That's good "back of the envelope" analysis, but it doesn't capture the whole picture. Lets say you rented a house in Portland OR in 2012 for $1000. The median value then was $228k. fast forward to 2017 and the median is around $350k. You would have paid out $60,000 in rent and you would have nothing to show for it. Lets say you bought that house with 20% down and 5% int. Your payments (P&I) would have been $979.16 x 60= $58,749 + $45,600 down for a total investment of $104,350, much more than rent, BUT...the loan balance would now be $167,214 and the house is worth $350k so you now have equity of $182,786. Of course this doesn't take into account maintenance and taxes & ins, but you would still have a ton of equity. Its even a better investment when you look at the return on just the equity you have invested.
every scenario will be different.. create a detailed analysis https://www.khanacademy.org/economi...-buying/v/renting-vs-buying-detailed-analysis
%% Good points, Arnie, that's why some borrow on RE. Also op was late 50s; + 100% of foreclosure$ are debt related. And some landlords are control freaks-LOL-LOL
We can agree that to each his own and we all have to live within our comfort zone. Leverage is not bad if you have consistent positive cash flow irregardless of the short term outcome of your "carry trade". Buffett achieved his outsize return because his company used leverage (~1.7x effective leverage) and his debt carrying cost is negative. Without it his returns would have been a lot less impressive.
Or let's say you rented a house in Las Vegas metro vice buying it for $315,000 in 2006 which was their median price then. The price dropped by 60% and even today is only worth $296,000. For many years you would be massively underwater, and even today you may just barely be above water when counting maintenance and taxes. Gotta look at all scenarios, not just the rosy ones!
%% Good points ; especially debt over 40 or 50 years. Could be very bad for financial health+ proves why many millionaires dont use them. DAVE Ramsey likes them+ disclosed he gets a % off some of them/LOL; but he doesnt even want a debt crazed clown.I would rather use leverage in a bull market or occasional inverse ETFs. Some planners do have some good ideas, roth, back door Roth; 30 or 15 year financing may help for a real youngster. Those planner maybe right to want more cash, especially emergency[3-6 mo] fund + more funds for a trader, self employed..........................................
I was in LV for the better part of 2006 following a divorce. I thank God that I moved out when I did. Had I stayed around I would have been buying all the way down thinking "this HAS to be the bottom" LOL. I was in Henderson and houses selling for $250k-$300k got down to the 60k-80k's before things turned around. Fast forward to new wife, new life. We bought a fixer in 2014 for $400k and spent a ton doubling the GLA, doing a total gut renovation. Sold this past Spring for just over $1.2m cash. Now building another $1m+ which is more than I originally wanted to spend, but with inflation I like being over weight RE.
I did buy in 2008 (not in LV thank goodness!) thinking it "had to be the bottom" and then it went down another 20%! Thankfully I'd sold my previous house, completely by accident of timing, in 2006 at the very peak of the market, so my gain and loss pretty much washed out and I didn't feel too bad about it. It was humbling with respect to both my ability to predict real estate prices and the fact that we all seem to get complacent after a while because RE cycles are so long to the point that we only seem to consider upside scenarios.
One of the reasons people generally do very well with RE is because it forces you to be long. It's hard to trade in and out, so you benefit from the longer term rise. Took me a while to realize that works with stocks too. My trading improved dramatically when I looked at longer term trades...weeks, months, even years vs daytrading.
even in this scenario you might be better off than renting where you are paying someone else’s mortgage plus their required return.