3 ms·
Interesting. I have not heard this rule before (and I assume it's modified by the actual tax rate). That said, unless the local real estate market is strong I
by vonmoltke 7y ago
Interesting. I have not heard this rule before (and I assume it's modified by the actual tax rate).
That said, unless the local real estate market is strong I don't think it makes sense as an investment to break even on the rent. It's a lot of headache and risk to bet on a >5%[1] average annual appreciation. I don't think that is a reasonable rate to expect in many (most?) real estate markets.
[1] My personal ballpark for a reasonable return.
- chii 7y agoThis video explains the concept really well: https://www.youtube.com/watch?v=Uwl3-jBNEd4 https://www.youtube.com/watch?v=Uwl3-jBNEd4 but TLDW; the unrecoverable cost of rent is just the rent money, and a lot of people compare it with a mortgage incorrectly. A mortgage is not 100% unrecoverable, but some portions of it is unrecoverable (the interest). The other unrecoverable cost of owning is the initial downpayment. The 3% capital cost is the combination of the above interest payment and the lost income opportunity from the downpayment. Whether you buy out right with cash, or get a mortgage, you still end up paying a price either way (via interest, or via lost opportunity to deploy the cash downpayment).