It's not clear to me that, say, $500k of assorted shares + $500k of house is worse than $1M of assorted shares. You've got more in a single asset, which is bad, but you're diversified into more asset classes, which is good.

The picture is a bit different if that $500k is all your assets or even substantially more than all your assets (a common situation for a first-time buyer with a big mortgage). Which suggests you should rent until you've built up substantial investments of other sorts, and then consider buying.

Historically, I think the variability in price of a single house hasn't been any worse than that of, say, a typical index fund. (Disclaimer: I haven't actually checked the figures.)

Of course, all the above treats houses as just another investment. This is a useful perspective, but you're going to be living in your house too, and questions like "can I redesign the bathroom?" and "if there's a flood or an earthquake, am I liable for fixing/replacing everything?" and "am I bothered by the possibility that my landlord might just throw me out one day?" and "can I get up and move somewhere else with minimal hassle?" may be just as important to you as "what is likely to leave me with more valuable assets 20 years from now?".

I think one crucial difference between buying a house and an index fund is people are usually highly leveraged when they buy a house. Example. Assume you 1. Buy house and put down 100k for 500k house. 2. Buy 100k of stock. 3. Both assets drop 20%

Your stock will have lost 20% of it's value and you'll have lost 20k and 20% of your investment in the index fund. Your house will have lost 20% of its value and now at 400k, you've lost 100k of net-worth and 100% of your investment in your house.

Yup, agreed; that was the point of my second paragraph.

You're looking at it the exact right way. Risk is a two sided-coin. If the local housing market does well, you can make out like a bandit. If it doesn't, you can lose a lot of money.

No different than owning $500K worth of share in a public company.

Nothing wrong with buying a house, but people should be careful not to have their net worth all tied up in a single asset (house or not). The one rule I've heard is 90 minus your age. When you're young is OK to have a high percentage of your net worth in a house, but not when you're getting close to retirement. Too risky.

I disagree, this view is too simplistic.

It's very different to owning shares in a company. You have to either buy a house or rent. You cant opt out entirely, whereas you can with shares.

By choosing to rent, you are betting on the housing market being stagnant or falling, if house prices shoot up and you opted to rent, you will need to now pay higher rents or a bigger mortgage.

So there is risk in renting too

If you decided to rent in london instead of buying 3 years ago, you'd be tens of thousands down

Why will rents go up, when they could have gone up already?

If house prices cross a threshold where first time buyers can't afford to get onto the property ladder, they're forced to rent - driving up competition for stock & thus rental prices. (This appears to be affecting more & more people in the UK).

These people pulling the ladder up behind them might be in for a rude surprise.

A sketch of my argument: as we are sometimes reminded to bear in mind, prices are driven by market conditions and affordability, not costs. If prices shoot up, why will the rent increase? Is it not already set to the highest value the market can bear, or something very close to that? We'll assume it must be, because it would be silly to do anything else (and the tenancy market is liquid enough). But then, if prices are at the right level already, how will people pay for increased rent?

If salaries increase as well, then this is just ordinary inflation. House prices go up, rents have go up, salaries go up - well, people have been warning about this for years! On the other hand, if prices increase, and rents go up, and salaries don't, how are people going to be able to afford to pay for any of this? The obvious answer, of course, is that they won't.

Prices are what the market will bear. If everybody's costs go up, or supply is limited, then rent can sure go up. Renting is an inflexible demand - unless you want to go homeless.

Because every day there are more people and more jobs but not more land.

> When you're young is OK to have a high percentage of your net worth in a house, but not when you're getting close to retirement.

That said, if you actually own your home in retirement you've significantly mitigated against the risk of getting priced out by rising rents if the regional economy heats up. That could be a problem on a fixed income.

Most of the houses that are really high-risk are at the top end of the market. Don't buy those. Buy mid-market houses, those values are much more stable. And never pay much more than the average house in that neighborhood is selling for, and don't over-improve. The last thing you want to own is the most expensive house on the block, as you'll never be able to sell it.

I know this isn't true everywhere, but the last time I did a similar calculation, based on the historic rate of rents increase in my area, buying the house, then just walking away at the end of 30 years was cheaper than rent.

This is actually sometimes the case, though please double-check your analyses before committing to outliers or "betting the farm". Since it does happen and can work for some people / some places it certainly complicates the simplified dichotomy presented in the OP and this topic.

But if buying is like putting $500k of shares in a company (this is a really expensive house, man), renting is throwing your cash out the window.

I mean, your mileage is going to vary on location, and a generic thread like this isn't necessarily all that useful, but in my area, a mortgage payment is actually less than a rental payment for a similar place.

So even if it's a "bad investment", I can reclaim at least some of the money I put into a purchase when I sell the place (or make a profit, but no guarantees). But I get nothing when I stop renting.

This is a very common fallacy and I am surprised people still think 'renting is throwing your cash out the window'. It isn't.

With a mortgage, you're essentially leveraging around 1:5, which means you put down your 20%ish and get 100% of an asset. If the asset moves down 20%, your net equity is worth exactly 0. If the asset moves up 20%, you've made a profit of 100% (simplified, not considering the fees and other costs).

The trick to understand this is, if you put your down-payment money somewhere else, like a long-term index fund, what kinds of profits would you have expected? What about the risk, considering you're highly leveraged in a mortgage?

Thus the calculator to do the math for you.

What money do you get back out of renting?

You don't get money back from renting. It's an expense, just like any other. However, you don't have to tie in 20% of say $500,000 into a home at 0% return. Over a long period of time, your return on this would be expected to be a little over 8% annual returns, based on S&Ps historic return rates.

It would be interesting to see your breakdown. I figure your purchase closing costs to have been around $2k. Your agents selling commission around $3.5k. Then you must have had condo association fee of some kind. Property tax as well. You might have fixed up something or other to sell?

No doubt you can make money on property though, plenty of shows about flipping houses are popular. I was just curious about your math.

I bought a condo in an area that has exploded with gentrification but still after we sell in s couple of months were not expecting a huge profit. We're going to rent and let somebody else deal with all the hassles for a while.

Generally I consider taxes/association fees to be more cost of living than part of the property, in honesty (no way to really live anywhere for "free"). I spent a little to make the place nicer for sale, but it's a one bedroom, and we did a lot of stuff ourselves. (I learned to rescreen a screen door!)

I'd have to look at a lot of paperwork I can't bother myself with for an HN comment to get you an exact number, but after the sale of that place, and the purchase of a new place (I moved to get a larger place, wasn't really aiming to make money specifically.), I ended up with about the same amount of money put in towards the new place as I had paid into the old one, and an extra ten grand in my savings.

I'm not trying to say "buying is always better", and you have to do your research on the value of your property, properties in the area, where the housing market is at the time, how the rental market is going. There's no way anyone on this site can conclusively tell you that buying or renting is "better" nationwide.

But it's hard to understand why one would rent in a lot of cases, where you have no chance of getting that money back out.

Thanks. I guess I personally haven't really made much money on property, I've managed to break even probably if I figured it out. Although our upcoming sale will leave me with mid 6 figures in our bank account, it's not really profit, just equity that we've paid down.

I have enjoyed having our own place to do with as we pleased, but I'm looking forward to renting for a while!

The theory goes that you get a non-leveraged value of having a place to live...

rent is a 1:1 cost:value on living space. Mortgage is leveraged.