|
| quote: | Originally posted by Arbiter
Eh, not really.
It depends on the market. An associate of mine rents a house in alexandria, va for about $3,700/mo; buying an equivalent house in the same general area would cost approximately $1.5 million on the low end.
So, at a 5.75% interest rate for a 30 year mortgage, you're paying $8,750/mo to own. 0.5% per year is probably a fair estimate of upkeep, and the tax rate there is 0.845% -- so call it another 1.345% of the home value in extra costs per year, or about $1,700/mo; add the mortgage and you get to real cost of about $10,450 per month or $6,750 more than renting. That $6,750 can be invested in assets that produce a higher rate of return than residential real estate...
I'll use the inflation adjusted return rates here for the comparison. I would argue that there are several reasons why the real rate of return on residential real estate is probably going to be even lower over the next 50 years, but that would be a distraction here.
Anyway, by these numbers after you pay off your 30 year mortgage with a real return of 1.36%, you'll have a home worth 1,500,000*1.0136^30, which is roughly $2,250,000 in today's dollars.
On the other hand, putting $6,750 per month for 30 years in stocks at a 6.59% real return will leave you with over $7,500,000 in today's dollars. Granted, that's before you pay capital gains taxes on it, and there are other tax benefits to ownership.
There are other limitations to this cursory analysis. A big one is: what are the chances your rent will remain constant for 30 years? Yeah, I'd say that falls somewhere between zero and none.
That said, even considering the additional tax benefits of ownership and likely rent increases (which you could calculate within a reasonable approximation if you were so inclined), I seriously doubt the margin between the two can be made up.
Moreover, there are advantages to renting not obvious under these calculations. Suppose, as does happen to regular people, circumstances in your life change after 15 years, and you have to move to another city.
The homeowner has been paying mostly interest in his mortgage payments, rather than principal, so he is severely disadvantaged in this situation. The renter's assets aren't affected and, if he wants, he may already have enough assets to buy a comparable house at his destination without even borrowing...
This really only scratches the surface, but anyone who thinks owning is the best way to accumulate wealth in all real estate markets is kidding themselves. On the other hand, some markets are highly buyer friendly because the ratio of rent urchase price can be very different (rent in the Houston area is only slightly less, for example, but buying the home would cost about 1/3 as much... or even less) In such markets, I obviously recommend ownership, at least in the vast majority of circumstances. |
You must have a giant brain, and a tiny penis.
___________________
| quote: | Originally posted by Halcyon+On+On
OOKA-OOKA ME NACHOS ME PRESS KEYS ON COMPUTER GOOD |
|
