Is my thinking off here? (renting vs owning situation)

[TheMetetron]

Assume a person has $300k in equity in a house. They currently have an interest only payment of $1,700 per month for the house.

A comparable house can be rented in the $2,000/mo range.

Is there any reason not to sell the home and buy equities while renting out a similar house? A similar house is necessary because of dogs that require a yard.

Thoughts? It seems like the $20-30k per year in equity returns way more than offsets the increase in month-to-month housing costs. Also, must factor in no property taxes or maintenance costs which surely tips the scale even more in favor of renting.

[gordongecko]

Are you suggesting that renting a home is better than owning a home? If you mean in rare cases then yes, there are exceptions with everything.

[kafkaFan1]

why do you have interest only payments?

[stinkypete]

where can you rent a $5-600k home for $2000/mo? that seems pretty ridiculous to me, and is almost certainly a better deal than owning. are you sure your estimate is reasonable?

[Henry17]

[ QUOTE ]

Thoughts? It seems like the $20-30k per year in equity returns way more than offsets the increase in month-to-month housing costs. Also, must factor in no property taxes or maintenance costs which surely tips the scale even more in favor of renting.

[/ QUOTE ]

You forgot that the house also appreciates in value.

There are some cases where renting is better. I'm in such a situation because I have a very unfavourable view of the high-end condo market in my city. If you remove appreciation from the equation than it is usually better to rent otherwise owning is usually the better move.

[mtgordon]

And the fact that the mortgage interest is a tax write off, however then you are responsible for upkeep on the house

[TheMetetron]

This is Gilroy, California.

I'm sure that both the interest payment and the comparable rent are correct as I double checked those myself and the equity is pretty close though I didn't double check it myself just took someones word for it.

For real estate as a whole, I pretty much just assume it will do around inflation + 1% or so at best long term.

[bmw335i]

You will no longer be able to write off mortgage interest or property taxes. Renting will not be good for you.

[stephenNUTS]

The first issue in todays market is...you cannot just ASSUME you have $300K equity in a home anymore.The past few years home appreciation saw double-digit growth,and it was just taken for granted.

Well that has completley stopped or even reversed in most parts of the country.With the cap being $417K on a govt.backed FM jumbo loan.........mortgage money is EXTREMELY hard to come by ....esp. in higher markets,which puts even more pressure on prices as well

Now...for example if you own a home with a $250K mortgage and feel the house is "worth" or was appraised at $550k .....in theory you have $300k in equity.Selling that home and netting $300K is in no way a given anymore,and these assupmtions would be irresponsible on anyone thinking this way.

This is what fueled the "wealth affect" in this country.Homeowners just thought their homes would grow exponentially year over year...and if they ever had to sell or just tap into their homes equity,not only was it a given ...but monies were easily available

With the onset of the recent mortgage credit/home debacle...until your home is ACTUALLY SOLD...the same equity calculations are NO longer accurate in todays environment...at least for now IMO

So the idea of...."lets just sell and rent for awhile"...to save/earn/invest this extra money and park it in another investment vehicle....is not so easy or economically sensible anymore ...and to come up with a number that is convenient to YOU on paper is ludicrous and highly unlike as well

I am not trying to be the nay-sayer here(just trying to convey a realistic POV)....but that AVERAGE family/persons new "suddenly found" HIGH networth was squarely tied to their own homes equity in VERY LARGE percentage of households the last 5+ years

If your "$550k home" will only fetch $495k ...doesnt this whole scenerio/idea change drastically OP now?

Just my 2 cents

Stephen [img]/images/graemlins/cool.gif[/img]

[TheMetetron]

[ QUOTE ]
If your "$550k home" will only fetch $495k ...doesnt this whole scenerio/idea change drastically OP now?

[/ QUOTE ]

My contention is that it doesn't. That continuing to own given the price of a comparable rental is just insane.

Edit: This is most definitely not about me.