Quote:
Originally Posted by MAXUM
So you peaked my interest further so I ran the numbers and here's what I came back with.
If you want to look at the cost comparison of renting vs owning then you have to take the entire cost of owning into consideration, not just taxes. So I did a quick calculation on my primary residence, if I calculate in interest paid on the mortgage over the past 20 years I have paid out 137% of the original purchase price in taxes and 128% in interest.
Had I taken the interest and taxes paid and used that for rent (averages to $2200 per month) and look took the principal and put that into a decent growth mutual fund I would have ended up better off renting. So let me show you -
Owning house value is purchase price - 265% in JUST carrying costs = - 65% in total returns based on -165% of the purchase price + current market value of the house which has increased 100%. I don't calculate principal paid because that is reflected in the value being claimed
Renting + Investing = The total cost of PRINCIPAL only invested in a growth fund dollar cost averaging over 20 years results in total average return of 9.5% leaves me with the current value of the house as it sits now + roughly 200K! Rent was calculated on the total amount of interest paid plus property taxes so that is a wash as in both cases that money is gone either way. Now you may question the 9.5% average return as being a lot, well that is a real number derived from three funds growth funds I have owned over the same period of time. Granted the gains are yet to be taxed as they would be unrealized.
If I am wrong on how I calculated this I'm all ears.
|
Your method is not standard, so I can't tease out all the information needed, but you have at least one fatal flaw--you have assumed the the rental cost equals your taxes plus interest. There is no reason why this is necessarily so. The rental cost should be what it would cost to rent an identical house--this is based on market conditions, not your personal situation. Furthermore, as you might expect, even if this was correct the first year you owned your home, the rental equivalent price would climb much faster than the taxes plus interest total.
As BiggD points out--almost everyone who has bought a home over the past several decades has come out ahead compared to renting.