Replies (43)
given that the average home in the us has gone down 5% in the last year, and much more in some areas, why would you assume such a ridiculous appreciation in the near term future? A much more reasonable comparison would be to assume zero appreciation for the next 5 years.
In my market, zero appreciation would be great, we are actually down 8.8% over the last year, and the rate of decrease is accelerating...
In my market, zero appreciation would be great, we are actually down 8.8% over the last year, and the rate of decrease is accelerating...
- Janetraeness
- Contributions:203
The realtor's commission for each scenario (at a 5% commission)
6% return 4% return
1: 21200 1: 20800
2: 22472 2: 21632
3: 23820.3 3: 22497.3
4: 25249.5 4: 23397.2
5: 26764.5 5: 24333.1
Here's what you walk away with at closing, after selling (this is not entirely accurate, and it's pessimistic. I was lazy, and took the sale price - purchase price (so I'm taking sale -400000) - commission. Note: You would come out with more, since you get your down payment back, and whatever you paid down on principle. I'm being very pessimistic on purpose.
Net gain:
6% 4%
1: 2800 1: -4800
2: 26968 2: 11008
3: 52585.7 3: 27447.75
4: 79740.5 4: 44546.23
5: 108525.5 5: 62328.04
Okay, now, the total amount you've paid in your payments during this time:
after 12 months, total payments: 30803.04
2 years: 61606.08
3 years: 92409.12
4 years: 123212.16
5 years: 154015.2
6% return 4% return
1: 21200 1: 20800
2: 22472 2: 21632
3: 23820.3 3: 22497.3
4: 25249.5 4: 23397.2
5: 26764.5 5: 24333.1
Here's what you walk away with at closing, after selling (this is not entirely accurate, and it's pessimistic. I was lazy, and took the sale price - purchase price (so I'm taking sale -400000) - commission. Note: You would come out with more, since you get your down payment back, and whatever you paid down on principle. I'm being very pessimistic on purpose.
Net gain:
6% 4%
1: 2800 1: -4800
2: 26968 2: 11008
3: 52585.7 3: 27447.75
4: 79740.5 4: 44546.23
5: 108525.5 5: 62328.04
Okay, now, the total amount you've paid in your payments during this time:
after 12 months, total payments: 30803.04
2 years: 61606.08
3 years: 92409.12
4 years: 123212.16
5 years: 154015.2
- melanie777
- Contributions:825
3% would be a modest upwardly moving market, 6% is dreaming, and in real life most markets in the U.S. would be lucky to stay stable.
That said, there are CDs that offer 4.5% rates, and more aggressive investments could have a higher return.
And in your assumptions, what does the renter save each month? We're saving about $800, which would be $48,000 after 5 years. I'll take the guaranteed savings over hopeful projections any day.
That said, there are CDs that offer 4.5% rates, and more aggressive investments could have a higher return.
And in your assumptions, what does the renter save each month? We're saving about $800, which would be $48,000 after 5 years. I'll take the guaranteed savings over hopeful projections any day.
- Janetraeness
- Contributions:203
And now, for the fun part! To get equivalent rent, I took the total payments you've made, subtracted your net gain, and divided that number by 12 to get your equivalent rent per month.
6% 4%
1: 2333.59 1: 2966.92
2: 1443.25 2: 2108.25
3: 1106.2 3: 1804.48
4: 905.66 4: 1638.88
5: 758.16 5: 1528.12
So, I know that this info is of limited use in a down market, but it gives us all some concrete numbers. It was interesting for me to do,.. I hope it's interesting for you to read. I'll be peeking in if anyone has any questions about how I got these numbers.
6% 4%
1: 2333.59 1: 2966.92
2: 1443.25 2: 2108.25
3: 1106.2 3: 1804.48
4: 905.66 4: 1638.88
5: 758.16 5: 1528.12
So, I know that this info is of limited use in a down market, but it gives us all some concrete numbers. It was interesting for me to do,.. I hope it's interesting for you to read. I'll be peeking in if anyone has any questions about how I got these numbers.
- 2 Big 2 Fail
- Contributions:11480
Turn off your caps. It is really annoying and you look like a spammer.
the new york times has a much more thorough analysis, just google new york times rent vs buy calculator...
- Janetraeness
- Contributions:203
Aww, thank you for calling them spun statistics. :)
I'll agree that with the market as it currently is, expecting a 6% appreciation in most markets is beyond dreaming, it's lunacy. I also said as much, in the first part of my post.
However, in the future (note, I do not say "near" future, which to me would be the next 12-24 months), I expect many home markets near cities to get 4-6% annual appreciation, depending on location, population growth, and the general state of the economy. I'm not trying to convince /anyone/ to buy, or to rent. I just thought it would be interesting to throw some honest numbers up there, for the sake of seeing them.
I'll agree that with the market as it currently is, expecting a 6% appreciation in most markets is beyond dreaming, it's lunacy. I also said as much, in the first part of my post.
However, in the future (note, I do not say "near" future, which to me would be the next 12-24 months), I expect many home markets near cities to get 4-6% annual appreciation, depending on location, population growth, and the general state of the economy. I'm not trying to convince /anyone/ to buy, or to rent. I just thought it would be interesting to throw some honest numbers up there, for the sake of seeing them.
- Janetraeness
- Contributions:203
azrob, that is a very nice calculator.. and y'know what? It tends to agree with what I did as well (though I'll definitely admit they're more thorough. This is just something I whipped together in a few moments while keeping an eye on the kids.) ... The sad thing is that it took me longer to format and post it than it did to run the numbers.
- Janetraeness
- Contributions:203
- klarek the realist
- Contributions:7044
Janet, while your calculations for what that mortgage will cost (initially) are correct, the appreciation expectations are beyond that of even Alpine. Consider a 20% drop, and that is being kind, followed by continual appreciation of 4%, also kind. It costs roughly 8% of the value of a house just for the agents and closing costs to sell it. It would take YEARS just to break even. If rent costs half than to own, which in my area is the case, wouldn't the difference invested in something that actually returns a positive amount be smarter?
Hi Janet.
Thanks for the great link. I like the interactive software .
Thanks for the great link. I like the interactive software .
- Cash is King Kong
- Contributions:104
I'll buy and you RENT from me. Sounds like a good deal to me. :-)
- caliguy
- Contributions:1283
Cool calculator. For me, it says buying my condo is better than owning after "only" 20 years. Nice!
- Janetraeness
- Contributions:203
kalrek... that's exactly why I suggest that people run their own numbers for their own individual areas. If the price is going to drop 20%, and then stagnate or appreciate modestly, you have to take that into account, as well as how long you plan to live somewhere. Everyone's case is different. :)
I have to wait 30 years for it to be a wise choice.........
George Bush........ala Dana Carvey.....
Not gonna happen.........
George Bush........ala Dana Carvey.....
Not gonna happen.........
- klarek the realist
- Contributions:7044
Yeah, AV, I'll pay half your mortgage and avoid the maintenance, threat of deflating values, and property taxes. You'll be like a little servant for me.
- klarek the realist
- Contributions:7044
caliguy LOL. The sad thing is even with the best "realistic" expectations of the housing market, the rent vs own calculator really hurts the argument as to why one should buy now. On top of that, it really down-plays what it costs to sell a house. Seriously, we're talking about 8% of the sale price. It is INSANE.
- 2 Big 2 Fail
- Contributions:11480
Owning is significantly cheaper than renting if you make a nice sized down payment, like I did.
- klarek the realist
- Contributions:7044
Nobody has a down payment. The average credit debt in this country is $10k. You think anybody saves?
When we were renting years ago Mr.whatshisname landlord we had, became obsessed with my husband and was very clear about it. It was very,very, gross harassment . We would wake up in the morning and there he was in the front yard at 6am peeking around saying he is taking care of the yard.
After we left that sh*thole rental we found the perfect place with a yard and great price per month. The sweet old gal we rented from dropped dead 3 months latter. the greedy crack head kids got the house and jacked the rent $500 per month. We came home one day and they were in the house without our consent. That when we decided to buy our first home in 92'. Renting is awesome for some and they save lots of money and are happy.But IMHO renting sucks and people and landlords suck. I would rather have control of my own home and privacy and have a home to pass down to my kid.
After we left that sh*thole rental we found the perfect place with a yard and great price per month. The sweet old gal we rented from dropped dead 3 months latter. the greedy crack head kids got the house and jacked the rent $500 per month. We came home one day and they were in the house without our consent. That when we decided to buy our first home in 92'. Renting is awesome for some and they save lots of money and are happy.But IMHO renting sucks and people and landlords suck. I would rather have control of my own home and privacy and have a home to pass down to my kid.
- Cash is King Kong
- Contributions:104
Julia, sounds like you had a real creep for a landlord.
Ohhhhh ya.. My old man is hot but god damn that was just wrong..The good thing that came out of that we bought durring the last bubble down turn and did ok.So I guess I should thank that creep... yuck!! or not..
- Angelique01
- Contributions:2031
Truth is that there are some creepy landlords out there. I kind of think it's easier to rent well-managed properties. That said, I'm going to go look at the possibility of renting someone's house tomorrow.
- Mike Farmer, "Mike from Savannah"
- Contributions:593
I prefer to own, too. I haven't rented since 1984, so I'm in the owning busines for the long term. I'm 54 and plan on living another 30 years, so ups and downs don't bother me much. I invest in properties and have bought a few during this leveling off period here. I'll probably sell one I got at a very low price -- needed some work and I have almost completed it. I'll probably hold onto the other two for a few years.
As I said in another thread, though, I expect renting to increase the next couple of years, so I'm working with an investor to build some rental units.
It will be a good choice for contract workers here who don't stay long at companies like Gulfstream, and military personel from our base who may get transferred in a few years. The appreciation won't be good enough to buy and sell in a few years. But long term it still seems the smart thing to do.
As I said in another thread, though, I expect renting to increase the next couple of years, so I'm working with an investor to build some rental units.
It will be a good choice for contract workers here who don't stay long at companies like Gulfstream, and military personel from our base who may get transferred in a few years. The appreciation won't be good enough to buy and sell in a few years. But long term it still seems the smart thing to do.
- klarek the realist
- Contributions:7044
Julia, that is creepy. I wish to be sexy, but not THAT sexy.
Its a curse I tell ya:)
Oh ya, The creepy stalker rental we did rent though a fancy prop management company.. that wont protect you from crazy trust me..
sucks bein good lookin :)
- Aspiring One-Armed Economist, "walt526"
- Contributions:432
"I expect many home markets near cities to get 4-6% annual appreciation, depending on location, population growth, and the general state of the economy"
I agree. With inflation at 8-10%, we will see nominal prices increase 4-6% over the next decade. Put another way, that's a 4% rate of DEPRECIATION.
Also, someone may have mentioned this already (I just briefly scanned the thread) but you need to factor in maintenance costs. Including the opportunity cost for everything that you wind up doing yourself that you would not have to do as a renter. Depending on size, age, and location of the home, that can run up quite a bit.
I agree. With inflation at 8-10%, we will see nominal prices increase 4-6% over the next decade. Put another way, that's a 4% rate of DEPRECIATION.
Also, someone may have mentioned this already (I just briefly scanned the thread) but you need to factor in maintenance costs. Including the opportunity cost for everything that you wind up doing yourself that you would not have to do as a renter. Depending on size, age, and location of the home, that can run up quite a bit.
I cant take him anywhere Mpal..He he!!
rent vs own, a thouht
*BUT!* Before I get to the numbers, I'm adding a caveat. This assumes an upward moving housing market, at modest rates. (6% annual in one case, 4% annual in the other.) If your market is currently going down, and you don't plan on staying put long enough to sell for more than you buy, you have to take that into account when you decide what owning vs renting is worth to you.
Let's take a house you buy for $400,000, for easiness in numbers.
Now, let's assume a 20% downpayment. Why? Because 20% is a nice, safe number, and a healthy downpayment. Under 10% is risky, and under 20 means PMI, most of the time. So, let's do 20. (It also suggests that you can comfortably afford your house, and if you can't afford it, I NEVER recommend buying.)
with $8000 a year in property taxes, and $1000 a year in homeowners insurance, with no HOA or community fees, and with a 30 year fixed-rate mortgage at 5.5%, you're looking at an estimated total payment of: $2,566.92/month
Now, let's assume in the left column, a 6% annual increase in the price of your house, and in the right column, a 4% increase.
This is what your house would sell for after a number of years:
6% 4%
after 1 year: 424000 1: 416000
after 2 years: 449440 2: 432640
after 3: 476406 3: 449945
after 4: 504990 4: 467943.4
after 5: 535290 5: 486661.1
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