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h0llywood

What $250,000 Buys You Around the Country

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Interestingly in my simple spreadsheet I assumed a 2% interest rate which hopefully any dummy can obtain with T-Bills or something. If you start saying the renter can get an 8% return the numbers change dramatically.

 

Inflation and interest deductions are in there. Luckily we are on track to finish up what was a 30 year mortgage in like 14. But if you run the spreadsheet with your typical 30 year fixed mortgage you end up way way behind after 30 years. Like having paid more than double the home price and that is at extremely low interest rates. Depending on appreciation and what the renter does with investments you may not break even with the renter in your lifetime. 

 

I'm still a buyer because I don't look at a house as an investment but rather a place to live. While the rental market is cheaper it is limited and restrictive in other ways.

If you only get 2% average annual return on your money, then you completely failed at even a basic investment strategy.

 

Put the money in mutual funds (large cap, small cap, S&P, etc) and the statistics show you that your rate of return over a 20 year period is 10%. 

 

To assume a 2% growth as a justification for why renting is better than investing is crazy.

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What about the tax breaks from paying a mortgage (at least initially through heavy interest) and even breaks for PMI now?   If you're paying more rent than all of your house stuff, plus tax break, etc.  Home repairs are definitely an issue though.

 

I've thought about selling and just renting, for simplicity and also because I work uptown now and would love to be able to walk to work or take a quick bus or trolley instead of spending 2 hours in the car a day.

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All true.

 

However, my mortgage, insurance, and taxes are less than what I would pay in rent in Wilmington, and that's a fixed cost, how much will rent rise over the next 50 years?

 

If I never sold my house, paid it off, and lived in it for the next 35 years with nothing but maintenance, taxes, and insurance, would they really be that far ahead of me?

 

I have not broken this down completely, but it just seems that after 15 years and I have no mortgage/rent, and I put every bit of that money into investments that I would blow past them, but maybe not.

Rent around here tends to be slightly over the base 30 year mortgage rate but below mortgage+taxes+ins and I assumed such in my spreadsheet

 

Yeah you eventually catch up it is just that you are guaranteed to be behind at the end of your mortgage. How fast you catch up depends on the rest of your variables, mainly how much your house appreciated and what the renter did. If you ended your mortgage in 2005 you were golden. 2009 not so much.

 

You should build a spreadsheet. It only takes a few minutes.

 

Also don't underestimate maintenance. Already $20k in for a new heat and air system and routine stuff has been a little shocking. IAnd you would also include things like replacing appliances and anything else that a renter would not be on the hook for.

 

The point of this is that most feel like a house is miles above renting from an investment standpoint. But if you look at the actual cash flows and include all the true expenses it isn't the golden egg people think it is.

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Rent around here tends to be slightly over the base 30 year mortgage rate but below mortgage+taxes+ins and I assumed such in my spreadsheet

 

Yeah you eventually catch up it is just that you are guaranteed to be behind at the end of your mortgage. How fast you catch up depends on the rest of your variables, mainly how much your house appreciated and what the renter did. If you ended your mortgage in 2005 you were golden. 2009 not so much.

 

You should build a spreadsheet. It only takes a few minutes.

 

Also don't underestimate maintenance. Already $20k in for a new heat and air system and routine stuff has been a little shocking. IAnd you would also include things like replacing appliances and anything else that a renter would not be on the hook for.

 

The point of this is that most feel like a house is miles above renting from an investment standpoint. But if you look at the actual cash flows and include all the true expenses it isn't the golden egg people think it is.

 

I'm going to sit down and start crunching numbers.  I have only owned this house for a year, but I will estimate out for the next 15 or so.

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I'm going to sit down and start crunching numbers.  I have only owned this house for a year, but I will estimate out for the next 15 or so.

 

Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

fms4k3.png

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Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

fms4k3.png

People aren't a fan of spreadsheets around here

Sent from my XT1080 using CarolinaHuddle mobile app

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Here is what my "own" spreadsheet looks like. You are anyone can critique it in case I missed something.

fms4k3.png

Only have a minute before I head out, but I think you're not evaluations this correctly. First off, after 10 years, assuming your numbers are correct, you're spending $9k total over worth of house for living in a house for 10 years.

Is the appreciation figured in and is $800k the price it appreciated to over 10 years, or the total equity paid in with no appreciation calculated?

Are deductions the tax saving for discounting real interest?

If you're comparing leasing vs renting, it seems you should compare the two directly and you will find that you are comparing the total amount paid in rent (all lost) to the interest paid on mortgage (not total payment which includes equity). Then reduce that interest paid total by savings to your taxes. You would also add to that home ownership figure, expenses you have with ownership that you wouldn't have with a rental such as property tax, maybe insurance, and maintenance or repairs.

At the end of the day, going strictly by your calculation which I think $60k in repairs in 10 years seems excessive on top of already $12k in minor repairs, the total cost for 10 years of living in a house is $9k over value of house, as per your numbers. Conversely, 10 years of rental will cost you possibly around $4k a month for an $800k house, which means $480k spent without any return over 10 years. So to match apples and apples, you would need to reduce that $480k loss to less than the $9k in ownership example. Therefore would need to make about $471k profit in investments, just to make it about the same, that's a lot of money you would need to invest to make that amount assuming a 2% interest.

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Renting and owning both have advantages and disadvantages. People say if you rent, you're just throwing money away. But unless your town has a great market, owning means you are pretty much agreeing to live there for year after year after year. If you live in a fun city, perfect. But imagine buying a home in like Mint Hill or Fayetteville. Christ. You want to spend a decade THERE? Wow. I was lucky I was able to sell my place when I left Charlotte. My poor pops can't sell his place in Pensacola and I remember when I was a kid and we left Mississippi their house was on the market forever. Buying is like the biggest commitment there is other than having a kid. I'd much rather "throw money away" and live someplace different than be stuck with a gamble.

one of my good friends just got the bid on an apartment on Caton Ave and E 18th street which is basically the southeast corner of Prospect Park for $500k.  This for a 2 br 2ba and approx 700 sq/ft or $715/sqft.  Prices have soared since we moved here just over 5 years ago but of course that was right after the crash.  made me wish we would have bought something a couple years ago when we decided we would stay for a few more years, but will just buy when we move back down south and have kids.  do you rent up here or did you buy?

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Only have a minute before I head out, but I think you're not evaluations this correctly. First off, after 10 years, assuming your numbers are correct, you're spending $9k total over worth of house for living in a house for 10 years.

Is the appreciation figured in and is $800k the price it appreciated to over 10 years, or the total equity paid in with no appreciation calculated?

Are deductions the tax saving for discounting real interest?

If you're comparing leasing vs renting, it seems you should compare the two directly and you will find that you are comparing the total amount paid in rent (all lost) to the interest paid on mortgage (not total payment which includes equity). Then reduce that interest paid total by savings to your taxes. You would also add to that home ownership figure, expenses you have with ownership that you wouldn't have with a rental such as property tax, maybe insurance, and maintenance or repairs.

At the end of the day, going strictly by your calculation which I think $60k in repairs in 10 years seems excessive on top of already $12k in minor repairs, the total cost for 10 years of living in a house is $9k over value of house, as per your numbers. Conversely, 10 years of rental will cost you possibly around $4k a month for an $800k house, which means $480k spent without any return over 10 years. So to match apples and apples, you would need to reduce that $480k loss to less than the $9k in ownership example. Therefore would need to make about $471k profit in investments, just to make it about the same, that's a lot of money you would need to invest to make that amount assuming a 2% interest.

The $800k is a judgment call. The house was purchased for $500k. The $800k figure is really the only random variable as nobody has a clue what the house will be worth in 9 more years. It was really put in to show that IF the house appreciates that much I will be in a break even cash position on a NOMINAL basis and a losing position on a time value basis.

 

And I am paying off early. It looks much worse if I were on a 30 year mortgage and not paying off early.

 

As to your second call I think that is too complex. The exercise should be what if the very same person (me) decided to rent instead of buy. Instead of an outlay of $127k in year one the renter me would have had an outlay of say $30k including renter's insurance and any ancillary expenses. You then take the leftover 97k and put it in the back or investment. For simplicity I have assume a risk free rate  - i.e. t-bills. That initial investment will grow to $125 or so. But if it is a savvy investor he could grow it to $200k at 6% or almost $350k at 10%.

 

The repairs are my numbers. I already had $20k of expense this year and my deck and driveway will need to be done at some point. You should do your own sheet with your own cost assumptions.

 

Your last paragraph is making too many assumptions. Rent should start at around $2600. If you want you could build the spreadsheet so that rent goes up with house prices. Rent would then be dependent on the $800k figure from the buyers side. But what if the guy is smart own downsizes as rent increases. Renting gives you the flexibility to do that. Or even better what if the renter uses his cash to bet ON the housing market making money as prices rise therefore cancelling out any rent increases.

 

For the renter's side you have to make lot's of assumptions. Are T-Bill rates correlated with the housing market? What about equities. What is an optimal investment strategy. Should he sign multi year leases? It becomes another stochastic process whereas the buyers side spreadsheet is deterministic since most of the numbers are pretty set in stone or at least will not vary that much.

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one of my good friends just got the bid on an apartment on Caton Ave and E 18th street which is basically the southeast corner of Prospect Park for $500k.  This for a 2 br 2ba and approx 700 sq/ft or $715/sqft.  Prices have soared since we moved here just over 5 years ago but of course that was right after the crash.  made me wish we would have bought something a couple years ago when we decided we would stay for a few more years, but will just buy when we move back down south and have kids.  do you rent up here or did you buy?

 

I was screaming at the top of my lungs a coupe years ago to buy anything if you had the cash.  In good locations of course.

 

If I were you, and you are looking at coming back down South, I would look into buying something down here now, and find some good renters.

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