Just learned that when accounting for property tax and maintenance expenses for some properties in HCOL areas (namely CA), the age old truth that it is “cheaper to own than rent” is not true in this example.
But if renting is cheaper, how is the owner not operating at a loss and not closing shop / raising rent?
In: 5
Uhhh a lot of properties are cheaper to rent than own. The value for the person who actually owns the property is they have an asset worth hundreds of thousands of dollars they can sell. The renter gets nothing at the end. The renter just gets a short term promise they’re not going to be evicted. This is not just a ‘California’ thing.
Take my condo in Canada for example. It’s worth about 350,000 so over 25 years you’re looking at $2000 a month in mortgage payments. On top of those mortgage payments, the condo fees are also like 500 a month.
Me and my roommate are paying $1800 a month in rent. That’s $700 less than the owners monthly costs (remember: their mortgage is $2000 + $500 condo fees).
It’s profitable because say they do this exact arrangement for 25 years, they’re paying 700 a month which amounts to $200,000 over 25 years. BUT, they still own the property that’s worth $350k. They profited $150k even though you were renting it from them for less than their monthly costs.
It’s very obvious how this is profitable in the long run for the property owner. They still profited $150k. Even though you’re not paying their entire mortgage in rent, you’re still paying a large part of their mortgage and they’re the ones who benefit when it comes time to sell the property, not you.
The rent is technically cheaper but at the end of the day, you have nothing to show for all that rent you paid. That money is just gone. You don’t own the property. The landlord still has an asset they can sell.
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