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

[TheMetetron]

I'm saying if you knock $50k off the $300k in equity I quoted (so only $250k in equity) I don't think that makes a big enough difference in the equation to make holding onto the house a better decision.

Obviously, I'll have to run numbers to prove this later but I wanted to make sure I got all the variables I needed down.

[Jimbo]

OK, I think I have my head wrapped around this now. It appears you think you can get an after tax return on your/their investments of $250,000 that exceeds both the tax benefits, appreciation of the home and the additional cost of renting minus the small savings of upkeeping the home. The only alternative I can think of is that you are trying to convince someone to back you in a business venture.

Good luck with that,

Jimbo

[Thremp]

[ QUOTE ]
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?

[/ QUOTE ]

Rental in Orange County is 2200 for a house ~700k or thereabouts. His numbers seem very standard.

[john voight]

even crazier in the bay area, imo.
IDK why ppl currently buy instead of rent

[TheMetetron]

Jimbo,

I give up. It is clearly lost on you.

Yeah the numbers are definitely right, the housing market is so overvalued compared to rental prices that I can't see this market not losing value in the future. Even if we assumed historical growth, I think the ~$20-30k in investment income is more than the extra $4k per year in rent. I have to get hard numbers for the cost of maintenance, property taxes, and the savings with the tax-deductible interest. With property taxes likely around 2-3% of the house value and the tax-deductible interest savings probably be less than that (on a ~$400k loan I'd guess), I don't see how keeping the house can be the correct play.

I'll run some numbers next week and post them, but I really must be missing something huge or some of you guys are so dead-set in never thinking that renting can be the better play.

[Jimbo]

[ QUOTE ]
I'll run some numbers next week and post them, but I really must be missing something huge or some of you guys are so dead-set in never thinking that renting can be the better play.


[/ QUOTE ]

Taken out of context I can see why you might jump to that conclusion. I think renting is better for more than half the people in the USA, but in the precise example you cited it is foolhardy. Why you can't see why is frankly beyond me as well.

Jimbo

ie: Taxes; $20,400 per year in interest should save this person over $9000 per year in income taxes. Another $300 per month in excess rent and now you have $12,600 total savings to overcome. Now you have to get a 5.04% after tax return on your $250,000 investment just to break even. Is it worth it? Can they even do it year after year. You will notice I did not allow for appreciation/depreciation of the owned home, you think it will go down in value, I think that historically over long periods of time that has rarely happened, at the very least this should be a wash but you yourself stated that you expected the home to outpace inflation by 1% per year. If they have a million dollar home with 25 to 30 % equity they are still earning another $10,000 per year in appreciation. Under these assumptions you need a 10.48% after tax return just to break even. Convinced I might have a clue yet?

[mindflayer]

unless your STRETeching to meet that 1700 payment witch is on a subprime mortgage and about to get reset to... say +2000 witch you cant make.. then i think your off.
The real question is WHAT IS Your CURRENT INCOME?

I may be TOTALLY OFF...but,

It sounds like you are trying to justify your sale by saying it is better to do it because it is "better for other reasons" rather than saying, I am on the edge and might become a statistic.
(an Interest only mortgage is typical of the subprime mortgage)

In any case, I do see both points of view.
because your m is interest only.. it is virtually the equivalent of renting.

left side of eq is
have 300k to invest, unknown return, pay 300 for rent.

right side of eq is
300k invested, 1% return,20k tax deduction,zero for rent(or 300 to invest)

I would say that 20k deduction weighs HEAVILY in your calculation. Virtually ANy type of decent salary will cause this side of the equation to be worth more.

Jimbo has ASSUMED that you have this type of job. 45k+/year
+45k salary = 9k tax savings = keep the house.
no salary = no 9k tax savings = Sell the house.
a 20-30k salary makes it a much closer calculation.
guessing a 3-4k tax savings...
What is your current income again?!?

[TheMetetron]

Jimbo,

You ignore property taxes and maintenance costs here. Also, the house isn't valued at $1million.

[TheMetetron]

mindflayer,

This isn't an example for me. The person in question however more than makes enough to cover the mortgage. I wouldn't be advocating taking on a higher rent if they couldn't.

[BigPoppa]

Owning

Pro:
Mortgage Interest Deduction (approx $9k/year)
Lower Per Month Cost ($3600/year)
Probable Appreciation in Value


Cons:
Property Taxes (?)
Maintenance (?)
Insurance (?)
Possible Depreciation in Value
Loss of Investment Income from Equity (?)


Fill in the blanks and run the numbers, with an allowance for the cost and hassle of moving. Also remember realtor percentage of pruchase price and anything that would need to be done to the house before selling.