SPY

[Walter Bright]

On 6/13/2013 7:14 PM, Adam D. Ruppe wrote:
> The utility though is mathematically equivalent to the house cutting you a check
> each year for the difference of property taxes, insurance, and repairs and rent
> though. Which is virtually guaranteed to be a positive number because the
> landlord has to pay all that too, and presumably wants to turn a profit on top
> of it.

Actually, real estate prices greatly outpaced the rents a few years ago, which 
is not surprisingly a strong sign of a bubble. It is not at all virtually 
guaranteed (not even remotely guaranteed) that rents will bring in more than the 
cost of the building. (People building apartment buildings go bust all the time.)

A landlord cannot simply charge more - he can only charge the market rate. 
Landlords will often accept a losing rent agreement just to avoid losing even 
more money with an empty unit.


> Maybe not as big a gain as stocks or whatever, but also very low risk. Even safe
> stocks can dip right when you want to use it - imagine wanting to retire in 1930
> - but you'll still be able to live in your house (and if it burns down, at least
> you have insurance so that isn't a total loss either).

I understand the argument, but I believe the risk is much higher than others 
perceive it to be.

Let's address the situation of having paid off the house, and owning it free and 
clear. What it's "costing" you is the opportunity cost of the money you could 
sell the house for. If your house is worth $200,000, if you sold it and 
collected the $200,000, you could invest that money and get a return. Then, to 
do a proper comparison, you'd compare that return against the cost of renting.

Really, nothing fundamental changes once you pay off the mortgage.