On a 1.3 million house with 300k down payment, Home insurance + property taxes = 15k a year, interest = 30k to 40k, growth lost/opportunity cost for 300k you put in as down payment at 8% non compounded = 24k a year. Total 70 to 80k a year. While renting would only be 40k a year with more amenities than your house. The compounded interest on the 300k savings plus 40k saved every by renting will yield a higher return. With an 8% compounded interest if you start with 300k and add 40k a year in 10 years is 1.2 million.
You would have to also factor in appreciation of the house, which in this case is leveraged 4x. In a rapid growing real estate market with ~5% growth that's a 20% yield on your 300k.
Yeah I'm talking about the current market where house appreciation is currently negative and at it's peak in the bay area that is.
And the current market conditions could yield a negative return on your deposit. Buying a house is an investment and there are so many other factors that swing the needle between renting and buying it really depends on the situation.
Buying a house is not an investment, it’s a lifestyle choice.
How big and nice is a 1.3m Bay Area house?
1100 sqft shack that needs remodel if it’s in Sunnyvale, Mountain View, etc. Go look at Redfin
And 3000 sqft 4-5 bedrooms brand new 180 degree sweeping views of bay area in Hayward hills which might hold its value more than a shack in sunnyvale.
Legit
You can’t rent a $1.3M house for $3300/mo
It's also important to factor in rent increases. If the market goes up, so does rent, but your mortgage doesn't.
FYI people you can earn 8% interest fairly easily there are several ways, one some countries have high yeild savings /cds if you qualify for those accounts then great, 2 there are several p2p websites like sofi/prosper where you can invest in high grade credit borrowing schemes, 3 real estate buyujg and renting a house in like Florida or Texas can yield you 8%.
Fiat conversion risk. Stick to tech not investing homeboy. You have no clue what you’re talking about.
And you are pretending to be an investment guru and telling me you can't earn 8% a year?
A house you live in is generally not an investment but rather a lifestyle choice. That said you left out leverage, you could get 8% on your 300k down or 5.5% on 1.3m. Your interest is tax deductible and so is the first 10k of your property taxes. You can also rent a room or several in the house and earn passive income. Finally and best of all you don't have to deal with a landlord telling you what you can and cannot do or raising rent.
You are ignoring equity that you build in the house overtime. Assuming you have 30 year loan, mortgage payment go away after 30 years and you own the house. If you rent, you still have monthly rental payment.
You've figured it all out. And yet people still buy. They must all be idiots.
Some of them are. They only buy because their friends are buying and cultural pressure that owing a house somehow makes you more successful.
So owning index funds makes you more successful? I am sure it does but try telling your relative next time that you have 1M in mutual funds. As someone mentioned below, buying house is lifestyle choice just like buying an expensive car. You’d surely not care about people buying expensive cars so why be judgemental about people buying expensive homes!