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

TheMetetron · #1 11-15-2007, 01:30 AM

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 · #2 11-15-2007, 03:22 AM

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 · #3 11-15-2007, 03:30 AM

why do you have interest only payments?

stinkypete · #4 11-15-2007, 04:35 AM

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 · #5 11-15-2007, 05:47 AM

[ 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 · #6 11-15-2007, 09:51 AM

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

TheMetetron · #7 11-15-2007, 10:35 AM

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 · #8 11-15-2007, 10:42 AM

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

rwesty · #9 11-15-2007, 11:48 AM

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

[/ QUOTE ]

This seems reasonable. You have all the numbers so it should just be a math problem. What's your estimate on inflation and at what point does that change the decision?

scotchnrocks · #10 11-15-2007, 08:21 PM

[ QUOTE ]

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

[/ QUOTE ]

If someone understands when it is and isn't a good time to buy/sell a house, and the importance of location, then they can do much better than inflation + 1%.