Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
You didn't enter something right. Again, please remember that my numbers were simply taken from what was put out in the thread.
The left hand side should read like this:
Monthly rent: 2,400 (might as well scrap the magic "$1,900" one)
Home price: 425,000
Down payment: 20%
Mortgage rate: 4.60
Annual property taxes: 2.70
Across the top it should be:
Annual home price change: +3%
Annual rent increase or decrease: +3%
Then you need to click on the advanced settings tab.
On the "Buying" tab change the "Condo fee/common charge" to "350". Everything else stays the same and is their baseline numbers.
Then click on the "Other" tab and change the "Rate of return on investments" to "9.0".
Nothing else needs to be changed and you will be looking at the same thing I was. I'm not sure what you missed.
please give me your financial planner's number. i'd like to contact the guy who's getting you 9% return on investments over the next 30 years!
haha. that's the fallacy in your argument - sorry, i'm not buying into 9%.
assuming a conservative 4% return, buying is better with your numbers after 8 years. let's get aggressive and assume 6%. buying is better after 13 years. at 7%, it becomes "never better".
good luck with your return on investment assumptions. i truly hope that's what the next 30 years look like.
i'll take it one step further. buying a NEW car is a truly a stupid financial decision. buy a 2-3 yr old gently used car that already took its depreciation hit.
love my 12 yr old toyota purchased 6 yrs ago for <$4K. best car I ever bought.
This of course must take into account how you see cars in your life and what you want to get out of them.
If you're an A to B car driver, then that is spot on.
People need to stop using the $1,900 per month rental. It's not feasible. I looked it up on the MLS. The going rental price for the unit he purchased at $425,000 is $2,400 to $2,800 per month. I have to think that $500 to $900 PER MONTH with alter any calculation you want to do.
Well, for S&G's I went back and re-ran my original scenario using a rental rate of $2,400 which is apparently doable for the same exact place. I also adjusted the investment prospectus to show less investment as the difference between renting and buying narrows. Around year 9 our renter will cease to pay less for his place.
For this exercise I assumed utilities and property insurance are equal as we are now talking about the same place. I also assumed that fixed costs like property taxes and HOA fees stayed fixed, while still including an annual 3% rent increase for our renter.
Homeowner for 30 years.
- $630k paid in principle and interest at $1,750 per month.
- $486k paid in other fixed costs such as property taxes and HOA.
- $95k paid for down payment and closing costs.
- $63k paid for maintenance of home (pretty small number in reality).
- $72.5k saved in tax deductions through mortgage interest.
Total Costs for Home = $1.202 million over 30 years.
- $1.03 million would be the value of the home after 30 years, assuming a historical 3% gain in home value for 30 years.
Home Owner Assets = $1.03 million after 30 years.
Home Owner "Profit" = -$170k (that's right, NEGATIVE $170k)
****
Renter for 30 years.
- $1.37 million in rent assuming a base rental rate of $2,400 and an annual rent increase of 3%.
Total Costs for Rent = $1.37 million for 30 years.
Now here is the fun part. Our renter takes the $95k that they didn't pay into the house for a downpayment and closing costs. That money after 30 years at a standard historical market return of 9% is now worth....
- $1.26 million dollars in liquid cash.
but wait...our renter was also smart and took the difference from buying the home versus renting and invested that as well (but only while renting was cheaper). Our renter now has...
- $1.68 million dollars in liquid cash.
We'll assume that our renter was smart and investing the bulk of his money into IRA's and retirement accounts avoiding tax issues.
So, our renter with just his "nut" invested comes out with -$110k (NEGATIVE) dollars and is +$310k if he was investing the difference as long as one existed. This is versus -$170k (NEGATIVE) for our home owner. In other words, our renter has come out $60k ahead of the buyer if he only invests the "nut" and comes out $480k better if he also invests the difference for the 9 years one exists.
Obvioulsy this is a much more narrow margin than it was at $1,900 and I hurt our renter more by curtailing the added annual investment to something more realistic. Even in this scenario the renter has still made out better and it will be even better for the renter when we tack on the cost of the buyer selling the house and paying commission, fees and taxes.
If we tweaked the rent any higher, it would flip towards buying with a break even at $2,500 between the two and swinging to the buyers favor if rent went to $2,600. The only thing that could cloud it a little more would be the fact that we assumed property taxes and HOA fees stayed stagnant, while still charging the renter 3% more per year. That isn't 100% realistic and would move the "better to rent" number north a little bit.
#1. Where are you getting such sh*tty lease deals? Every lease we've looked into vs the payment of the car has pretty much wound up even when you compare fully paying out the car vs leasing for a GREATER number of years. Unless you are buying a car with zero percent interest (which admittedly you can sometimes get).
#2. I don't have to put a cent into my cars except for replacing tires and buying gas. Period. No washing, no oil changes, no repairs, no AAA service, no rental, no concierge, no second out of my day worrying about it, no money down, no nothing.
#3. You are absolutely right with the insurance coverage. THAT would be less. Except that I keep collision on both cars I own outright. It's worth it to me.
#4. I totally agree with you...I used to think leases were only worth it if you changed your car often (which, with my 'fun' car, I do). But I sat and did the math on it over and over when we got our last two cars, and the numbers really weren't as different as you'd think. A couple of grand at most, and that was assuming no surprise repairs.
And there is the peace of mind...priceless.
1. lease deals as of the downturn are mostly horrendous. but - i'm using a comparison i did in 2005. it also depends on how many miles you drive. I would have had to do a 15,000 mile lease.
2. there's often a good reason why dealerships push lease deals - and it's not because it's saving the customer money.
3. if you turn a leased car in with a scratch, they'll charge you for it - if you lease from the same dealer, this usually isn't a problem, but I personally know of instances where people owed another $1,000 upon turning in their vehicle.
4. yes - if you change cars often absolutely it's worth it. but you're already making a poor financial decision (nothing wrong with it - we're allowed to have fun with our money aren't we?).
it depends on what you're leasing. if you want a BMW, then lease away. but if you bought that same BMW - you're maintenance is also free while you own the car. the only thing that changes is after 3 years, you have to buy oil every 10,000 miles and put it in the engine (assuming you're a semi-competent human being and can change your own oil). Maintenance becomes a disaster because you chose a low-quality vehicle over a long term. Not a knock on BMW - awesome vehicles, but low quality, high maintenance.
If you're buying a toyota, lexus, honda, acura, or many other higher quality vehicles - leasing does not make sense as there's virtually no maintenance until you hit 200,000 miles. my family has sold close to a dozen cars with more than 200,000 miles on them and enjoyed many years of no car payments.
you're paying for those "free oil changes" in your lease payments too.
you guys don't search hard enough or don't know how to negiotiate! my DH recently bought a 2007 acura for several grand under Kelly/Edmunds/NADA private party price. He also got a used Accord for under book as well.
please give me your financial planner's number. i'd like to contact the guy who's getting you 9% return on investments over the next 30 years!
haha. that's the fallacy in your argument - sorry, i'm not buying into 9%.
assuming a conservative 4% return, buying is better with your numbers after 8 years. let's get aggressive and assume 6%. buying is better after 13 years. at 7%, it becomes "never better".
good luck with your return on investment assumptions. i truly hope that's what the next 30 years look like.
The average rate of inflation adjusted returns for the period 1979 to 2009 was 8.89%. For all time, 1871 to the end of 2009, the rate of return was 8.39%.
OK, I'll give you the 9% being a little aggressive, but it isn't out of the ballpark like you implied. You said yourself at 7%, it was never better to buy. I would assume 7% annual return to be quite achievable over 30 years.
Given we don't know what the next 30 years will bring, but the numbers are also assuming that housing will also steadily appreciate at +3% per year (the calculator acutally defaults to 1%). Though it has historically done that, it's not guaranteed. At the very least the market has always given better returns than real estate on an average annual basis.
except that you're not 100% correct. due to recent economic situations, the used car prices have inflated quite a bit. in 2005 when i bought my vehicle brand new with 0 miles on it, i negotiated it down below invoice price. i shopped against used cars 2-3 years old, but when you're shopping vehicles that are high quality with the expectation of 200,000+ miles - you'll find they hold their value very well. For about a $3,000 savings, i could have purchased the same vehicle used with 20-25k miles on it.
now - granted, i'm spending extra money because i wanted a newer car. i don't know how much you drive, but at the time, when we bought our new vehicle, we had just gotten rid of a 13 yr old Camry with 220,000 miles on it. we sold it for $2,500. we put about 20-25k/yr on our vehicles, so if i bought a 12 year old toyota with 150-200k on it 5 years ago - i'd be getting up near 300k now - and probably rebuilding an engine.
your point is good though. i definitely bought more than i needed. but it's not a stupid financial decision, since i'll have this vehicle for a minimum of 10 years before i have to consider anything serious with it.
i've bought new cars too, but that doesn't absolve me from the fact that it probably was a stupid mistake. but i wanted one, and decided that i wanted to do it. the toyota i referred to has averaged about 18K mileage a year..I have about 150K miles on it now. my DH drives around 25K a year, and generally looks for low mileage used cars a few years old and saves a bundle.
Well, for S&G's I went back and re-ran my original scenario using a rental rate of $2,400 which is apparently doable for the same exact place. I also adjusted the investment prospectus to show less investment as the difference between renting and buying narrows. Around year 9 our renter will cease to pay less for his place.
For this exercise I assumed utilities and property insurance are equal as we are now talking about the same place. I also assumed that fixed costs like property taxes and HOA fees stayed fixed, while still including an annual 3% rent increase for our renter.
Homeowner for 30 years.
- $630k paid in principle and interest at $1,750 per month.
- $486k paid in other fixed costs such as property taxes and HOA.
- $95k paid for down payment and closing costs.
- $63k paid for maintenance of home (pretty small number in reality).
- $72.5k saved in tax deductions through mortgage interest.
Total Costs for Home = $1.202 million over 30 years.
- $1.03 million would be the value of the home after 30 years, assuming a historical 3% gain in home value for 30 years.
Home Owner Assets = $1.03 million after 30 years.
Home Owner "Profit" = -$170k (that's right, NEGATIVE $170k)
****
Renter for 30 years.
- $1.37 million in rent assuming a base rental rate of $2,400 and an annual rent increase of 3%.
Total Costs for Rent = $1.37 million for 30 years.
Now here is the fun part. Our renter takes the $95k that they didn't pay into the house for a downpayment and closing costs. That money after 30 years at a standard historical market return of 9% is now worth....
- $1.26 million dollars in liquid cash.
but wait...our renter was also smart and took the difference from buying the home versus renting and invested that as well (but only while renting was cheaper). Our renter now has...
- $1.68 million dollars in liquid cash.
We'll assume that our renter was smart and investing the bulk of his money into IRA's and retirement accounts avoiding tax issues.
So, our renter with just his "nut" invested comes out with -$110k (NEGATIVE) dollars and is +$310k if he was investing the difference as long as one existed. This is versus -$170k (NEGATIVE) for our home owner. In other words, our renter has come out $60k ahead of the buyer if he only invests the "nut" and comes out $480k better if he also invests the difference for the 9 years one exists.
Obvioulsy this is a much more narrow margin than it was at $1,900 and I hurt our renter more by curtailing the added annual investment to something more realistic. Even in this scenario the renter has still made out better and it will be even better for the renter when we tack on the cost of the buyer selling the house and paying commission, fees and taxes.
If we tweaked the rent any higher, it would flip towards buying with a break even at $2,500 between the two and swinging to the buyers favor if rent went to $2,600. The only thing that could cloud it a little more would be the fact that we assumed property taxes and HOA fees stayed stagnant, while still charging the renter 3% more per year. That isn't 100% realistic and would move the "better to rent" number north a little bit.
Please rip apart my numbers if you can.
Still curious as to how you explain the following:
Average net worth of homeowners vs. renters
Annual income Owners/ Renters
$80,000 and up: $451,200/ $87,400
$50,000 to $79,999: $194,610/ $25,000
$30,000 to $49,999: $126,500/ $10,600
$16,000 to $29,999: $112,600/ $4,240
Under $16,000: $73,000/ $500
Source: VIP Forum, Federal Reserve Board
i'll take it one step further. buying a NEW car is a truly a stupid financial decision. buy a 2-3 yr old gently used car that already took its depreciation hit.
love my 12 yr old toyota purchased 6 yrs ago for <$4K. best car I ever bought.
Financially speaking, there's almost no limit to how ascetic one can be. How much did you spend on your house? How much do you spend on your wardrobe? Food? Cable?
As you can see from this thread, any savings can be compounded into massive numbers. If you'd bought a smaller home further away and spent, say, half of what you did, the savings both upfront and ongoing (tax, maint, etc) could be HUGE in the long run. Did you buy that particular house because it was what you wanted or because it was what you needed?
And why didn't you buy an even cheaper car for <1k or <2K?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
but i wanted one, and decided that i wanted to do it. the toyota i referred to has averaged about 18K mileage a year..I have about 150K miles on it now. my DH drives around 25K a year, and generally looks for low mileage used cars a few years old and saves a bundle.
