> You can borrow against your theoretical gain, I'm aware of this.
Oh good, I was worried there for a minute that you had missed all the excitement.
> Maybe I'm old-fashioned, but borrowing money and paying interest on
> it doesn't seem quite the same as actually realising a profit in cold
> hard cash that you can re-invest and EARN interest on.
In a vacuum, you're correct: they are, as stated, two quite different things. However, they aren't directly comparable, since they don't start with the same zero-state. In the first case, "borrowing money and paying interest on it" is very simple: at Time[0], you have nothing; at Time[1], you have what you borrowed, minus the expense of borrowing it. In the second case, Time[0] shows you _with an asset_, one that you happen to live in. Well, to realize your profit (I never pegged you for a capitalist or at least rentier) you can sell it and move out, free to pursue your profit dreams. I guess until later that night.
Stop me if I'm going too fast.
Until we find a way to, um, have the cake (profit) and eat (live in) it too, we'll have to come up with a way to get someone else to help us get along with our plan for profit domination, now won't we? Perhaps we could get a passive, silent partner. Eureka! If we could just get someone to buy our house _before we're ready to move out_ ... then we'd be Jim Dandy. Well, they aren't as stupid as we'd like, so they'll want something in return. Let's call that: interest.
But: I like your old-fashioned way of thinking of things!
>> I see this as a positive: until recently, all the power and
>> control of the asset that you call "home" was contained in the
>> bank. Today it's a much more even proposition.
>
> Its good news for the minority who have financial sense. For the
> rest it is like installing a poker machine in the living room of a
> compulsive gambler.
Now maybe I'm the old-fashioned one, but I don't think the majority of people are just one poker machine in their living room away from slavery to the cards. But by all means, if you'd like the Big Strong Banks to save you from your ultimate demise, please continue on as you were. Me? I'll take a seat at the table, thanks.
> You don't explain why mine are incorrect, you just baldly assert it.
What can I say? There are three kinds of people in this world: those who get the math, and those who don't.
> I can actually explain the flaw in your logic. You said:
>
>> If you can rent a $600k house for $600/mo, you're way ahead of the
>> crowd.
>
> Its not $600 a month.
You take me out of context; the net cost is close to $2400/mo (as detailed in my calculations), but Joanna says it's 1/3 to 1/4 that to rent. Or [wait for it ...] $600/mo -- I took the liberty of using 1/4.
> I'll grant you there may be some tax refund (in your country)
Yes, we have been talking about the US market. So sorry about that, but I think it's been clear all along that this is what we're talking about. Specific references to "the Bay Area" in the initial message, and later references to "Manhattan" pretty much seal that. I'm all for learning about the ins-and-outs of tax policy in Tasmania, but until you start that thread, we should continue on, don't you think? Don't forget: it's not just an accident of a tax whoopsie, it's calculated social policy: the (US, sorry about yours) government wants you to buy a house, and they are willing to pay you.
> You aren't including the interest that you could have earned on
> your down payment if you'd stuck it in an interest bearing deposit
> in your calculation for one thing.
Yes, I took that into account -- remember the $2400/mo above? That was with 0% down (do whatever you'd like with the money you might have had for a downpayment); given that interest paid is tax-favored and interest earned is not, the choice between a 6.25% mortgage and a 5% savings account is clear (and again, detailed in my earlier message).
> you are even ignoring home insurance.
It seems this might be a regional issue as well, but having been both an owner and a renter, I have to say: insurance is insurance. Homeowners insurance to cover a $1M house is about the same cost as to insure $50k of stuff as a renter, at least in these parts. So I "ignored" it because it's not relevant. As a renter, you can of course ignore it at your own peril; you can do similarly as a homeowner, I assure you.
---
You're ignoring my bar tab: now that I have a house, I have many more friends over for drinks -- it adds up, I'm sure you'll agree. When I had a small apartment, I used to meet my friends at bars. Oh wait, the drinks were more expensive then -- I can buy big jugs of gin now that I have space to store it. Gosh, let's add up all these pennies, I'm sure it will be relevant to the discussion.
/jordan