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The model makes some assumptions that I wouldn't make when making the buy vs rent decision. > The individual uses a typical 20% down payment and the remaining
by Sohcahtoa82 2y ago
The model makes some assumptions that I wouldn't make when making the buy vs rent decision.
> The individual uses a typical 20% down payment and the remaining balance is financed with a conventional 30-year fixed rate mortgage at the average market interest rate at the time of purchase
Is 20% down still common? I think we put only like 4% down.
> The individual expects to hold the property for a period of 8 years (footnote: According to Hansen (1998) the Census data shows that 8 years is the average home holding period in the U.S.)
I've been in my house for 9 years and expect to be in it for at least another 10 more, if not until I die or go to an assisted living facility.
I think the model should have at LEAST been done twice: Once with the 8 year average, and maybe another run with a 20 year or even 30 year holding.
To be honest, my eyes started glazing over and I got lost in all the details, but I didn't see if the study controlled for the fact that rents nearly always go up. When I bought my house in 2015, my mortgage payment was $1,600/mo, plus property tax of $300/mo. Zillow estimated the rent value to be $1,800/mo. Now in 2024, 9 years later, Zillow estimates the rental value to be $2,700/mo.
Even ignoring the equity I have in the house, renting would clearly be a huge loss. The $100/mo I would have invested would be currently being absolutely devoured by the higher rent today.
If you include equity, the high side to owning is insane. I bought for $338K, and now it's estimated to be worth $557K. Even if I went for some insane interest-only loan, I'm still holding an asset that's gained $219K in value. 9 years of $1800/mo rent is $194K. Imagine dumping all that money and getting NONE of the financial benefits of holding an appreciating asset.
If you think you're going to live in a house for only 5 years, then yeah, it might make sense to rent, because then you avoid closing costs and the awful amortization that a mortgage has for the first couple years. It also avoids being subject to price crash volatility. But if you think you'll live in a house for 10+ years, I cannot possibly see how it can be better to rent.