Huh? I sense defensiveness for some odd reason.
It sounded like you were taking a dig on what I have explained previously in how renting is much more sensitive to inflationary pressure than home ownership. Simply, mortgages, largely are fixed interest so then fixed cost over 30 years. Yes, taxes and insurance are variable and tend to go up but those are the same with rent and even more so as taxes and insurance cost more for rental properties than primary residences. On top of that, with rent, your cost is 100% which is obviously much higher than a 8% mortgage. You are also giving up and equity in property valuations rising.
I have a client about a year ago. She was on the fence of whether to move forward to apply for a mortgage or not. She had been renting the same property for 10 years. She had been happy because the landlord was always good to them. Fixed things right away if they broke. Only small increases in rent every few years (until recently). Always nice. Did not freak out if she was a day or two late in getting the rent in. The whole thing. I said, ok, let's take a fair look at the difference over those 10 years for you. I walked her through it all. The cost of her rent, which was easy to add up since there is no return on that sunk cost. I then gave an educated guess on the mortgage rate for her which conservatively we put at 5% and that she would have carried that loan without refinancing even when rates went lower. Adding in an insurance estimate and taxes, which to make things easier on me, I took the current tax assessment without the homeowners exemption and the current insurance costs at that time and applied it over the 10 years, again, to be conservative so as to not give a unfair picture. I also added in about $100 a month for repair and maintenance for the property. When everything was laid out and counted up, the cash flow was roughly about the same and the difference in net worth to this woman was nearly $200K. She literally started crying on the phone. She told me that they thought about buying back then but that renting was so much easier. She had no idea how much of a real difference it would have made to their lives. That is freaking heart breaking to be on the other end of that call. I can't tell you how that feels. It sucks.
I operate a FB group that has over 10K people in it. It is centered around credit repair. The vast majority of the people in the group are renters. Well over 90%. A few months back, I asked a simple question after having a conversation with my sister who's crappy little 1 bedroom apartment she had rent was going up $350 a month... from just under $1k a month to about $1300 a month. I asked what people were seeing in terms of their rent. Was it remaining the same or was it going up. If it was going up, how much was it going up? Tons of responses and most were in a $100-400 range of rent increases a month.
Meanwhile, we bought out current home in 2011. I am paying less now than I am when we bought the home. How? We refinanced to an even lower rate and I have appealed my taxes to get lower assessments. Our successful tax appeal lowered my cost of property taxes by 17%. Our insurance is coming due soon, so I do expect to lose some of that cash flow as insurance costs have gone up but there is no doubt from a purely cash flow perspective that renting would have been a horrible decision. This is not even getting to the wealth creation of equity through the reduction in principal and increased valuation on the property. The property is worth $150K more than it was when we bought it. There is further equity in that we put 20% down and have been paying on the mortgage for 12 years. We did take some equity out along the way. But it isn't just this house for us but me viewing my life. The times when I thought about buying but 'renting is so much easier and then I am free to move around' and the cost of those decisions. Now, sure, I understand the home ownership isn't all roses.... I have lived it. I did have a condo, my first RE purchase, that we had to end up doing a consent foreclosure on. But the funny thing is, that when I felt bad about that, at some point I decided to do the math. I figured out the cost of owning that home and walking away with nothing versus if I had not bought and kept renting. It still ended up being financially favorable to have bought that property, owned it for 5 years and then walk away from it than if I had rented.
Now, all that said, is it 100% of the time that buying is better than renting? No. Absolutely not. I remember having a conversation with a friend that rented. We discussed it and he wanted to rent because for his work, he could do it anywhere (this is well before COVID and remote work being more common) and it was important for him to use that freedom. One way that he did was that he would move to new places all over the country.... live in a city for about a year, pick up and go move somewhere else. He was a single guy with no kids (I kind of suspected he was gay but it never came up to confirm or deny and I don't really care either way to ever ask) and he said that knew that he was 'paying for that lifestyle' but that he was willing to do so because he really enjoyed doing that. Obviously homeownership would not make sense for him. There are other scenarios where renting make sense. I don't deny that. What I do fight against is this odd position that renting is superior to homeownership for the vast majority of people. It is demonstrably false.
Renting vs buying is largely a financial decision. Good financial decisions should never be made on the present but taking into account lessons learned from the past and making the best educated guesses you can about the future. No one knows the future. Things can change. We know this. But we also know that you can have a pretty good idea of what will happen if you consider the data. This is even more true for real estate as over time, even with downturns, even as significant as what we saw in the both the Great Depression and the Great Recession, you will see the same thing over time. This also includes drastic local situations. It is hard to come up with one more pronounced than the Detroit area where you could buy houses for even under $10K around the late 2000's. I was curious and looked up a few random houses in the greater Detroit area. One example, property sold for $17K in 2013. The property is now worth $175K. The thing about RE is even when taking into consideration local differences and taking into account market crashes, real estate appreciates. And not just appreciates but does so consistently. The longer the time period, the more ownership is superior to renting.
Yes, right now, most properties you would buy, if you were renting the same property instead would have a higher cashflow cost. However, taking into consideration the most likely outcomes for real estate in the near future, it will only get harder to buy. What does that mean? There is a huge amount of demand that is being held back right now. That demand many times has been priced out of the market due to appreciation and rates rising. They often are hoping for a real estate crash or rates to go down so that they can buy in the future. Looking at the data, a RE crash is extremely unlikely anytime in the next few years. Rates will go down. When they do these people will be looking to buy. What will result is something that is likely similar to what we saw in the RE recently with rapid appreciation of properties as multiple over asking price offers are received mere hours after being listed on MLS by a number of desperate buyers. Lower rates will not save prospective buyers, it will make it harder for them to buy. It will only put them in a continued position of renting and long term renting keeps the poor forever poor. Meanwhile, as wages increase, rents will continue to increase.
I am passionate about this, not because this is my job and I will make money or not. It is ridiculous to say that and pure ignorance to suggest someone who advocates for homeownership is pushing a racket. In fact, the racket are the landlords pushing renting. Landlords are not renting property out of the goodness of their hearts. They are doing so to make money. The same money that a home owner would make (even more actually). I can and do mortgages for landlords just as I can for home owners. In fact, DSCR loans are usually much easier loans to do than a FTHB loan. Also, it is easier to get a few investors who will buy multiple properties than try finding the one person buying one home. This is not an argument based on my benefit. It is one that as someone who likes being an advocate for others betterment is about what I have known and seen through my years working in financial services.
