You're numbers are not even close to being right. Your investment assumptions are completely off. Typically, 20k is invested up front, then the property is paid off over 30 years. Second, your property is a leveraged investment itself, which may appreciate less than the S&P, the difference is only around 2.5 points(and if you buy in a great area, your appreciation can exceed the S&P). Third, you havn't factored in the government subsidy, makes buying about the same cost as renting. (Though this can vary by markets and tax brackets, but it is pretty close to the same). Fourth, you are discounting the fact that in 30 years, you own the place and you no longer have to pay rent. Finally, your payment never goes up when you own, however, rents do rise. When you consider all of the information, buying a house when you are young is one of the best trades someone can make.
This may be true in the short run, but rents do tend to rise over time. Eventually, the renter will be paying much more than the owner, and after 30 years, the owner pay's no more rent, while the renter is stuck with that recurring monthly bill. (Rent control areas exluded)
And property taxes skyrocket over time as well. In fact, a great number of senior citizens who bought their places 30 years prior are forced out of areas due to skyrocketing property taxes. If one is going to have an intellectually honest debate about the pro's and con's of home ownership, then all facts have to be thrown on the table.
Much debate about renting vs owning. Let's look at renting an apartment vs owning a house. U.S. median rent: $940 Annual rent: $11,280 From my earlier post, the total cost of owning for 30 years is $667,812. The annual cost of owning is $667,812 / 30 = $22,260. Thus, if you rent, you save $22,260 - $11,280 = $10,980/yr. Since you aren't investing this $ in a home, let's say you put it in the stock market. The average return on the DJI Average from 1932-2002 is 7.8% (surprised?). $10,980/yr at 7.8%/yr compounded for 30 years = $832,984, assuming 30% cap gains tax applied yearly. From my earlier post, the appreciation profit minus the costs of owning the median house is $445,703. The profit difference in renting vs owning: $832,984 - $445,703 = $387,282 Thus, if you rent the median apt instead of owning the median house, and invest the savings in the Dow, you would earn $387k more after 30 years than you would by owning the house, assuming the historical trends. I'm comparing apples to oranges here by comparing home ownership costs to apt rental costs. But if your goal is strictly to maximize the return on your investment, regardless of lifestyle, then you should rent the apartment. Others have mentioned the benefits of rental income. I leave it to the experts. For myself, being a landlord just isn't worth the hassle. I also live in an apartment because I don't want to mow the lawn, fix the sink, etc. I plow all my disposable income into my [non-real-estate] investments. But that's me. Finally, as we elite traders all know, markets are cyclical. The stock market was hot in 1996-2000, housing was hot from 2001 to 2005, and commodities may be hot for the next several years. I've attached my spreadsheet with all my housing calculations, which include the SF Bay Area b/c that's where I happen to live. Links- U.S median rent: http://realestate.msn.com/Rentals/Article.aspx?cp-documentid=262101 Historical DJI returns: http://table.finance.yahoo.com/m?a=1&b=1&c=1930&d=5&e=21&f=2002&g=m&s=^dji
You are going to have to do better then that. My numbers are not off. I don't care how little money you put down. We are using only the amont of money that gets wasted on the mortgage. This incudes interest expense, property taxes, insurance and home repairs. In the example given, that comes out to over 500k of wasted money. Second, we can leverage our investment in the S&P 500 say through a 2x Rydex fund where you get twice the leverage. Now you are making 15% to 20% a year compounded in the SP 500. Third, what f*cking gov't subsidy? Are you referring the tax deduction on interest? If you are put down the crack pipe and listen up. Interest on a mortgage is amortized over the first 5 years then it's gone. So you don't enjoy this subsidy for the most part after 5 years. This is why people invest in property, to capture the tax deduction. They constantly have to buy new investment property to roll over the subsidy. However, this is a separate point as we are only referring to owning your own home, not investing in several. Fourth, after 30 years you own your own home. But whose to say I don't take all this money I make in the market and now pay cash and buy the exact same home you own!!!! Now we both own the home! And btw, you talk about rent going up and your mortgage being fixed. More bullshit. First of all, not everyone's mortgage is fixed. If you have a variable loan or interest only, your payment could double or triple after 5 years. Also, you are not accounting for the fact that your property taxes go up every year!!!!! As does your insurance!!!!!! Your overhead is not fixed! The only way you can make it look attractive is if you put hardly no money down and leverage the f*ck out of your mortgage. Live by the sword, die by the sword.
I said your assumptions were wrong....and they are. First, the assumption that you'll make money in the market is flawed. Timing of investments is critical as well. There are many who don't. (A few years ago everyone was saying just buy GE...you get excess return with equal market risk, it has done nothing since) There is only a slight difference between renting and owning a similar properties. A few hundred bucks a month. Your home is an asset that will appreciate over time, advantage to the homeowner....you don't get a margin call when the market goes down.... what will you do when you have that position in RYDEX and the market tanks? The mortgage interest deduction is a goverment subsidy, it has some value....to home owners. Renters do pay taxes, insurance, and all the other stuff. They may find a good deal for a few years, but in the end, they end up paying the piper....THERE IS NO FREE LUNCH. Anyone can have a fixed mortage, and those of us who do, will be much better off 30 years down the road....that is a fact. Now go and spend some time at your happy place...you are wound a little tight tonight!
Oy vey. Where to begin. First of all, it has been proven in almost every academic institution the long term bias in equities especially over long periods of time. In fact, there is not one 30 year period over the last 100 years where you would have lost money in the broad market. Even if you got long the day before the crash of 29 or 87. I am not talking about trading this money but investing it in broad based indices like the S&P 500. Your argument about the Rydex tanking is a moot point as a long term investment. Now what I find absolutely hilarious is your assumption that real estate prices will go higher. Are you serious. The only reason real estate even has a positive rate of return over a long period of time is because of the few bubble periods like we have now. Dr. Shiller actually has published a study from Yale University showing that real esate prices have actually been steadily declining since the 1950's when inflation is taken into consideration! So the fact that you questioning whether equities will go higher but use no such caution with real estate prices is laughable at best. Renters in theory should be paying for the taxes and overhead that the property owners incurs but that is only in theory. In reality, this not the case. My family has owned property all over the world for 50 years and more often then not, they are not positive cash flow. We cannot rent the properties at cost. Only in a really strong economy you can do this. Most the time renters are renting at a discount to the mortage. Landlords do not like to have vacant rentals for many reasons, one it cost them a lot of money. Two, it gives renters even more leverage to negotioate a lower rent. Sorry, but you come up short on this argument.
Here is another big variable for your rent vs. own argument.... Many people buy condos and have to pay monthly condo fees. In my area, the monthly condo fee for a comparable apartment to mine is $650. Also, parking is not included so tack on another $250 per month for that. Basically, if your place doesn't appreciate well above the average, you are going to take a bath and would be much better off renting.
in miami it is about $750.00 in todays home prices....I cant argue with whats been said both camps bring up great arguments and in some cases both seem to be right...My home has more than doubled since my purchase on Oct of 2000 try more like tripled... I have re financed once to bring down my interest only and have huge equity in the house...I can spend money on my house buying the things i want knowing it is mine and no one can ever tell me to move which has happened at times when i have rented...there is value in being able to do what you want to your house...sometimes even though its about money it really ain't...now buying a house nowadays isn't so appealing because of the mark up that speculators have brought to the price...peace