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Aussiesuede
Franchise Player
Joined: 27 Jul 2005
Posts: 10964
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 Posted: Sat Nov 25, 2017 12:39 pm Post subject: |
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| ringfinger wrote: |
Total Cost of Homeownership: $339K
Home Value in 2017: $500K
Balance: +[color=green]$161,000[/color] in your pocket (even more with MI deduction factored in)
Total Cost of Renting: $1,715 * 360 = $412K
Home Value in 2017: $0
Balance: -$412,000 |
VLF would have invested that $339k of the cost of home ownership. So his deficit would be the value if that investment appreciation minus the $412,000 in rents he paid.
1996 = $339,000 + 23.1% = $417,309
1997 = $417,309 + 33.4% = $556,690
1998 = $556,690 + 28.6% = $715,903
1999 = $715,903 + 21% = $866,243
2000 = $866,243 - 9.1% = $787,415
2001 = $787,415 - 11,9% = $693,712
2002 = $693,712 - 22.1% = $540,402
2003 = $540,402 + 28.7% = $695,498
2004 = $695,498 + 10.9% = $771,306
2005 = $771,306 + 4.9% = $809,101
2006 = $809,101 + 15.8% = $936,938
2007 = $936,938 + 5.5% = $988,470
2008 = $988,938 - 37% = $622,736
2009 = $622,736 - 26.5% = $457,711
2010 = $457,711 +15.1% = $526,825
2011 = $526,825 + 2.1% =$537,889
2012 = $537,889 + 16% = $623,951
2013 = $623,889 + 32.4% = $826,111
2014 = $826,111 + 13.7% = $939,289
2015 = $939,289 + 1.4% = $952,439
2016 = $952,439 + 11.9% = $1,065,779
$1,065,779 - ($339K) = $726,779 - $412k(Rent) = $314,779
vs $161,000 with Home Ownership = +$153,779
Of course most people don't have the ultimate value of their home ownership investment as one lump sum to invest and are making monthly payments as that value increases over time. But if you did have lump sum, the stock market would have been a better investment over that 20 year span.
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I'm On point, On task, On message, and Off drugs. A Streetwise Smart Bomb, Out of rehab and In denial. Over the Top, On the edge, Under the Radar, and In Control. Behind the 8 ball, Ahead of the Curve and I've got a Love Child who sends me Hate mail. |
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unleasHell
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Joined: 16 Apr 2001
Posts: 11591
Location: Stay Thirsty my Friends
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| Posted: Sat Nov 25, 2017 4:57 pm Post subject: |
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| ringfinger wrote: | | vanexelent wrote: | | unleasHell wrote: | Well, let's see..
I bought my home for $195k and now its worth just under $700k, and I didn't pay any "rent" during the 20 years I've owned it...
Go ahead and call me a sucker... |
I would sell that thing right now before the market drops again. |
I think that would be a terrible idea and would not recommend it at all.
Why would you do that? He'll just spend all of that equity on renting instead.
Mortgage rates 20 years ago were about 8%. Assuming a standard 20% down on his $200K home and no refis, his monthly mortgage payment is at most $1,100. A $700K property can rent for probably around $3,200/month.
Not to mention, in under 10 years, he will likely own the home outright, meaning his cost to live will be essentially $0. |
You're right, in about 8 years I will have it paid off and then besides being able to save then entire payment, it will be like sitting on a $700k nest egg that I could sell and move to the mountains, buy a house for $400k and have that much more money to live on...
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“Always remember... Rumors are carried by haters, spread by fools, and accepted by idiots.” |
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K2
Franchise Player
Joined: 25 Dec 2011
Posts: 23529
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| Posted: Sat Nov 25, 2017 7:29 pm Post subject: |
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| Lonzo'sBalls wrote: |
This. Was just looking into buying. Won't be now till all this gets cleared up (plus I kind of hope it causes the CA housing market to crash and then I can swoop in and get a deal). |
Thought that it would have a significant impact on prices as well, however in looking through some of the reddit real estate discussions, some have wondered if this might have an opposite effect since existing homeowners may want to hold onto their homes (existing MID gets grandfathered) thus tightening the supply. |
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yinoma2001
Retired Number
Joined: 19 Jun 2010
Posts: 119487
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| Posted: Sat Nov 25, 2017 7:43 pm Post subject: |
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| unleasHell wrote: | | ringfinger wrote: | | vanexelent wrote: | | unleasHell wrote: | Well, let's see..
I bought my home for $195k and now its worth just under $700k, and I didn't pay any "rent" during the 20 years I've owned it...
Go ahead and call me a sucker... |
I would sell that thing right now before the market drops again. |
I think that would be a terrible idea and would not recommend it at all.
Why would you do that? He'll just spend all of that equity on renting instead.
Mortgage rates 20 years ago were about 8%. Assuming a standard 20% down on his $200K home and no refis, his monthly mortgage payment is at most $1,100. A $700K property can rent for probably around $3,200/month.
Not to mention, in under 10 years, he will likely own the home outright, meaning his cost to live will be essentially $0. |
You're right, in about 8 years I will have it paid off and then besides being able to save then entire payment, it will be like sitting on a $700k nest egg that I could sell and move to the mountains, buy a house for $400k and have that much more money to live on... |
Awesome. Well done!
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From 2-10 to the Western Conference Finals |
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ringfinger
Retired Number
Joined: 08 Oct 2013
Posts: 29418
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| Posted: Tue Nov 28, 2017 7:46 am Post subject: |
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| Aussiesuede wrote: | | ringfinger wrote: |
Total Cost of Homeownership: $339K
Home Value in 2017: $500K
Balance: +[color=green]$161,000[/color] in your pocket (even more with MI deduction factored in)
Total Cost of Renting: $1,715 * 360 = $412K
Home Value in 2017: $0
Balance: -$412,000 |
VLF would have invested that $339k of the cost of home ownership. So his deficit would be the value if that investment appreciation minus the $412,000 in rents he paid.
1996 = $339,000 + 23.1% = $417,309
1997 = $417,309 + 33.4% = $556,690
1998 = $556,690 + 28.6% = $715,903
1999 = $715,903 + 21% = $866,243
2000 = $866,243 - 9.1% = $787,415
2001 = $787,415 - 11,9% = $693,712
2002 = $693,712 - 22.1% = $540,402
2003 = $540,402 + 28.7% = $695,498
2004 = $695,498 + 10.9% = $771,306
2005 = $771,306 + 4.9% = $809,101
2006 = $809,101 + 15.8% = $936,938
2007 = $936,938 + 5.5% = $988,470
2008 = $988,938 - 37% = $622,736
2009 = $622,736 - 26.5% = $457,711
2010 = $457,711 +15.1% = $526,825
2011 = $526,825 + 2.1% =$537,889
2012 = $537,889 + 16% = $623,951
2013 = $623,889 + 32.4% = $826,111
2014 = $826,111 + 13.7% = $939,289
2015 = $939,289 + 1.4% = $952,439
2016 = $952,439 + 11.9% = $1,065,779
$1,065,779 - ($339K) = $726,779 - $412k(Rent) = $314,779
vs $161,000 with Home Ownership = +$153,779
Of course most people don't have the ultimate value of their home ownership investment as one lump sum to invest and are making monthly payments as that value increases over time. But if you did have lump sum, the stock market would have been a better investment over that 20 year span. |
Why does the renter only have the lump sum and why does the renter only invest in the stock market? Not a fair comparison. If a person has $339K laying around PLUS enough to pay for living expenses, then should they purchase or rent? I say, they should take a sizable chunk of that $339K, purchase, and invest what is left over. (A point I made to VLF earlier). That leaves you substantially more than if you rent and invest what is left over.
To make the comparison fair you have to assume you would also have that same lump sum of cash available in the home purchase scenario. Otherwise, all you're doing is comparing investing 100% in the stock market vs 100% in real estate and that comparison is pointless since we all know the stock market wins over time. But what about investing 80% in an immediately depreciating (non)asset like rent and 20% in the stock marketing, versus 50% in real estate and 50% in stock market?
To make the comparison fair, let's give both people $2,000 per month total, on average, to spend on investing and living costs.
Since the average cost of rent is $1,715, that leaves you with $285/month to invest on average. That's about $71K over 20 years and if you use the "triple up" rough investment scenario you detailed above, that's about $68K.
Mortgage rates in 1997 were about 8% rounding up. Today they are what 4% so I'll split the difference and assume 6% if that's fair to you.
Mortgage of $149K ($186K home price in 1997 minus 20% down) would be about $900 per month fixed average at 6% APR for every month of 20 years
That leaves $1,100 per month on average that is available to invest to the homeowner. Less in the beginning, more towards the end of the 20 year period but averaging out to about $1,100/per month.
Even if you just put that difference under your mattress, that would give you about $264,000 over a 20 year period in cash alone, enough to tip the scales in favor of buying. If you instead invested that $1.1K/month in the same vehicle it effectively triples your contribution that would be nearing $800K additional. |
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