In the same way the interest payments on a mortgage go the the bank. And the interest is often the majority of the payments people make on a mortgage. If you're renting, in a market where rents are about the same or lower than mortgage interest, then you keep the leftover cash that the buyer put into their house and you can put into whatever investment you choose.
Paying rent is the same as paying 100% interest. You lose everything you have paid, it counts towards nothing for you.
Paying a mortgage, you pay part amortization and part interest. Even if only 10% of your monthly payment is amortization each month, it's better than paying rent.
> If you're renting, in a market where rents are about the same or lower than mortgage interest, then you keep the leftover cash that the buyer put into their house and you can put into whatever investment you choose.
Such a market doesn't exist anywhere on this planet. Rent is always higher than mortgage + interest.
The main difference is that you can invest the difference in renting vs owning, and you might come out on top in the long run. It depends on the housing market, the stock market, and where you are.
How do you invest a negative amount of money into an asset? Because the difference between renting and owning is always a net loss, a negative value each month.
No, it's not, not always is my point. We don't count the asset of having the home because we're comparing that part to the stock market investment.
Made up numbers: consider:
Mortgage: 2,000
Home price: 200,000
Difference from rent: -500
Rent: 1,500
Home price: 0
Difference from mortgage: +500
If (500/month invested over 30 years) > (200,000 appreciated home price over 30 years) then you came out on top by renting.
It might be or it might not be.
Also, the type of asset matters. Stock might be a more flexible asset than real estate, in which case you should probably rent depending on your location.
What I'm trying to say is that there is nowhere on the planet where the rent is less than the mortgage. So your situation is impossible, it simply does not happen. If it happened for 10% or 20% of properties, then I agree with your considerations. But it happens for less than 0% of properties.
For most places in the US rent is lower than a mortgage. Primarily because:
- multi-unit buildings are significantly more efficient in cost per-unit.
The cost of a 1500 sqft apt and 1500 sqft home is not the same, the home is going to cost a few times more. Because it's on its own lot, with its own land, and it's on the ground, and it gets its only municipalities (gas, water, steam, electricity), and then it also has its own road requirements.
Basically with, say, a 12 story block you can get hundreds of units for the same amount amount of land (and associate cost) as a few homes. And then you can spread the cost of municipalities, too.
Even with just a duplex or dingbat you're looking at the same land costs and the equivalent accomodations as a few homes. But it doesn't scale linearly, meaning a duplex != the cost of 2 homes.
Also large landlords (corps) can spread the cost of price across all their units. Meaning, like Walmart, some are loss leaders for competitive reasons and some make more money than they need to.
Interestingly, the cost per unit continues to go down until about 12 stories. Then it goes back up, because of building requirements. Which is why commie blocks were historically 8 to 12 stories tall, it's the cheapest way to build housing.
You are totally comparing apples to oranges. Rent is never lower than a mortgage, not in any single place in the US or in the world. For the same unit.
What is the rent for a 1500 sqft apartment compared to the mortgage for a 1500 sqft apartment? The rent is always higher.
What is the rent for a 1500 sqft house compared to the mortgage for a 1500 sqft house? The rent is always higher.
This is not true, because of timing, and mortgages with lower interest rates versus the current interest rate.
If I bought a house in the year 2000 for 200k, and still own it now, I might rent it out for $1200 per month (after refinancing in 2020 for a 2.8% loan on 50k or whatever is left on the mortgage), and still make a gross profit.
If the house were to be sold and purchased now in 2025, it may be valued at $600k or more. The mortgage on this house with 20% down would be like 3500 or 4000 per month after taxes and insurance.
So there is a huge plausible gap between renting and owning a property.
If you are arguing versus some potential mortgage in the past… sure. But you don’t get the mortgage of the past value, you get the mortgage of the current value with the current interest rates.
That's an estimate from a third party with nothing to say on the matter. Now show me a real offer, where the rent is less than the mortgage for the same unit.
Right, I'm just telling you that's that's simply not true.
And, if you really want to compare apples to apples, you have to compare properties in the same area. Its easy to make housing look cheap when you compare upper Manhattan to New Jersey.
Suddenly that 4,000 dollar apartment looks pretty competitive when the alternative is 5 million mortgage + 3000 a month HOA.
How do I get my point through? You can not compare houses to apartments. You can not compare between different regions. You have to compare the exact same unit, the exact same property. Why are you trying to shuffle the cards? Rent is always higher than a mortgage for the same unit.
We have less space, cities are clutered, and many people live in apts that are smaller than your garages. The main reason why everyone is not buying is 20% down payment on your mortgage. Plus auxilairy costs. And in most cases you have to finish/renovate/furnish the place, so it's more like 30-35% of the sticker price.
When you're young or not working in IT, and avg price for sqm is 12k while you're getting 6k/mth and you can barely save anything buying a house sounds like having holidays on a moon.
How much is the premium I have no concrete data, but I have an anecdote.
I once found a lovely 65sqm apt with great layout but it was abondonded in the middle of renovation - the bathroom had two sinks, but only one was installed, the other was in the cardbox, shower had no walls, the living room was full of cables sticking out of the walls where lights should be, etc.
I went twice to see that place that's how much I loved it, and I told the landlord I'd be willing to finish the place if we split the cost between. We sign a deal that I pay for the renovation out of my own pocket, and she'll pay half of it by lowering her price for the next three years. If she'd break the contract before three years she would have to give my money back.
I thought it was very clever and just deal. Landlord gets their apartement done, a tenant that will stay there for long time, and everyone will be happy.
Instead she thought about it for a while and told me "look, the offer was for 4k, if we go your way I'd have to lower the price by 300, that means I'd be only getting like 500 above what I'm paying for mortgage, and that's not enough for me".
You may say that's an anecdote about stupid landlord/tenant but I've been renting a lot and I've seen that sentiment a lot: I've bought this place so I could rent it for profit and if I have to pay the mortgage that means I'm losing money.
Which is stupid, because at the end of the day she'll pay the morgage and can sell the whole thing.
No you don't own something at the end of it. Interest is the cost of having use of the house. If you sell the house and settle your mortgage, the bank won't give your interest back. It's lost for good.
