Well, I can’t speak to your charmed life (though that Avis thing was a stroke of good fortune, I tell you what) - and losing a leg sounded like it was a terrible ordeal. But as for your rent/buy calculation, I suspect it has more to do with how you do that calculation.
For example, any time over the last 45 years or so in the Portland OR metro area it should have come up “buy” no matter what the time period. Portland residential real estate has increased in value by nearly 5% CAGR over that time period. If you had bought and held a thirty-year mortgage in 1996, you would have yielded about 10.6% CAGR on your down payment - slightly better than the S&P 500 over that time period, with vastly better tax treatment. Not as good as if you bought at the tail end of the mortgage downturn (a whopping 15% CAGR), but still a better-than-stocks yield.
If you’ve never come down with “buy” rather than “rent” over the last 45 years, especially in California and Portland, I suspect you’re doing the math a little funny in your calculations.
I didn’t move to the Portland area until 2006 and the housing mania already had floods of people abandoning their rental apartments for a home purchase, depressing rents. I actually rented a unit in a well maintained apartment complex less than half a mile from where I now live for less than I was paying in Houston when I left. Hard to believe, since Portland is a much higher cost of housing area, but that was the effect that the housing gold rush had on rents. Housing values in the neighborhood peaked in 2008. By 2012, the housing market was well off it’s 2008 peak and the flood of people foreclosed out of their homes were bidding up rental rates. My 2006 rent would rise by 31% over the next 5 years. At the same time, 2012 housing prices had collapsed by 70%-off their 2008 peak. It was now fairly easy to find a Fannie Mae foreclosure in the neighborhood, completely renovated with new paint, carpeting and sometimes even new cabinets and doors at an asking price where the current monthly market rent on the unit was 1.3% of the purchase price, even after the 70% decline in prices. That’s how crazy things got to the upside. But you wouldn’t know that unless you were doing a rent vs. buy analysis to inform your housing decisions. Obviously all the smart people were the ones buying up the homes in 2006 when I arrived in Portland while marveling that I was renting a comfortable apartment for less than I was paying in Houston. (Did I mention that my health insurance premiums were also 60% less than what I’d been paying in Houston since I stayed on the Washington State side of the Columbia River? But I wouldn’t have known that unless I knew enough to be attentive to the skim scam and fraud in health care.)
I mean, just like the smart people were the ones selling their stock holdings in 2006 before the market crashed during the Great Recession, and they could have picked up the index when it was in the 700’s rather than between 1200-1300.
Those people, buying their houses in 2006 on the whole, were doing the smart thing. Not everyone can time the market, whether real estate or stocks, after all. I mean…sure, better to buy at the bottom, but the Portland area remained a good place to invest. The home price index has jumped from 216 in 2006 to 450 today. So our home buyer in 2006 would have earned an 8.6% CAGR on their investment (assuming they’ve got about half their loan paid off). Again, just a point below where they would have been if they instead had invested in the S&P 500 at around 1200 (9.6% CAGR). Since rents have gone up by 60-70% over that time frame, the person who bought their home in 2006 would be sitting kind of pretty compared to a person who rented and had their money in the market.
Again, if you can time the market - do that! Both in stocks and real estate! But if you can’t, well… again, those 2006 homebuyers generally ended up fine compared to 2006 renters.
Getting back to this, now side discussion, I put the numbers into a spreadsheet n double checked.
The correct CAGR is 5.06.
Thanks for pointing this out.
Next, I opened the Perplexity chat and told it 5.06 was the correct CAGR, please explain the discrepancy.
Perplexity said 4.46 was correct, and 5.06 was a result of “wrong inputs” or erroneous exponent assumptions.
It refused to acknowledge that 4.46 was incorrect.
I then asked it to calculate 765k with CAGR 4.46 for 29 years.
It revealed 2.7m.
Then 765k with CAGR 5.06 for 29 years.
It revealed 3.2m.
I pointed out the discrepancy, and Perplexity again said erroneous inputs or exponent assumptions.
And 4.46 is correct. It still didn’t correct itself.
I then input the equation
(3.2m/765k)^(1/29)-1
And asked Perplexity to calculate CAGR. This time it calc 5.06.
I asked why. Perplexity said that 5.06 is indeed correct and 4.46 was an error based on incorrect assumptions about the exponent.
I found this an interesting and useful exercise in using LLMs.
My goal is to use the LLMs and build the skills necessary to use them.
I want to be “LLM literate”.
Again, as an individual home owner, I’m not buying the home price index of the nation or a given metropolitan area. While a few people like Goofy did extremely well on his downtown Boston condo purchase held for decades, that’s not the norm. I’m pretty sure that condos nationwide have a poor reputation for investment returns over the long run. Deferred maintenance over the long-term and the tendency to keep HOA fees low being an issue. Forty-year-old Florida high-rise condos being a case in point.
When I arrive in a new city, I choose a neighborhood that suites my needs, compare rental properties and units for sale in the immediate area, plug in the numbers for my expected holding period, and calculate the results. It’s not hard to do. But since I do have the means and discipline to invest all the savings in the stock market, and have a better idea of maintenance and construction costs than most people due to my training and licensing as a Civil Engineer, the argument that even if it’s bad deal, you’re still getting a forced savings vehicle with a low rate of return doesn’t present much attraction for me. The numbers clearly have to be on the “Buy” side. I take no pride in home ownership, but I am willing to accept the considerable risks of buying one, “mortgage-free” if it has some probability of delivering the unleveraged return of the S&P 500. That’s a high bar, I know.
I worked yesterday with a coder who can’t stand claude. He said claude will lead you down a road coding and get lost forgetting where it is going. The roof caves in during a project.
He’s a carpenter with black thumbs so to speak. Interestingly he came off as arrogant.
I agreed claude restructures a project getting things wrong, but I keep track of the project to make it work.
I think its a new style of coding he’s having trouble learning.
You’re essentially restating the core of the rent versus buy calculation. Very (very!) roughly, when the money servicing the mortgage is equal or less than the equivalent rent, you buy, but when the money servicing the mortgage is greater than the equivalent rent, you rent. I want to reiterate that this is VERY roughly stated, many more things (including assorted predictions) go into the calculation of rent versus buy.
Like anything else (everything else?), you could sell it in a week, in a month, or in a year (or never). It all depends on the price you are willing to accept for it.
I’ve experienced similar when using the various LLMs. But after this occurs, I always ask the LLM if it will learn from the mistake that I corrected and it says “no”, it will not use the correction for others using the LLM, and it won’t even use the correction for me when I use the LLM in a new instance! Obviously overall the LLMs learn from mistakes over time, but apparently they won’t learn from individual mistakes like this one.
IMO, it would be a bit dangerous for an LLM to directly “learn” from something a user claims is an incorrect response. Imagine a coordinated attack of bots all claiming the same “errors” thus ruining the usefulness of the LLM.
OK, if we’re being pedantic. I was referring more to the “market value” quoted on sources like Zillow. It would take a long time to sell for that price. If I were to accept, say , $100K, I’d probably get it sold in less than 1 month. Zillow says it’s more than 10x that (and about 4x what it cost us to build it).
