Great article, love that you enumerated all the costs in buying a home. I don't like how renters romanticize home ownership and fail to understand how many costs are involved.

> You've probably heard someone say something to the effect of "renting is just throwing your money away". Don't believe it. It's a glib statement that simply isn't true.

No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on.

However, this statement doesn't exist in a vacuum. You need some place to live, and you have to compare the cost of renting to the cost of owning.

To give an example, the typical rent in Toronto is $1000~2000/month, and the typical home ownership cost (including principal, interest, taxes, and maintenance) is $2000~3000/mo. We can just pretend that both are around $2000/mo.

If owning is still $2000/mo but suddenly rent is $500/mo, then renting suddenly becomes a great deal - even though you are still literally "throwing money away". You can use that differential $1500/mo to invest in a savings account, stocks, etc.

And speaking of that, I realized that the biggest cost in owning a home isn't the mortgage (and you correctly pointed out that paying down the principal doesn't change your net worth). The biggest cost is the opportunity cost of the down payment, when you could have instead invested in the stock market at 7~10%/year.

Continuing with the Toronto example, if you bought a home for $500k with 20% down, then the counterfactual if you had continued renting is that the $100k chunk of money could've generated $7000~10000/year = $580~$830/mo, which is a substantial fraction of the $2000/mo rent.

Shoutout to this article again: "You Are Naturally Short Housing" https://thezikomoletter.wordpress.com/2012/12/10/you-are-nat...

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01100011 7 hours ago | parent | next [-]

> No, the statement is completely true

Why don't we say this about other expenditures? Am I throwing my money away when I buy dinner and not a cow? Did I throw my money away by buying a carrot and not farmland? I don't think the statement is true or false, it's just meaningless.

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nayuki 7 hours ago | parent [-]

You somehow missed the second part of that sentence: "No, the statement is completely true: 100% of your rent money goes to someone else, and you also don't get any asset to sell later on."

The oft-repeated statement that "renting is throwing your money" is an implicit contrast to owning a home, where the mortgage payment "builds equity" in your asset that can be sold later.

"Throwing money away" means you don't get to own something that can be sold for money later on. That's why we "throw money away" on gasoline, but not "throw money away" in a savings account.

The second part of my argument is that throwing money away isn't necessarily a bad thing, because the alternative (such as paying to own something) can end up being more expensive and being a worse deal financially.

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zeroonetwothree 6 hours ago | parent | next [-]

That’s not what that expression means though. Wikitionary has it as “To spend money foolishly or indiscriminately; to waste money without regard of the consequences.” Which sounds about right.

How is it foolish to spend money on housing?

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01100011 7 hours ago | parent | prev [-]

No, I read that part of the sentence. I don't know why you'd assume I didn't. Should I claim you didn't even read my entire response?

I've never heard someone claim I am throwing away money when I buy something consumable except rent. It's a stupid statement that doesn't convey any useful information.

	▲	hunterpayne 6 hours ago \| parent [-]
		OMG...the phrase probably comes from some real estate agent. Truth is, 50 years ago investing in US real estate was such a good investment that if you could own you did. Today, so much "value" has been squeezed out of the housing market that owning is very very difficult. Most people under 40 who own, are now all in on an investment in both the housing and interest rate markets that could either crush them or be their best lifetime investment. Its very hard to argue at this point that making such bets is a good idea for most people. The worst part is that this was all unnecessarily engineered by people who believed Disney movies accurately portrayed public policy.

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niam 7 hours ago | parent | prev [-]

I'm not sure that your definition of "throwing money away" corresponds to the OP's.

OP uses that phrase to imply the (un)worthiness of spend. You're using it to mean that it doesn't build or maintain equity, which is true almost tautologically but wouldn't be very meaningful unless your audience doesn't understand what it means to rent something.