Re: Buying vs renting

Greg, this doesn’t look right.  

The “own” side of the equation appears to be assuming capital that was not applied to the “rent” side of the equation; the calculation should be capital neutral. From your numbers below, the implied rate of return on your house investment is <4% and the basic rate of return from renting is >12%, so the mortgage being a superior investment immediately looks suspect (in truth the actual returns are far complex to model but I’m working off the numbers provided). Mortgage service costs vary depending on down payment, taxes, HOA, maintenance, etc which renters avoid but have to be included in the model. 

Interestingly, the expected return on buying a house derived from tax benefits is similar to the expected returns from market appreciation. The rough implication is that in many markets buying a house can be a justifiable investment *if* your expected return on liquid securities is <7% annually on average. 

To recast the original question, for someone with no inclination to learn anything about investing, buying a house probably has similar returns to a generic disinterested investment portfolio. For someone inclined toward investing, there is significant additional upside available by putting capital toward liquid securities instead, in which case renting will generally be the wiser choice financially.

Obviously there are also significant non-financial considerations at play, otherwise everyone would just buy the cheapest available house in their region.


> On Feb 28, 2018, at 5:01 PM, Gregory Alan Bolcer <[email protected]> wrote:
> 
> You guys better check my maffs.
> 
> I wanted to figure out what the actual numbers were.  I took my parent's old house in Santa Ana. From zillow:
> 
> Santa Ana, CA is a single family home that contains 2,245 sq ft and was built in 1962. It contains 4 bedrooms and 2.5 bathrooms. The Zestimate for this house is $1,067,118, which has increased by $14,726 in the last 30 days. The Rent Zestimate for this home is $3,764/mo, which has increased by $161/mo in the last 30 days.
> 
> Est. Refi Payment
> $4,251/mo
> 
> 4251 - 3764 = $487/month
> 487/month * 12 months = $5,844 per year
> The mortgage & property tax deduction caps out at $10k under the new laws, so owning, you'd have a $4,156 advantage on tax liabilities.
> 
> 10 years of house value increase = 57%
> 10 years of dow increase = 100%
> 
> Doing a simple savings calculator w/ annual compound interest you would have $97,359.64 in value plus a place to live for those 10 years. http://www.moneychimp.com/features/rule72.htm
> 
> For owning, you'd have a place to live, better deductions and a $600,000 asset? (Paydown + appreciation).
> 
> Does that sound right?


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