yet another buy vs rent calculation
general rule of thumb is buying is favorable when price to rent is 15 or lower. But I'm seeing buying is favorable (or break even) for much higher ratio (~30) from my calculation below. Am I missing something? I currently rent an oldish 2br 1 bath for 2400. Looking at townhouse in 800-900k range Say I pay downpayment of 300000 and get a loan of 600000 at 15 yr, 3.5% (quoted by my lender). Based on interest vs principal amortization calculator, I'm getting around 20k of interest paid in first year, and dropping in subsequent years. Property tax on 900k is about 8k. So excluding the money paid towards principal (since I don't think it's fair to compare principal payment which builds equity to rent) and only including intetest and property tax, I'm paying ~28000 in year 1. Since these are deductible, with a household income of 450k, the effective amount comes to ~15k or 1250 a month. Comparing this against the 2400 I pay currently, it's cheaper by about 950. Now the other major item remaining is the opportunity cost of the 300000 I put as down payment. Looking at the delta of 950 I found earlier, it's about 11400 an year, or about 3.9% an year, which is not good, but still double the returns on a CD. So the 900k purchase still doesn't seem much bad compared with renting for 2400 (price to rent 31) even without factoring any appreciation. Of course I'm not factoring any price downside into this either (with the assumption that I'll hold long enough) as well as other expenses like HOA etc. Yet is there something significantly off in this calculation?
Insurance? Maintenance? Increased utilities? Closing costs?
Buying is a scam lol. Rarely makes financial sense and usually an emotional decision. Rent and invest.
If an HOA is there, it's not just the monthly dues you need to include. There are also "special assessments" which can be anywhere from 10-50k. Please be wary of that.
Property tax can f*ck you in the ass too
I'd buy. Worst case is the market crashes and you keep living where you live and save on rent. Best case, the housing market goes up and you own a place and save on rent. Seriously if you are buying to live, then buy.
You might also want to consider acquisition costs (loan origination, etc) and other transaction costs (realtor commissions) that are also involved in buying/selling.
One of the main advantages of buying is you can do remodels and pretty much whatever you want to the house. If it’s a town house with HOA, can you do that easily? Plus, consider all the HOA fees others have mentioned. In my opinion, you may be better off saving your down payment for a single family home.
Housing in the bay area appreciates on average 7% yoy (including the recessions), so when you buy and hold long term, you are making 40k annually out of thin air from your 600k loan, if you can start a business and make more definitely dont buy, but the fact that we are all wasting time on blind shows we are not business-owner material, talk to homeowners and see what percent regret purchasing real state
I believe we're at the top of a massive bubble now, so I'm trying to not factor any near future appreciation in the math. plenty of folks who bought in 2018 are in the red and not too happy
Market crashes, you go unemployed, still liable for million dollar house payments. F-that Invest in stocks or buy real estate that you intend on renting out.
The only thing off in this calculation is your brain
much appreciate the deep insight sir 😊