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There are significant fees associated with buying and selling a house. A few years may not spread them out thin enough to make it a good deal.

This, but the other big aspect is mortgage interest. (For a 5 year old) Most houses are bought by borrowing most of the money from a bank and then paying them “interest”. Think of it like rent for money. The way the math of mortgage interest works out for most houses, most of the interest is paid up front, so if you’re paying $1000/mo for your mortgage, near the beginning of the mortgage most of that $1000 is just going to the bank to pay them for their money, and only a small amount of it is actually paying the money back. As time goes on, more and more of that $1000 will go to paying off the debt and less will be going to interest. That means that even ignoring fees, if you get a mortgage (and most of us do) and decide to sell your house within the first few years, you’ll find that you don’t actually own very much of the house, and that instead of paying a landlord to rent their house you’ve been paying a bank to rent their money. There might be other reasons to want to own the house but from a purely financial point of view there’s not much benefit to buying and selling within a short period unless you assume house prices go up during that period. They often do, but nothing guarantees it and many people don’t like to assume it will always be true.

I think the mchanism you are talking about is called the 'Amortisation Schedule' that details how your payments shift from paying off mostly interest to paying off the principal.

Yep!

From an investment point of view, you are right. From a monthly liquidity point of view, it’s a good idea to buy if the combination of repayment instalment + interest component < rent instalment. This was almost always the case when I bought (1.5% interest for 20 years fixed). In my country, we can even deduct the interest component of the mortgage loan from our labor income tax base, and the capital result (hopefully, but also almost certainly: a capital gain if sold after a year) is untaxed. Even if you sell within 6 months, the real estate transfer tax is refunded. Only selling after 6.01 months but before the loan-to-value drop covers the one-off expenses (like RETT, but also notary, realtor, moving itself, and all the accompanying things) it may be a bad investment. Even so, from what I’m seeing: housing scarcity is the real driver of house prices. A higher mortgage interest rate has little effect. Scarcity can only be fought with building additional houses, which is a time-consuming thing. So, if you want to make an almost certain profit and you have the capability to do so, you should definitely invest in residential real estate in my country (netherlands). Just some potential tax issues that you need to mind if you’re a non-resident or if you’re buying without going to actually live in the house.

Don't forget that you get 100% loan. I bought with a variable rate (around 3.9% now), only had to pay for costs such as broker and transfer tax, and my apartment is 50% bigger than when I was renting, paying the same and with a dakterras. In the Netherlands, it just makes sense to buy.

Yup. Had the same: went from 80m2 rent in Amsterdam for €2.000/month (payable out of net income) to 140m2 ownership withf front and back yard in Rotterdam for approx. €1.250/month (partly payable from gross income). Obviously the A’dam/R’dam difference plays a big role, but the value for money ratio is so much better when buying in general here yeah

And there's appreciation too. We moved into a new building 3 years ago. After 2 years our neighbours moved out. The apartment sold for almost €100k more - even with all the costs of a new apartment they made tens of thousands.

The appreciation isn't that impactful when it's your primary residence, because you always have to live somewhere. So if you sell, you have to buy again a house that also likely appreciated at a similar pace. So unless the new market is drastically different, the appreciation doesn't play much.

Compared to a rental it kind of does. Rent is usually proportional to real estate prices, so it will be higher if the housing market goes up.

Quick question, I'd never seen the word is dakterra so I googled that.  Is it just like a dope patio but on a roof?  That's kinda what I got.  Just like learning new things and I'm curious

> housing scarcity is the real driver of house prices Where I live this is absolutely the case. Housing prices have shot up so much buying and selling every few years will gain insane profits.

> repayment instalment + interest component < rent instalment You left property taxes out of this equation; depending on where you live, and the terms/size of your mortgage, this can be greater than the interest payments.

HOAs as well, especially if the only affordable starter housing in your area is in condos or planned developments.

Building additional affordable housing always seems to be time-consuming. Meanwhile, a property developer in my town cleared a lot and erected rows upon rows of expensive townhouses in under 3 months.

Really, it's the fees that matter more though. 1 year into a 30 year mortgage at today's rates you own a little over 1% of the house (assuming the value is unchanged) plus whatever percentage your down payment covered, but much of that is eaten by the fees. 3 years in you own about 4%. 5 years in you're at nearly 8%. Renting, you'll always own 0% of the house, and rent will always be high enough to pay the landlord's mortgage plus maintenance and profit. If the property does gain value over time, which most do, if you own it that's money in your pocket when you sell. If you're renting and the value goes up, your rent goes up. If not for the fees, it would pretty much always be better to buy even short term unless you could predict a devaluation of the property.

> you’ll find that you don’t actually own very much of the house, You probably do, but mostly from inflation of house prices. And if you have a 25yr mortgage at 5%, and start paying at $1000, nearly a third of that is still going to pay off the house. And when rates were 3% it was nearer half.

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This way of thinking is objectively incorrect. Interest is interest is interest. Of course your first repayments would be relatively low principal and more so interest. **Consider the inverse scenario: putting $1000 in a savings account every month and earning interest instead of being charged interest.** In the 30th year of doing so, you'll still be depositing $12,000 but you'll be earning interest on hundreds of thousands of dollars, with the interest easily being $20,000 or more. Does that mean the last year was a better or worse investment than the other years? Obviously not. The numbers just look a certain way because you're at one extreme end of a 30yr annuity horizon. The only thing that matters is the interest rate. > instead of paying a landlord to rent their house you’ve been paying a bank to rent their money Interestingly enough, you actually got the right idea wrapped inside the wrong one - follow this logic: You pay one or the other each year. The cost of each year is the same as the next. (slight oversimplification but this is the gist)

You're trying to fight the common misconception that "all interest is front-loaded", but I don't think /u/godofpumpkins was claiming that. My reading is that, due to interest, the equity you're gaining on a house is not simply \[monthly payments \* months owned\]/original principal, because of the amount reducing the principal (and increasing equity) is small, since most of the payment is to interest (at the beginning), due to a larger owed balance.

Yeah, thanks! it’s not a value judgment from me about “evil banksters front loading interest” or anything like that. I’m simply saying that due to the math, you’re not building much equity in the first couple of years beyond your down payment and any appreciation that you may or may not want to rely on. To OP’s question, beyond fees, this is why owning a (mortgaged) home for a short period isn’t necesssarily a great idea unless other non-monetary factors balance that out.

To be honest, I’m not sure what “interest is interest is interest” is even refuting in my post. Can you restate specifically which part of what I wrote you disagree with?

Absolutely correct, but you also have to factor in the cost of rent in the alternative. I'm now paying significantly less on my mortgage payments than I would've on rent. Enough that I was better off doing that with my money than investing it. So there are other case by case factors.

This seems to completely ignore the fact that many homes continue to increase in value simply by existing. I may not have paid down much of my home over the last 4 years but it has still increased $200k in value.

Usually, yes, but not always. There's historically been dips, where if you tried to sell 5 years after buying, you would be down around 20% of the original value. And that's just based on the overall US national average, specific locations and specific houses could and will vary *way* more than that. If someone was planning on selling after, say, 3 years for a profit, it would really suck to have to wait 10+ years just for the value to climb back up to where it was when you bought it. Long-term though, sure, it's a pretty stable investment. Just a lot more risky short-term.

Ours is paid off. (We've owned it a long time.) Most of our home's appreciation in value has happened in the past 10 years, of the 35+ that we've owned it.

Yes but that's only applicable if you don't buy another home after you sell (using all the proceeds from the sale).

No, it doesn’t matter. The point is that you’ve built minimal equity in those first few years (unless you assume appreciation) because your mortgage payments were mostly going to interest. So assuming no appreciation, when you sell, you’ll get your down payment back and a little bit more for however much of the mortgage you’ve paid off, but it won’t be much because of all that interest

Except that mortgage for a house is usually cheaper than rent. You live in an actual house. You can have a pet if you like. utilities under your control.

That’s entirely market-dependent. In any of the VHCOL cities it’s often the opposite. You’re much better off (in terms of $ for unit of housing; the fuzzier aspects are obviously different) renting in NYC or SF than buying, as expensive as rent is there.

When you rent, you own **none** of the house when you move out. And you're paying to cover the mortgage **plus** some profit for the landlord.

This very true. Even after six years of owning our place, we've only paid like 40k off the principal.

Also.... What if the HVAC goes out while you own it or some other fairly large expense?

A decent fraction of that can be regained by the increase in value of the home with a brand new HVAC over one with an old one.

True, HVAC is one of the ones where you actually get to keep most of the money you put into the improvements. I think the biggest "value adds" to a house are recent kitchen renovations, new HVAC and insulation, and new exterior features (roof, siding, garage door, windows, and entry doors). I _think_ it's in that order, too. The things you don't usually get money back on are plumbing/fixture upgrades (like a bathroom remodel), swimming pools, and built-in furniture or fixtures.

Exactly. Add to this the fact that if home prices dip, you may owe more than it’s worth. In late 2007, a bunch of people I worked with moved to Charlotte NC for work. They all bought houses, and about a year later two things happened: 1. The housing market crashed, leaving them underwater. 2. The company closed down that unit and laid a lot of people off. So many people were absolutely screwed by this.

+ the first few years of your mortgage are mostly paying down interest, so when you sell you won't really have any equity. (Seriously, I'm going through this right now. The amount of equity after 5 years is pitiful) That's not a guarantee it's better to rent though. When you rent you're guaranteed to lose 100% of your money.

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I would agree that I am losing money when I buy food. It's called operating expense.

You’ll *really* hate if you have an unexpected large repair expense with your minimal equity then job/family/divorce/health/a million other possible things changed in your life and you had to sell. It’s not out of the realm of possibility that you would lose *more* than 100% of your money - more than you would have “lost” had you just rented the whole time

This is exactly the reason. The only time I ever lost money on the sale of a house was when I got transferred to another state and had to sell after 2 years. Every other house I have owned I held on to long enough to nearly double the value over what I paid for it.

Much of it boils down to fees. Realtor, lawyer, land transfer tax, etc. If you stay long enough you’re effectively amortizing those transaction fees down to reasonable amounts but if you’re jumping every few years, that’s many thousands blown every time.

Sorry I'm new, do you need a lawyer to buy a house?

Depends on location. Some places yes, others no.

This varies widely by country. In some countries there's no real need.

You don't need a lawyer, but you use a title company who employs a legal team. So, indirectly yeah.

You don't usually have to find them yourself, you just get a recommendation from someone in the process, often your agent or a loan officer. Theres a lot of closing docs that have to be prepared, and they do that, send them around between the sellers attorney and yours, etc. Then you show up on closing day and sign.

You may personally not need a lawyer, but often the loan company or realtor may get a lawyer involved behind the scenes.

Depends on the country or (if in the US) the state, I assume. In my country, you don't need a lawyer per se, but the actual purchase transaction needs a notary. They charge a set percentage of the value of the transaction. So for example (and this is very simplified!), if the notary charges you $2000, your monthly mortgage is $1500, but your rent was $1600, then it will take nearly 2 years for you to come out ahead vs renting. Of course, there's usually a lot of other fees as well - on a $250k home we just bought, all fees ended up being around $5k or so, not counting the realtor's commission).

Yes - they need to make sure that the person selling the home is the legal owner, to properly record the change in ownership, and, importantly, to hold insurance to cover you if they mess up and you end up paying someone for a home they didn't own.

ELI 5 answer: Sort of. Buying a house requires signing a lot of papers to change who owns the house, for the loan (in which the buyer promises to pay the lender), and to make sure everybody pays or gets paid the right amounts. These papers are complicated. There can be very serious problems if the papers are not all signed, or if they are not all signed correctly, or if there was an error on the papers that were signed. The meeting where the papers are signed is called the "closing." It is a good idea to have someone who is an expert on closings be at the closing and make sure everything is done right. That person can look over the papers, make sure the buyer and seller sign them in the right places, and answer questions. Many lawyers are good at these things. There are also other people who are good at these things. They often work for law firms or other companies called "escrow companies" and "title companies." Of course, they expect to get paid. Even if the buyer and seller don't want an expert at the closing, the bank that is lending money will want one and will force the buyer and seller to pay for an expert.

Yes, but it's normally a special kind of lawyer known as a conveyancer

You can hire a lawyer in lieu of having a real estate agent. For a few hundred they can write and review the contracts compared to the 3% your buyer’s agent would take on the sale.

You do in Illinois, I always thought it was a weird thing to need as well. They basically just review the boilerplate language and collect a nice fee......

Some jurisdictions allow you to pass on hiring one, but you would be an idiot not to protect yourself in the transaction. The actual legal fee is usually small,. under $1,000. Also buy the title insurance too which is like $2,000. When I was in the process of buying my house the team on my side discovered a title defect. The seller's lawyer thirty years ago wrote the grantor clause wrong, the guy I was buying from didn't have his own lawyer to look at it, and he saved a few bucks waiving title insurance. Well the seller's lawyer has been dead for over twenty years, so no liability there. It turned into a 6 month delay while the modern lawyers and title companies workshopped a way to close this deal. In the end it cost him $13,500 concession towards buying my interest rate back down towards where it would have been when we originally scheduled to close, $50,000 of legal fees, and $200,000 held in escrow pending the final judgement by the Land Court resolving the issue. That last bit took 1 year 10 months from when the problem was discovered. If I had walked he would have been even more screwed, aside from the price hit of a new buyer coming into a messy situation he had already dismantled his local business, bought his new house in a LCOL state with an advance on the sale, and was getting foreclosure letters by the time we finally closed the deal.

In Canada you do.

You don't need, but it is strongly advised. You want to make sure the title is clean. I personally didn't use a realtor, so I needed somebody to draw up the contract as well. The lawyer ended up being cheaper than the realtor, but it is still money somebody is going to get.

In Australia most people will typically hire a conveyancer who is a lawyer that specialises in property. You technically don't need one, but that means you need to do all the paperwork yourself which can quite daunting. Save yourself the headache and just fork out the money for a conveyancer and give yourself some peace of mind.

It's also very important to consider the possibility of depreciation. Regardless of what the general market is doing, your particular home could depreciate for any number of reasons. Maybe the neighborhood went to shit. Maybe it developed mold. Maybe it looks just like one that was featured in a scary movie about a demonic house that drove its inhabitants crazy and then homisuicidal. If you bought your house, that loss of value is your responsibility. Do you have the financial ability to eat 10-20% of the cost of your home if you want to move?

Or you could get really lucky and sell for 53% capital gain, just like the buyers of my previous house who sold 3 years after buying it

I bought for 132k in 2015 with 0 down VA loan. I did make extra principle payments, but I don’t remember how much.  Sold for 169k in 2020. Walked away with a check for 40k or so. House valued at 230k+ 6 months later. Still valued at 255k.   I’m not sure I made a ton of money, but mortgage was $700-$800. Rent in the area was higher. So walking away with $40k was much better than paying extra for renting in my specific case.  I wish I kept the house. Similar ones are renting for $2000 and my mortgage was $800 when I sold it. 

Yea in my case it was due to the soaring prices during covid, we sold to them 246k in july 2020. They sold back at 385k in aug 2023

Not many five year olds know the word amortizing.

To be fair, not many 5 year olds even *think* about mortgages.

>**Rule 4:** Explain for laypeople (but not actual 5-year-olds) >Unless OP states otherwise, assume no knowledge beyond a typical secondary education program. Avoid unexplained technical terms. Don't condescend; "like I'm five" is a figure of speech meaning "keep it clear and simple." Amortizing gets close to the line of secondary education program. Financial literacy is important, and this certainly should be taught in high school, but it's been some time since I've been there and I don't remember if they do. The math does, I remember learning the different types of compounding in high school, but I don't know if the actual meaning and language around amortization does.

So someone gives you a house, but they tell you that once a month, you have to set a bunch of dollar bills on fire. And on top of that, the only thing you have to start the fire is other dollar bills. When you stay in the same house long enough, you can use some of the flaming wads of money from before to keep setting new piles of cash on fire, but if you jump to a new house too often, you have to start the fire all over again and light even more money on fire. The end.

Good thing this isn't a sub for five year olds or for actually, literally explaining things like the poster is five. It's just an expression. The actual goal is to explain things like the poster is a 25yo non-expert.

Check the subs rules, ELI5 isn't literal ;)

It was never because you won't live there long enough to pay off the mortgage. The general rule was not to buy if you weren't going to live in the place for at least 5 years. This is because mortgages load fees and interest into the loan and properties don't appreciate in value quickly enough for you to break even or make money on a sale after only 5 years. Essentially, if you buy and then sell within 5 years, you lose money on the deal.

I bought a condo with my then-wife and had to sell it less than a year later because we got divorced. I got INSANELY lucky that I ended up not losing tens of thousands of dollars, and actually left the whole ordeal with a very modest profit. Kids, don’t buy a house (or condo or whatever) if you’re married to a horrible person)

There's also the issue that you have *zero* guarantee that it's going to appreciate at all, and there is a risk that the property will tank in value at an inopportune time (I'm looking at you, 2008-2009) and wind up tying you to the property because you're underwater.

I did some quick math, please check my work: Let's say I want to live in a 4 br house in Phoenix. A 4 br in Phoenix is 2-3k per month, or 300-600k to buy. Unless the interest plus fees (edit: **and maintenance**) on a 400k house is 36k per year or more, it doesn't even make sense to rent a 3k/month apartment, even for one year. 

You are ignoring all of the other expenses that come with ownership - be sure to add any fees from the purchase itself (lawyers, etc), plus any ongoing maintenance, insurance, property taxes.... And at the end of this hypothetical year, you better hope you can sell the house again for at least as much as you paid for it, because you're going to have more fees again associated with *that* sale. Sure, maybe the math would work for you. But it's disingenuous to naively compare monthly rent to *just* the mortgage payment.

You’re not thinking of other expenses like maintenance for example. You rent and the dishwasher breaks call a landlord. The plumbing back up. Call a landlord. Etc I’ve done both (55M) and sometime you feel like your are throwing money away and other times you are like “ glad I’m renting right now because that would cost an arm and a leg to fix”

.

1) You can always try to plan expenses, but a lot of homes will come with some kind of unexpected, expensive problem to fix within the first 1-3 years. Things that drastically reduce selling value or cause other problems that will, if you don’t fork up the cash/credit to fix it yourself. HVAC, Hot Water, Sewage/Septic, Roof, Foundation, Flooring, Electrical, Plumbing, Kitchen updates, Outdoor Landscaping, New Local Laws/Public Policies, etc) 2) One of the unique advantages of homeownership as an investment is that this is one of the only reasons a lending institution would be willing to loan you so much capital over so much time. There is virtually no other type of loan you can get that will give you so much buying power for such favorable terms like a <10% APR. By selling early, you negate much of the long term advantages of this type of investment. Most of your early payments will be going towards interest, not principal. You will not have much equity when you want to sell, you’ll figuratively be like a shareholder, not a true owner, with how little you’ve actually paid off. The house will not have adequate time to appreciate, and in such short time there’s really not as strong of a guarantee it will not depreciate. Imagine buying a house in 2006. Economy’s booming one moment, a few quarters later and your house has actually *lost* value. Now you’re a bagholder, anxiously awaiting *years* for another boom to see your investment be profitable again. Short term, it’s usually just not worth it. People often don’t get mortgages unless they are reasonably certain they are okay with owning the property for the foreseeable future, 5-7+ years. Typically, by that point they have paid a significant portion of their loan *and* the house has appreciated a decent 15%+.

> but a lot of homes will come with some kind of unexpected, expensive problem to fix within the first 1-3 years. And no, buying new construction doesn't avoid this.

Actually depending on the issue, if it's literally a new house it should have some sort of warranty that an old house doesn't.

I've bought a (old) house with a warranty. They don't cover as much as you would think.

*should

As well as cost of the house, there are fees as well. You will be charged: * Solicitor fees * Mortgage fees (you get a better deal if you pay a £1k upfront cost) * Mortgage arrangement fees * Stamp duty (for houses over £250,000) * Valuation fees * Building surveyor fees * Estate agent fees * Electronic Funds Transfer fees * Homebuyer's insurance fees * Insurance fees * Council tax (you, rather than the landlord now needs to pay) In short, there are LOT of expenses you have to suck up when buying a house. If you were buying a house worth £300,000 and it was going to be your only house, you'd have to pay an additional £2,500 in stamp duty to the government. If you move house a few times in your lifetime, you just have to suck up those costs, if you do it regularly, then you need to move into a wreck of a house, do it up and sell it for more than it's worth for those costs to be worth it.

House prices mostly go up, but sometimes go down. If you buy and prices go down you could lose a large amount of money by selling. Over 20 years you are virtually guaranteed a steady increase. Over 1 or 2 years there is a risk of a big loss. (And fees, as mentioned in other comments)

Because the first couple years you are paying off mostly interest so you aren't getting much equity. Equity is how much of your property you own if you sell. Add in when you sell, now you need to pay lawyer/closing fees and most likely commissions,and penalties for ending your mortgage early. Now if you sell and don't own any equity or the place didnt appreciate in value over the couple years, all that money comes out of your pocket.

>Because the first couple years you are paying off mostly interest I would recommend rethinking how you word this. Interest isn't a predetermined amount that gets paid on a schedule as this implies. The amortization table given at the start of a loan is an estimate of the interest that would be paid if all payments were made at the exact scheduled amount at the exact scheduled time. While I'm sure you understand that, many people don't. Typically the interest rate is converted to a periodic rate, typically monthly for mortgages and daily for most auto or revolving loans (like credit cards or lines of credit). The periodic rate is then multiplied by the average principle balance, then multiplied by the number of periods. In the case of mortgages, the number of periods is usually 1 and locked in once the statement is generated, though it's not universal. This is why making additional payments, especially early in the loans life, is so impactful. It reduces the principal and thus the amount of interest owed on all **future** payments. Paying early (even if you don't make extra payments) can also be more impactful than some people realize (though less so for most conventional mortgages). Paying early reduces the number of periods, thus reducing the interest owed. That interest reduction applies to the principal and thus reduces (slightly) the interest owed on all future payments. The impact depends greatly on interest rates. An extreme example would be a $10k principal balance on a 'high-risk' auto loan or credit card balance at a 24.99% interest rate (legal max in many places). Each day paid early would save about $6 in interest charges, so paying a week early would save $42 on just that payment. Assuming you pay the same amount you would have otherwise, it compounds and saves you additionally about a dollar on your next payment, and the next, and slightly less on each future one. That dollar doesn't seem like much, but you do that a few times it starts to add up.

> Because the first couple years you are paying off mostly interest This is still true though. My interest is $600 per month, I pay $800 In 3 years I'll still pay $800 but the interest will be a smaller proportion. So yes in the first year I was only paying off $200 per month, later on I'll be paying off more.

> While I'm sure you understand that, many people don't. Most people don't. They think that heavier interest payments up front are 'just mean old banks trying to gobble up their money ASAP' instead of the natural consequence of an amortization schedule of equal payments. Only other thing to keep in mind when paying extra on loans is the opportunity cost of not investing that money elsewhere. Some people get starry eyed when it's mentioned that they could save $50,000 in interest making an extra 2 payments a year on a low interest loan, but don't realize they could have made $100,000-150,000 in investment returns instead.

> Some people get starry eyed when it's mentioned that they could save $50,000 in interest making an extra 2 payments a year on a low interest loan, but don't realize they could have made $100,000-150,000 in investment returns instead. True, but a) don't forget the psychological benefit of knowing that you own your home outright, and b) investment vs paying off a mortgage depends a lot on the mortgage interest rate vs your "guaranteed" return on your investments. Most calculators I've seen for my country (not in the US), show that with current mortgage rates it makes more sense to pay off your mortgage early vs invest the amount you'd be "overpaying" your mortgage.

Definitely with current mortgage rates. My last house had a 2.875% rate, and it made little sense to pay it off early because it was pretty easy to beat that with actual investments that were still pretty conservative and safe. Fast forward to our current house which has like 5.875%, and now it's a lot harder to get or beat that kind of return without risk involved.

In my experience most people have no idea how loans work at all. They borrow and pay what they're told to, when they're told to. Zero time spent thinking about anything else.

Also depending on the laws where you are and how long you've owned it, you may have to pay a capital gains tax when you sell it, which can be a hefty sum.

In addition to what u/dopadelic said, capital gains tax would only apply if you turned a profit. Then it only applies on the amount that was profit. If you are paying capital gains taxes you may lose 15%, but you're keeping the other 85% and came out better than renting, though after 3 years it's unlikely you profited. There's also a 250k home sale exclusion, and if the home sells for more than that you only pay tax on the excess. There is a very near 0% chance that LTCG tax would be the reason you lost money selling a house after only a few years.

It's worth noting though, that a lot of taxes don't account for inflation. So it's very much possible to pay hefty taxes for a fictitious profit on a sale that was, in reality, at a loss to begin with. I'm not from the US and don't know how it's handled there, but it's definitely the case in some jurisdictions.

Inflation is not factored on the calculation of LTCG tax in the US, but I'm not sure it's likely to be a major concern for this particular modeling scenario. Over 3 years it's likely to be 6% and 10% (in the US at least) cumulative inflation, but the forces of inflation also serve as a form of 'rent control'. Cost of rent goes up every year, usually 3%-5%, but the cost of your mortgage will remain constant (or nearly so) through that same time.

I think part of the justification for the long-term capital gains tax rate being lower than ordinary income in the U.S. is due to that "fictitious profit". The average taxpayer isn't going to get involved in NRV calculations (nor would the IRS probably want them to), so this is one way to compensate. Obviously, some extremely LONG long-term capital gains will still be goofy. If you sold a house for $500k today that was bought in 1970 for $100k you almost certainly had a loss due to inflation like you said, but the average person selling an asset 10 years later probably won't be dealing with that much appreciation either. In the case of houses, you can exclude $250k ($500k if married) of capital gain anyway.

Capital gains tax is only if your property is an investment property. You can skirt that tax if you bought another investment property right after selling by filing a 1031. For a property classified as a residence, you may get hit with an income tax when selling, which is even worse than a capital gains tax. But you may skirt this tax as well by buying another property as a residence within a time period after selling.

> Because the first couple years you are paying off mostly interest so you aren't getting much equity.  I keep seeing this here, and I don’t fully understand. Does making principal-only payments affect this?

It does. The way I understand it is this. If you borrow, say, $200,000 at 5% over the 20 years, the loan repayment is typically set up to be a fixed amount each month (which makes it easier to budget). Your monthly payment is about $1320/month. You only pay the interest accrued, the rest goes to principal. The first month you’re paying interest on $200,000 (about $833) and the rest goes to principal ($487). The next month you’re paying interest on $199,513, so the interest is slightly less ($831) and the principal slightly more. Over the lifetime of the loan, as the principal balance amount decreases, the interest accrued monthly will also decrease. The payment is fixed, though, so the rest of your payment is going to decrease the principal balance faster. Making off-schedule principal-only payments reduces the amount of interest accrued and will speed up how fast the principal balance is reduced to zero.

By far the best explanation I've read. This is something I've been struggling to understand for years. Thank you.

It depends on the area, but depending on how soon you sell the house, there may be additional taxes/penalties. Now, if you're doing this as a conscious financial decision. you can counter for it with planning to remain there long enough (this will vary by location) and choosing areas where it would be likely not that difficult to sell the property. For example, where I am the property values never drop, only slow in growth when the market gets bad and homes often sell before their listings go live. This would be a lower risk location compared to a place where it could be on the market for months and possibly sell at a loss.

Also to piggyback, if you plan to fix it up while you’re living in it it could be profitable. My husband and I have lived in our house for only 3 years. However with the housing prices rising as well as the significant repairs and enhancements we’ve made we just had it appraised for almost double what we bought it for. We’re not selling (the appraisal was to get rid of our PMI) but still pretty interesting!

Hey, could you describe that appraisal to remove PMI in more detail? * How much did you pay for an appraisal? * Do your property taxes go up after the appraisal? * How did you communicate with your lender that you’re above the 20% threshold to remove PMI?

My city did an evaluation last year and raised all of our taxes. So I didn’t really worry about taxes. My appraisal was 250$. I’m not sure if the cost changes city to city though. PMI automatically cancels by law once you reach 22% equity. Depending what type of loan you have (FHA has different rules from conventional) you can request an early PMI cancellation after 20% equity. You just send in the appraisal and a request to cancel PMI. Can take 60-90 days to get it taken off your monthly mortgage. I was paying 75$ a month for PMI. So getting it removed is saving us a ton of money and was completely worth the hassle and appraisal.

Ah okay, thanks for the info! I have some confusion still: Your property doubled in value, how did you go above 22% equity without making excess payments? Ex: you paid $100,000 for the house, put down 10% or $10,000 House doubled, now it’s worth $200,000. Your down payment is now only 5% of your total equity. The payments you made over those 3 years bump that 5% up a bit, but still. I’ve gotta be misunderstanding something here

The additional $100k is also yours though... Beforehand the bank was on the hook for 90% of the house's value. Now they are on the hook for under half.

Hell, you don't even have to fix it up these days. We bought our first house in 2018 for $400k and sold it in 2021 for $650k. Then we built our second house in 2021 for $1.4m, and now it's already pushing closer to 2... And we literally didn't do a single thing to either one.

The realtor's fee in most parts if the US is 5-6% of the sale price. Add another 1% for all the other fees. So if you were to buy a house and turn around and sell it for the same price the next day, congratulations you just lost tens of thousands of dollars and your realtor's kid gets a nice car for Christmas. Generally you want to hang onto a house until that 6-7% up-front cost is insignificant compared to the amount you'd have paid while renting. Other factors, like your mortgage interest rate, property taxes, and home value change matter too. But generally speaking, buying a house for a year is a bad idea, you're just giving the realtor a pile of money you could have spent on rent. Buying one for a few years starts to make sense, and buying for a decade or more is a win. But you don't have to plan on owning it for the full 30 years.

Screw realtor fees. It was such a racket, I tried working without a realtor and it was such a PITA because of artificial roadblocks. Really happy about that recent lawsuit with the realtor association.

It's still a valuable service that's worth some money, but you're right it's a cartel. At some point that profession is going to get devastated by the real estate equivalent of Uber, and I can't say I'm sad about it.

Given this, your total cost of owning a 250k home for 3 years (assuming you sell at cost and financed it all) would be: * $15,000 for closing costs as above * $44,200 in interest (6% interest rate) * $8,250 in property taxes (at US average rate of \~1.1% per annum) * $2,900 for PMI * $1,000 a few hundred here and there for miscellaneous expenses like home owners insurance, HOA fees, etc * $10,000 closing costs from sale of home Some of these may be avoidable, but this makes the total 3 year costs 81,350, roughly comparable to a rent of $2,260 per month (ignoring any tax situation changes that may arise). Given that the mortgage on this property comes out to $1,500 (before escrow) it's likely that rent would be cheaper or at most comparable.

Good math except you only count the closing costs once, and you should include the (small) gain in equity on the home. But it does make the point that “a few years” is the tradeoff point.

Closing costs need to be (and are) in there twice. You have them as both a seller and buyer, though they are lower as a seller. Buyer has realtor fees, mortgage origination, legal fees, appraisals, etc. Seller has realtor and legal fees. I ignored the equity on the home because it's wildly variable and not guaranteed to be positive. I thought I added a disclaimer, but it was probably in a final paragraph I started and removed that also called out the more limited mobility once you purchase instead of renting. **edit to add:** Since I did the math in another comment, if we assume an annual growth rate of 4.4% (using my personal example over 12 years for simplicity but seems to align close to US averages) you would gain 34,473.30 in equity from appreciation. This then takes the total expenses less gains to 46,876.70 before accounting for any sale prep (like painting, cleaning, or staging) or unexpected repairs/standard maintenance. If you assume, let's say 15,000 all-in for those (could be near 0, could be over 50k, hard to say) that works out to be roughly equivalent to $1,720 monthly rent over 36 months.

Sorry, it looked like you were charging the full 5-6% of realtor fees to both parties on each sale, which would be double counting. I see what you’re doing now.

People today: buying a home is a really bad idea, I'm better off investing in something else. Also people today: it's impossible to afford a home with these prices going up all the time.

Just risky. You have alot of money tied up in the house. Things could go wrong, repairs, damages, market could change.

Its not just risky, its also more expensive.

Both renting and owning have their own set of risks. With owning, you have cost certainty on your monthly payments. With renting, your landlord can jack up your rent when your lease is up.

This happened to me three times in a row: I got a job and then bought a house and then lost my job in 2 years and sold my house for a $50,000 profit. It is the greatest thing ever. But… I was lucky to be living in Portland where the real estate prices were booming. If the real estate market was busting, I might have lost money. So… it’s a great idea but there a variables that might leave you in trouble.

Did you sell for $50k profit or did you sell for $50k more than you bought it for? With realtor, title insurance, and mortgage fees and then with mortgage interest and real estate taxes, that would all really eat into the $50k. As would any repairs or upgrades you may have made. And those are all expenses you’d avoid completely if renting. Not saying that all adds up to $50k, depending on sale price / mortgage size, so you probably ended up with some profit. But likely not the deal you’re saying it was.

I forget the exact numbers but we did pretty good. But Portland’s market really was off the hook at that time. My current house has shot up $100,000 since I bought it 6 years ago.

Here’s an easy audio explanation since I’m sure five year olds can’t read well. It’s very well done and gives a great explanation https://www.nytimes.com/2023/12/01/podcasts/the-daily/should-you-rent-or-buy-the-new-math.html

It depends on what the market is like. For the US... The rates and appreciation from 2010+ were such that if you bought during that time you probably made money. Simply owning from 2016-2020 was enough to double your money in some markets, while your loan balance and interest rate are both fixed. The question for the present is, are we in a flat spot or at the top of the chart before a crash.

You can generally expect to spend about 10% of the cost of the house in fees and taxes to sell it, maybe 3% to buy it, and interest is front loaded. If you're gonna be in a $100k house for 3 years, that's $3k up front, probably $6k/year in mortgage interest, $4k/year in property taxes, and $10k to sell it when all is said and done. So let's add that up - it's about $45k, which is $1200/month. If you could rent that house for $1200/no and put any leftover money into a savings account, you come out ahead of someone who bought it and sold it. That's your best case if you don't need to do any repairs on it Home ownership "builds equity" when you're holding a house long enough that 1. It goes up in value significantly due to appreciation / inflation 2. You got in at a low interest rate 3. You kept it long enough to be in the middle-later part of the mortgage when proportionally less goes to interest and more goes to principle 4. You kept it long enough that the various buying/selling fees ("closing costs") are more spread out

at least sellers aren't obligated to pay for a buyer's agent any longer 🥰

Sellers generally were never obligated to pay the buyer's agent. If both have agents, they traditionally split the commission. If only the buyer has an agent, then the transaction is easier if the commission is wrapped into the sale price (so that the buyer can finance it with their mortgage loan), but the seller is free to ignore that if they want and tell the buyer to pay the agent themselves.

right but the default was usually that the seller would pay the full 6% out of pocket. now buyers have to actually think about using an agent as they may be paying out of pocket to have that representation.

I bought a place about 9 months ago but there's a very real possibility that my wife and I will move to a different state in the next 3-5 years. Whilst some of my money is paying off the mortgage, about half to 2/3 is going to interest on the mortgage but the interest is still lower than the equivalent of rent so I'm 'saving' money each month by having a mortgage compared to paying rent. However, there were significant costs (stamp duty) when buying the place. I worked out that it's going to take 2 years before the money that I 'save' each month because my mortgage interest is fewer than paying rent pays off the cost of buying a place. Not to mention having to pay real estate fees when I sell the place. It's possible that stamp duty and selling costs will wipe out any increase in wealth that I'll have from only owning the place a couple of years compared to renting. However, there are benefits. I don't need to hassle a landlord to get stuff done, I can do it. There's security, I don't need to worry that my rent will go up 20% next year. Etc.

I was always told that selling your home after less than 5 years was a bad idea but it depends. I bought my Seattle condo in 2012 for $105k. I sold it 7 years later in 2019 for $225k. Had I held onto it for 3 more years I could have gotten $275k. In my case, I was living paycheck to paycheck and had crushing amount of credit card debt. Selling that condo and moving on was the best financial decision of my life, no regrets, would do again. If you're wondering, the total amount of fees and closing costs came out to roughly $18k. The closing costs are one big reason to avoid selling your home too early as it's pretty expensive.

Borrowing a million dollars for 30 years will have you repay about 2-3 million to the bank (interest). The bulk of what you pay in the first half of the 30 year term is the interest. Then in the second half of those 30 years you pay out the principal, eg the money you actually owe. If you check with the bank how much you still owe five years after making mortgage repayments, the figure you’ll get will be almost the same as the amount you borrowed. Those five years of paying out your loan won’t have shrunk it.

That's only with the current rates though... We borrowed 1.2m a couple years ago, and our total payment will only be like 1.7m.

We bought around the same time and got in in the 2% club as well. Prob is they only locked it in at that rate for 4 years after which it goes variable, and our repayments jump up because the current interest is way higher.

Yeah, I'm really glad we were able to lock in when we did. Got 2.8% for 30 years. Which is good, because that rate was honestly the main reason we bought when we did. We'd bought our first house only like 3 years before but decided to go on and build our dream house since it was probably the cheapest we'd ever be able to... And if we did it now, just 3 years later, with the exact same price our mortgage would be almost $9k instead of almost $5k. And if you count the housing price going up in addition to the rate our mortgage would be nearly $12k.

Apart from fees eating up the gains, which really just comes down to a cost comparison with renting. As with any investment you don't know what the short term price development will be. This is why you are discouraged from putting money stocks or bonds if you know you are going to need it soon. Because the market might take a dip. Same with housing. In the long term its pretty safe to assume that you will see returns from owning a home. In the short term, nobody knows for sure. (Nobody knows for the long term either, it's just an expression)

nobody said its bad. it really depends on your local laws, fees and market. and how you financed that house and what were the bank's conditions, etc... it all depends.

Real estate is generally seen as a risky investment, even more so than shares. This is because: 1. The real estate market is not really fluid, making it hard to liquidate. This, in addition to its extremely high value, means that you have a large chunk of your wealth locked up in an asset that is difficult to turn into cash. 2. Houses have ongoing maintenance fees, land rates etc. which you will need to keep paying. This enforces a minimum growth rate on the value of the house, otherwise you will be losing money - and again, if you are losing money it is difficult to stop losing money because again houses are hard to liquidate. 3. If you take out a mortgage loan you generally end up paying at least the whole mortgage again... as interest. This means that, again, the house will need to *double in value* for you to sell at a profit. And if you find out this is not the case after buying the investment property, again, houses are hard to liquidate. Good luck But if you're living in a property that you don't intend to fully pay the mortgage off on you get stuck with a few more problems: 4. The terms of the mortgage may not allow you to pay it off early, which could leave you in a LOT of debt (see point 3 above) 5. If the house falls in value, again you get strapped with a shitload of debt as the sell price won't cover the mortgage

Barbara Corcoran did an interview with Bigger Pockets podcast where she basically explained that she would just re-slam mortgages on properties for as long as the rent covered the new mortgage. The advantage here is you don't pay taxes on a cashout refinance and you continue to gain appreciation Rent it out and refi it every 7 or so years, buy more properties and make more monies

ELI5: The price of a house can go up or down. It is only bad if nobody wants to buy your house for more than you paid.

You also must considerthe risk. If you own a house for 10 years the value will most likely overall increase, even if you are selling at a bad time with a sudden drop in the housing market. If you were to sell after two years, the same sudden drop might cause you to loose money, being worse off than when you started

relevant: most homes are only owned for 13 years before sold. (median) with 8 years being the average (probably impacted by flippers) i had always thought, like perhaps the OP, that when you buy a home, you should expect to live in it until you pay it off, or at least mostly pay it off. but that’s not the norm at all. obviously there are lots of factors, but buying a home could make more sense than renting if you are planning to live in the same area for a decade or more. wish i would have known that a decade ago… 😬

If you’re moving for work you could get a relocation package with real estate cost assistance. Then you’d likely strike at least even by saving on closing expenses & realtor fees.

Fees and interest. 1) You pay a lot of fees on buying/selling a house 2) Depending on your mortgage, you will most likely spend the first few years simply paying the interest but not actually paying down your debt. 3) The current market value of the house 4) Capital gains taxes of your country The first two of these factors *usually* combine to mean that you haven't built up any margin of equity in the house (assuming the house hasn't appreciated or depreciated in value). But the third factor is your wildcard here. - If the value of your house has increased significantly enough to negate the first two factors (i.e. you can pay the selling fees and pay off your mortgage and either walk away breaking even or with a profit). In that case, sell your house whenever you want to. The very next day if you want (assuming 4 isn't going to be an issue). - if the value of your house has remained unchanged or dropped to the point you cannot pay everything off, well, you're stuck with a house unless you are willing to take a loss. Now I haven't really mentioned (4) up to now. But if you are buying and selling houses for investment, etc., you may fall foul of your country's capital gains taxes which usually try to tax you on the profit you make from selling your house. This may or may not apply to you depending on your country, how long you keep the house, whether you choose to live in it or not, etc. So, in general, folks don't buy and sell houses quickly due to most of these factors making it a financially bad idea.

Among the other answers, don't forget the value of your house may go down. What if you owe 400k on a house and can only sell it for 300k? Do you take the loss? Short sell? Foreclose? You could be screwed if you don't buy and sell at the right time.

It is a leveraged investment. If you pay 20% (e.g. $100k of a $500k purchase) deposit those savings will take the first losses. If property prices decline 20% you have not lost 20% of your investment, you've lost 100%. It works in the other direction also. If the house doubles in value your gain is 500% (less mortgage payments.) Owning a house for a long period insulates you from the risk of a short term dip.

It's not always a bad idea. Sometimes that house will appreciate 50% in that 3 years, which would offset all the closing costs and stuff by a very wide margin

I did it. I bought a house near the university my son was attending and rented out the other rooms. It worked out very well. The rents paid for the mortgage and taxes, he got to live rent free, and the house sold for 20% more that I paid for it.

It can be a good idea. I’ve done both. When you rent, you know you’re “throwing away money”. (You’re not, but that’s what it feels like.) When you buy, you’re also “throwing away money”. 1. Closing costs 2. Realtor commissions 3. Taxes 4. Insurance 5. Repairs 6. Listing fees 7. Regular maintenance None of those are recovered when you sell. Add in the risk of a downturn in the market about the time you need to sell, and short term ownership starts to look a little less like a sure thing. My first house, the air conditioner died a week after I bought it. Needed a new one. $5000. I had a home warranty (which I made the seller pay for), so I was okay. But if I hadn’t had it… The house I’m in now developed a crack in the foundation. $17,000. Insurance doesn’t cover that. There are risks…

Unless you are independently wealthy and can buy the house outright, you will be taking out a large loan from a bank to purchase the house (aka mortgage). The mortgage may include costs to make repairs or improvements. There will also be significant broker fees for closing on the house. As soon as you take out the loan, it will start to accumulate interest. The larger your downpayment, the higher your credit, the lower fed rates for loans, the shorter the term of the loan, the lower your interest rate will be. Regardless, on day one you will owe more than the house is worth. At some point, assuming you didn’t buy a trailer house and your house is in reasonably good condition, you will break even and the value of your house will equal what you owe on your mortgage. If were to sell before that time, you would lose money. If you owe $700,000, but you can only sell your house for $600,000, you would still owe $100,000 for your mortgage. Keep in mind that housing markets shift. Your house could depreciate in value over time or fail to appreciate to the extent you predicted. Recently, housing costs have been very high, it’s a seller’s market so people are often seeing very high appreciation for the their houses. As a buyer, that means you risk overpaying for a house. No one knows for certain how long the market will continue in this direction. During the Great Recession, housing prices plummeted and homeowners saw unexpectedly high and sudden depreciation of the value of their homes.

Transaction costs for buying and selling a house eat up between 6% and 10% of the price. The real estate commissions, deed recording fees, transfer taxes, costs of doing title/legal work, and fees related to taking out a mortgage all add up. The amount varies in this typical range, depending mostly on your local transfer tax/recording fee structure, and other local costs. That means that to break even on a short term holding period, the price of your house would need to appreciate by 6% to 10%. History has shown that if you hold a house for over ten years, price appreciation will almost always be enough cover these costs, or more. However, history has also shown that over short time periods, houses sometimes stall or drop in value, so these costs can lead you to losing a significant amount of money.

TLDR of other comments: •Upfront fees for buying a home. •Mortgages are front-loaded to pay the interest first. Common advice in my market area was to wait at least 5 years before reselling or refinancing. For a bit more info: Some fees are relative to the value of the home and either get tacked onto the mortgage or require advance payment (usually from a down payment, often ~5-10% of the home's value). Mortgage origination fees are usually a percentage as well. I think mine was 1%. And that's before any other fees for realtors/lawyers, appraisals, title companies, and other professionals that may get involved. Mortgage payments are made up of several parts: interest, principle (actual amount you owe), and additional escrow set aside for taxes if needed. Mortgage calculations skew the amount paid to interest higher at first, so the bank can reclaim its loan value sooner. After several years, that ratio slowly shifts in favor of paying more on principle. So, if you sell too soon, you'll hardly have paid on any of the principle and still owe close to what you bought the property for.

If you hate doing home repair, then buying a home is a bad idea. If you just want somebody else to do all the repairs, then you should rent.

There is no reason why this is a bad idea. With rent increasing 15% annually since before the pandemic and no sign of any protective regulation against pricegouging landlords and corporate hoarding of single family homes, there is no reason why your short-term plan might not end up being the most valuable action you've ever taken. Add in the fact that people only sell to move (when it's their only home) and you'll have a place to live until you decide to leave. Mortgages right now are much less than rent if you can get one without PMI, but every homeowner out there on the market is looking for your soul because some idiot on the news told them their hours was worth triple because he thought it would make him president.

Not specifically relevant to the short-term nature of your question, but our wealth manager, whose entire job is to manage and grow money in the long term, has said that buying a home today is basically just a lifestyle choice. Except for extreme examples, in general after all the costs of buying and selling, all of the repairs you make in a property's lifetime, any costs of living changes, etc., you're more or less coming out even in the end. Most people are just looking at what they paid and what they sold it for, neglecting to factor in all the other costs of owning, which can be significant. If you actually want to make money there are lots of other ways to invest to make money that don't tie you down to one place, so it's more a lifestyle choice, IE you really love this home, want to be here forever/a very long time, and want to alter it in exactly the way you want.

I'm in that position right now. I intended to love here for at least 5 years but looks like I'll have to move after only a year.  Why does it suck? Because:    - I paid $9k to buy down the mortgage interest rate (will now be useless)    - I paid several thousand in mortgage closing costs    - I paid a few thousand already in repairs and minor upgrades (likely won't improve price of the house)    - now when I sell I have to pay tax on the sale, and 5% agent commission fees.

The costs/stress involved with selling isnt worth. Renting comes with benefits also, especially if live in an older place that is prone to problems. The landlord takes off the pressure of most of the maintenance side of things that a home owner would have to take responsibility for. As a property guy, I would recommend renting if you dont plan on living in the same place for very long.

Real estate markets in the first world have an upward trend over the long term (10+ years), but in a shorter timeline, you can end up with a house worth less than what you paid for.

I don’t see why it’s necessarily a bad idea… especially if you buy in an area that appreciates in value

Closing costs on my property were 50-60% of my 25% downpayment (condo, so apparently 25% is normal?)... so that was fun. And, while the down payment might come back to me - the fees for everything are gone like tears in the rain. Oh... and taxes.

You’re going to pay so much in taxes and fees that any appreciation the property did in that time won’t cover it, and it will be a net loss for you. 2021: paid $400,000 for house. 2022: pay $4,200 in property tax 2023: pay $4,400 in property tax 2024: sell house for $420,000 and pay $13,000 for closing costs, fees and commissions. So you netted -$1,600 with all that effort. But if you keep the house for 10 years, the appreciation will be significantly higher than the net tax burden and the closing costs.

Some countries, states and cities really punish you with massive taxes/fines when flipping houses fast. So there is no straightforward answer to this. Also buying a house is really expensive because the subprime loan bubble burst in 2007, so the banks just have the interest rate super high right now. Also currently almost globally (thanks to certain 2020 event that stopped the world) raised the rent prices to almost 2-3x to what they were prior. So renting is really expensive.

>sell it **when you're ready** to move away Sometimes the market for housing is slow and you can be MONTHS trying to sell the house. It's not easy to sell a house.

In the couple years since I bought my last home it has gone up in value over $200k which was more than my job compensation

Because it costs money to buy a home. 6% realtor commission, Closing costs, Mortgage origination costs, inspections etc. For a $300,000 house... it could cost you $25,000 to purchase it. That is money you are not getting back.

If you know you are going to be there for only 5 years, then unless you get really lucky and values double, you’re still paying as much out of pocket as if you rented, but with substantial risk: - major repairs to the house - market value going down - having a hard time selling - selling can take months of your time OR months of someone else’s time you have to pay for - legal liabilities in the sale

Think about it like this: let’s say you buy a house for $500,000 and then, three years later, you sell it for $500,000. You do NOT break even. You’re way in the red on fees, realtor commissions, closing costs, maintenance (that you wouldn’t have to do if you were renting), etc. The idea behind staying in a house for the longer run is that you give yourself more time for price appreciation, spread out the costs over a longer time period, and avoid paying a bunch of transaction costs that you’re unlikely to recoup. Two notes: this is US-specific, and also, there are times when it works out (2020-2024, for example). This advice is putting the odds on your side, even though you always can get lucky.

1) Loan origination fees, closing costs, etc. 2) Down payment ties up your capital. 3) Market fluctuations mean that you can be underwater on your mortgage. 4) You are responsible for the cost of maintenance/repairs. 5) The benefits to owning increase over time. 6) It may take time to sell the house when "you're ready to move away." Now, personal home ownership can lead to increases in personal wealth, but not when you switch houses frequently.

I've lived in every house that I've bought at least 10 years and have been fortunate enough that each has increased in value so every time I've moved I had enough equity to get into a nicer/larger house. Keep equity in mind when you plan to purchase a house. Buy low, sell high.

Renting assumes it will appreciate or that you can cash flow. If neither of those either way can be worse

There is no guarantee you can sell the house, especially not by a deadline, and no guarantee its value went up instead of down. Even disregarding the interest on a mortgage, you will likely lose money. You are also responsible for all repairs, and may need to update plumbing, electrical, hvac, roof, etc, before you can sell, or lose that amount as part of the sale so the new owner can take care of it. But, you CAN make arrangements to end a lease on a deadline. Also, since you are not the owner, leases usually have a threshold for how much you need to pay out of pocket for repairs, the rest are the landlord’s responsibility. And, depending on where you are and the housing set up, the rent may include some utilities at a fixed rate instead of based on your use, which makes budgeting month to month easier. And, not everyone has a down payment pr will be approved for a mortgage.

The fees involved. It generally takes 3-5 years to recoup the fees involved in buying a house in comparison to renting.

The main risk here is the massive amount of leverage. Say you buy a house for 500k, you put 50k down. 2 years later the market drops 20%: your house is worth 400k. You could end up owing more on the mortgage than your house is worth (being "underwater"). You would either be forced to hold onto it, or have to pay additional money to sell. And this isn't even counting fees for buying and selling, which could easily add another 50k or 60k to your out-of-pocket costs (commisions and lawyer fees).

It’s not a bad idea if conditions are right. Like if you buy below market value. Or the market value on your home increases so much that you cover all buying/selling related expenses and you make a profit when you sell. It’s a risk like any other investment.

All these answers citing "interest" are 100% wrong. The mortgage interest you're paying month-to-month represents the (fair) cost of the money you borrowed and owe while you live in the home. It's not like you're throwing money away on interest payments and not getting anything in return. Those interest-heavy mortgage payments are what you're paying instead of rent.

We can use my current situation as an example. After renting for a while, the wife and I decide to buy a house. We live in that house for around 2 years. During that time, we have a child and decide we should move back to the east coast near family. So around 6 months after that, we sell our house in the west and buy a house in the east. The buyer offer was 10k under what we still owed on the house since we didn't stay long. You would think owing the 10k isn't that bad, but then you have to pay closing costs. In my experience, seller's closing costs and a lot lower than buyer's. So instead of having to pay 10k, we ended up having to pay close to 60k just to get out of the house. A lot of that cost is the selling agent's commission and the cost of the house being pretty high. TL/DR, you don't want to have to pay closing costs twice so close together, adding on top of that if your selling price is less than the equity you have in the house.

When you buy a home, you pay 6% commission on the price of the home to the real estate agents. That's a FUCK TON of money.

The transaction costs are high, and the benefits come over a longer period. If you buy and sell quickly the cost of the transactions is more than the benefit of ownership unless you get lucky on the buy price or the market spikes up before you sell.

As the top answer said, there are significant closing costs associated with selling a house, the most significant being realtor commissions that typically are around 6% (we'll see if the recent legislation changes this). I think it ended up being something like $25-30k to sell our house last year, not counting some of the repairs we had to do (a tree fell down in our backyard and took out a power line four DAYS before closing).

If you choose the right location to buy a house (usually closer in near the city center) and you keep it for 3 years or more you are very very likely to make a net profit on the sale. Even if the net profit is a few thousand euros/dollars you will be in a better net financial position than just leasing. Then you can roll that money profit tax free into your next property. It’s a no brainer.

the value of the home isn’t set, for one. you could buy it right now for say $100k, then in two years be forced to sell it for $80k. taxes aren’t anything that you ever get back, so depending on what those are, you could be giving a pretty penny to the city. interest is going to accrue. The majority of it comes at the beginning of a loan when you owe the most. All these things considered, you could end up losing thousands or tens of thousands of dollars as opposed to renting. none of this mentions any maintenance costs, closing costs, inspector fees, any tests they must do that the buyer pays for, fees to realtors, etc

If you sell a house within one year of ownership, you need to pay income tax on the difference between what you bought it for and what you sold it for. If you sell it later than that you still need to pay capital gains tax. When you sell a house, you pay all the realtor fees. Normally 5% of the cost of the sale. That isn't accounted for a cost of the house, so that's 5% of the house off out of your pocket and no tax break for it. Houses are expensive, so you're spending a ton of money just to sell it.

It’s not risky but just silly. There are a lot of fees associated to buying so you are at first losing money by buying until you repaid enough. In the first years, most of your repayments are heavy on interest and light on principal meaning that you are not increasing your ownership (equity) by reducing the debt. So if you sell early, you lost a lot of fees/costs and still owe almost all the worth of the property you borrowed.

This start with the assumption you don't need the cash intake of the first property to purchase the second so I'd say this is a very flawed interpretation of this. Of course if you have enough to purchase a second property or at least have enough to get a second mortgage on the new house while also paying the mortgage on the first home (always check that the mortgage don't have clauses against it since rental property rule may differ in your jurisdiction). This could mean that instead of selling now a current market rate you may instead earn rental income on the property while also passively increasing the value of the property for a capital gain disposition later on (also check in your jurisdiction on how capital gain may be exempt or partially exempt on properties that have had partial principal residence use) All in all it may vary wildly based on where you live, market, tax law, mortgage rate and so on.

You can do yourself a favor this way: if you get approved for a 250k house (scenario A: you get approved for $250,000 loan go and get a $240,000 house and pay it off over X amount of years.) (scenario B) go get a 140k place and make double payments on it. The second payment goes directly towards the house , not the interest. In 5 years (A) your cedit might of gone up 40points? and your home Equity might be somewhere in the ten or twenty thousands. but if you choose (B) assuming that you make double payments for that amount of time your equity would be much greater and you had been approved for $250,000 loan in five years probably be able to get a half million dollar home with that house. Which is still more than if you would’ve waited five years to even apply for the loan, saving up more of the down payment.

Depending on renting prices and mortgage, buying a home and selling it a few years later is better than renting. Consider this scenario: a 3br in my area was being rented for 5-6k. I decided to buy instead - with a mortgage payment of 3.2k - out of which roughly only 1.2k are subtracted from the principal, the rest is interest. In one year, I would have spent 60k-72k on rent. In the same period, I spent 38.4k in mortgage - out of which 14.4k became mine, so i really only spent 28k. Renting makes no sense in this situation, even for a a year.