http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

@Diomedes I completely agree. If you live in a major metropolitan area, as many young people do, renting is often a far superior alternative to buying. Like you said, take the higher salaries that big city jobs pay, rent for a fraction of the cost of owning, and invest the difference. If and when you decide to move to a more reasonably priced housing market you could then buy a place with your large pile of savings. You might even be able to buy the house outright with cash thanks to many years of a high savings rate and compounding interest.

@overthetop I’m not sure what you invest in, but whoever thought investing in the unsustainable returns of Bernie Madoff was a “sure thing” deserved to lose all their money. If you invest in a well diversified US and global based portfolio of index funds or broad based ETFs you will do just fine with 7-8% inflation adjusted returns. Depending on the total out of pocket costs of owning where you live (including lost opportunity costs of putting $20k into replacing your roof rather than into index funds) you may come out well ahead by renting. You have to run the numbers for your own situation, and that does not just mean comparing the mortgage cost to the rent cost.

Renters don’t literally “pay” for those things. I get that you’re saying they are included in your rent, and the few people I know who have rentals also say that. But I don’t think that’s really accurate either.

But then, separately, when I ask them how they set the price of their units, they find comparable in their area and price it accordingly. They can calculate all the costs they have from maintaining their unit and try to rent it for that price… but at the end of the day, they’re beholden to the rental market wherever they are.

So yeah, after the fact I’m sure landlords say “i recieved $XX in rent and that pays for $XX taxes, etc.” But they can’t set their prices based on that. Taxes or HOA fees go up? Tough tittle, you’re paying for it, not the renter.

The problem with this logic is that typically the cost of rent INCLUDES these additional expenses without the renter realizing it. Do you think a property owner would rent at a loss? No. Any knowledgeable landlord accounts for maintenance, HOA, taxes, and other expenses as a part of their rent equations–most even include a “vacancy fund” to pay for times when the property isn’t rented. The idea that you can invest extra money by renting is only true if you the rent is cheaper than buying. Typically, at least in my area, this is not true. For example, the mortgage on my property is $1225/mo. When I include costs for HOA fees, taxes, and maintenance, the total cost comes to $1650/mo. Now here is the kicker…properties of the same style/value of mine are renting for $1900 + per month. So in this case by OWNING I am saving $250/month which I can invest.

Maybe for you, but not for everyone! When all cash flows are considered, renting costs less, which means you’ll have more money to save & invest. Over the long run, the stock market averages +10%/yr.

So the 20% downpayment, 3-5% closing costs, 5-6% selling costs every time you move (average US home borrower moves every 7 years), property taxes, maintenance, insurance, is all money that could have been invested.

If you look at everything (all cash flows considered), you spend less money when you rent! Between property tax, insurance, maintenance, mowing the lawn, fixing the roof, etc. etc. plus the extra utility costs you’re spending a lot of money that could be invested instead. What’s wrong with renting??

Learn from the past people! (Of course they look at me like I’m crazy when I suggest they cut a $100+ a month cable bill. Or drive a car that is 3 years old. Or only fill up their tank from the cheapest place according to GasBuddy. Or get $25/month budget car insurance from 4AutoInsuranceQuote. Or cook their own food instead of spending a hundred a week on restaurant food (or far more if they like the bar).)

Nobel Prize winning economist Robert Shiller was one of the few people who accurately called both the stock market crash of 2000, AND the real estate crash of the late 2000s.

And he says that owning a home is a terrible investment.