dollars.  The higher your marginal tax rate, the better it looks to buy.  You earn tax-free imputed income by occupying your owned home.

 

The calculator doesn't recognize this. 

 

In other words, owning a rental (as a landlord) is not as good of an investment as owning your own home.  The rent on the former is taxed, and the imputed rent on the latter is tax-free.

 

Can you walk through an example?  How do you pay for our house with tax-free income (other than mortgage deduction)?  Isn't principal, maintenance, property taxes, etc paid with after tax dollars?

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There are also non financial considerations. If you own the place you live, you don't have to deal with any meddling landlords, who might let themselves in during the day, or put up rent every year, or spend the minimal amount possible on the interior.

Owning the place I live in has given more security, less hassle and I can enjoy superior home furnishings that I buy myself.

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Rent is paid with after-tax dollars.  The higher your marginal tax rate, the better it looks to buy.  You earn tax-free imputed income by occupying your owned home.

 

The calculator doesn't recognize this. 

 

In other words, owning a rental (as a landlord) is not as good of an investment as owning your own home.  The rent on the former is taxed, and the imputed rent on the latter is tax-free.

 

Its not exactly fair to look at that as a full benefit...because while yes you would pay tax on rental income if you were to buy an investment property, you would also be able to claim depreciation and expenses, which you cant claim for your primary residence. 

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There are also non financial considerations. If you own the place you live, you don't have to deal with any meddling landlords, who might let themselves in during the day, or put up rent every year, or spend the minimal amount possible on the interior.

Owning the place I live in has given more security, less hassle and I can enjoy superior home furnishings that I buy myself.

 

There's definitely a list of pros and cons for each. For each of those pros you listed, one could find cons like:

 

You can't move as easily, whether just because you want to or because you lose work and need to find it somewhere else, or you need to get closer to a sick family member, etc. Some friends of ours are moving to another province because they want to adopt a child and it's much easier over there. They're having a hard time selling their house and feel kind of stuck where they are...

 

You are on the hook for all maintenance, repairs and problems.

 

If your neighbours suck, you'll probably be stuck with them for longer.

 

If you have a mortgage, you are levered to real estate prices. Might be great if you bought at the bottom, but not so great if you buy at the top... A small move in price could wipe out all your equity (which is just as real as if prices were quoted every day like stocks, even if you don't see it as much).

 

Etc.

 

I think a lot of people look down on renting partly because of social pressure, but partly because they compare the crappy student apartment they had with the nice house they now have. I bet if you compare renting a nice house or apartment, the quality-of-life issues are a lot less problematic.

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