4 ms·

So with a 4% spread, there are plenty of opprotunities to buy a home that will increase in value enough to beat that handily. The market is not static.

• bombcar 3y ago
  Going from 2% to 6% drops the total mortgage amount from 486k to 342k, everything else staying the same. And the homeowner already owns a home that will likely increase in value roughly similar to others in the area.
  • mnky9800n 3y ago
    Where do these numbers come from
    • quickthrowman 3y ago
      The monthly payments for both of these mortgages are identical. The monthly payment on a mortgage with $486k principal @ 2% is the same as one with $342k principal @ 6%.
      • mnky9800n 3y ago
        Oh I read it backwards and was confused. Thank you.
• robocat 3y ago
  You are neglecting to account for the loss of the increase in value over time for the existing property. Think what happens if you sell the same house to yourself - you don’t magically get a gain. Edit: if the market beta is 5% (selling a property that goes up at 5%), you need to get say 9% on your new property to break even. Plus you need to get a few % more to cover your extra risk (assuming cashflow and discount rate remain the same, and that the market has priced in some expected gains). Getting say 11% (6% alpha) over decades is perhaps not so easy? Edit: and most people are looking for a home to live in, usually in a very similar market (location). You are adding the constraint that their home choice much also be expected to appreciate at well above market rates, so the person needs to be real estate specialist to get that alpha, plus the person needs to be financially savvy. Those are difficult constraints. I think we can ignore transaction costs.