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Old 02-02-2018, 08:05 AM
 
Location: TX
601 posts, read 1,070,324 times
Reputation: 269

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Quote:
Originally Posted by dspguy View Post
I hear you. However, the math says otherwise. We can change some numbers up if you want, but let's say you continue renting - at the same place or equivalent thereof. Your rent today is $1100. Let's say your average rent increases are 3% (that's probably very low, but let's be optimistic!). Your rent today is $13,200 per year. By 2048 (the end of your hypothetical mortgage), it would be $32,000 per year.

Now, let's say you got your $250,000 house at 3.75% for 30-years. Now, I don't know what principal the lender would demand, but let's say you could pay... $1100/mo, just like your rent. So we are going to take your rent payment and apply it to your mortgage's principal and interest.

If you pay that $1100 month... and let's say you were to increase your payment by... say... the same 3% your rent would go up instead:

Your 250k house would be paid off in 2038 (20 years instead of 30) at a cost of $375,000 and the interest portion would be $125,000. At this point, if you were renting... you would have also paid about $375,000 and have zero equity to show for it!

But... now let's say you kept that up. You kept putting away that "rent payment" for the next 10 years...

Your rent-increase-adjusted savings over those 10 years would add up to another $250,000. And let's not forget that the $250,000 you saved could be earning you interest somewhere... Whereas, poor "renting-you" would spend another $281,000 on rent with no equity to show for it. However, if you took that $250,000 and invested it conservatively at... even just 3%... you'd get (no surprise?) about $281,000 out of it.

With all that said, home ownership DOES have costs. Some of those costs are just a linear scale up from what you have now. You might be paying for utilities today (water, AC/heat) and you'll pay for it in a house at some multiplier (since the house is likely bigger). Some costs are brand new, like insurance, pest control, etc.

However, on paper (or the best one can do on a computer screen), you've seen that over 30 years of paying rent, you'd be paying about $660,000. Whereas, you could have that as equity in the form of your house (which would likely go up over 30 years) as well as an extra retirement account, collectively worth about $530,000. So that's what $130,000 in interest payments gets you.

You have to live somewhere. And if you live more than 30 years, the numbers don't get more favorable by renting. And keep in mind, I assumed 3% rent increase. That might be REALLY low. And I also assumed a 3% rate in the market... which also might be low over 30 years.


Bingo. Canít agree more. Plus you get some tax breaks as well.

I think it is important to own a home when you retire, think of having that $1,100 in your pocket every month when you are retired versus paying rent until the day you die.
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Old 02-03-2018, 08:44 AM
 
7,911 posts, read 5,053,370 times
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Mortgages are like divorces they are expensive because they are worth it.

Renting is like a bad marriage, you are a sucker stuck for life.
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Old 02-03-2018, 08:53 AM
 
926 posts, read 628,210 times
Reputation: 1776
Quote:
Originally Posted by LifeIsGood01 View Post
Mortgages are like divorces they are expensive because they are worth it.

Renting is like a bad marriage, you are a sucker stuck for life.
That is just a silly and generalized observation. We are renting for now by CHOICE; we could get a half a million dollar mortgage if we wanted to today.
We do not want to be shackled to a structure at this time in our lives. The next house will be the last house and will be cash.
I donít think that makes us ďsuckersĒ.
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Old 02-03-2018, 09:08 AM
 
Location: West Knoxville, TN
685 posts, read 378,250 times
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I'll gladly pay 100k in interest simply to not have to answer to some controlling landlord or leasing office run by arrogant 20-somethings. Just that alone is worth the 100k.


However there are countless other reasons. Unless you have cash you pay a bank, it's just the way it is. I'll gladly give my money to a bank over a greedy apartment complex or some landlord to help him pay his other mortgages.


OP if renting works for you, that's great. But there are countless reasons homeownership is beneficial. Sure, I'm paying about 100k in interest. but after 30 years (or less--I pay mine down and save interest) I'll own it free and clear. I bought right at age 35 so even if I don't pay it off early I'll have my house paid off right at retirement age when I start to collect Medicare and SS (if there's any left). Also, yes we are paying interest, but for example, my house payment is $40 more than the god-awful townhouse we rented prior. $40. To own my own home. Homeownership is the go-to way to build wealth. We had a healthy 15% down payment, completely got lucky bc it was a divorce and previous owners had to sell, and absolutely lowballed with our offer, and our house has appreciated by $25,000 (we had it appraised). So, right there alone in a year we are wellllllll into 5 figures in equity.


Some people buy money pits--that I don't understand because that's what inspections are for. It's almost a year to the day that we closed. We have had to fix precisely nothing, other than having the a/c units serviced. We have, however, upgraded things and that part is fun. I feel roughly every dollar we spend upgrading we will, for the most part, get back. It's so much fun to fix up your house; not only are you looking at nicer stuff but you're literally adding to your bottom line.


Renting is good for college, expensive cities (we lived in Los Angeles and got tired of it after a few years and came right back to buy a house), and for people who need the option to "walk away". But, a lifetime renter will end up at retirement age with zero to show for it other than a place they don't own. I used to argue non-stop on the LA forums because people there just can't grasp that concept. Great city, but not worth dumping your livelihood into an apartment you don't own because it's too expensive to buy a house. We spent over 50k in rent; the thought disgusted us. Fifty freakin' grand. That we will never see a penny of again.


Of course, if one rents and has other moneys invested it's different. But still, IMO the most basic and smart investment is owning your own home.


Nevertheless OP if renting satisfies you, keep at it. Different strokes for different folks. Your place sounds nice.

Last edited by AJT123; 02-03-2018 at 09:52 AM..
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Old 02-03-2018, 11:26 AM
 
4,269 posts, read 11,147,611 times
Reputation: 2580
Quote:
Originally Posted by Sharpydove View Post
That is just a silly and generalized observation. We are renting for now by CHOICE; we could get a half a million dollar mortgage if we wanted to today.
We do not want to be shackled to a structure at this time in our lives. The next house will be the last house and will be cash.
I donít think that makes us ďsuckersĒ.
well good for you. the poster is referencing permanent renters.

i thought the analogy was hilarious btw.
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Old 02-04-2018, 07:52 AM
 
Location: Cary, NC
30,087 posts, read 52,792,093 times
Reputation: 28262
JFF.
All calcs below from BankRate.com calculators.
https://www.bankrate.com/calculators...alculator.aspx
And, I used $165,000 @ 4.5% because they are the current default values on the site, to make it easier to discuss.

So
I buy a $206,250 house and take a 30 year mortgage this month.
$165,000 loan, with 20% down payment, $41,250, to keep it simple and keep PMI out of the mix.
4.5% interest, fixed rate.

Principal and Interest:
$836.03 for 30 years.

Just for a number, throw in a median $4200 Tax and Insurance average annual figure.
$350/month

And, $1800/year maintenance.
$150/month.

Total monthly PITI outlay = $1336.03
Over 30 years = 480,970. + $41,250 down payment.
~$522,000

Or, pay average $70/month on principal.
$1406.03 monthly, but for 25+ years, saving about $23,000 in interest.
~$499,000 over 30 years.

Sell the paid off property for what you paid, which is an extremely conservative number, but for sake of discussion:
~$316,000 if amortized after 30 years.
~293,000 if you accelerated payment.


Renting similarly:
Average rent over 30 years @ $1500/year, because it may be cheaper today, but it is not locked in like a fixed rate mortgage is.
360 x $1500 = $540,000

$540,000 vs. $522,000.
Oh, yeah. Shall we consider "Opportunity costs" of making the down payment?
Assuming disciplined and consistent approach.
$41,250 invested for 30 years in conservative tax-deferred vehicles.
4.5% average annual yield:
Tax deferred balance: $155,000
Taxable balance: $105,279

7% average annual yield:
Tax deferred balance: $314,000
Taxable balance: $175,000

Sort of a trade off, equity vs. liquid money. To each their own.


I find paying interest to be reasonably unburdensome.
But, the OP, and anyone else should do their own calculations, and should be completely honest with their calcs and in assessing their likely discipline and consistency, when making a decision.
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