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Owning VS Renting: Houses, Cars, Appliances..... (long sorry :)) - Page 3

post #41 of 85

For mtg vs cash for house.

 

It depends on the economy.  There is a bit of speculation involved.  The main reason why a mortgage doesn't necessarily cost you tons of money in interest is relative interest.  Ex. mortgage is at 5%, rate of return in investment is 10%.  You net 5%.  The taxes are a wash.

 

For me, I bought in 2007 with mortgage.  In retrospect, it would have been ideal if I had sold stocks high, paid cash for the house, and invested everything that I'm spending on mortgage in stock market.  But who could have predicted such a crash?

 

Also, in paying cash for a house you tie up a bunch of money in a non-liquid form.

post #42 of 85

One more thing if you are thinking long term.  While rent will most likely increase each year, if you have a mortgage with a fixed rate your payment will remain steady.  This makes it easier to budget but should also mean that over time your housing payment is a smaller percentage of your income if we assume your income will increase over time.

 

post #43 of 85
Quote:
Originally Posted by ilovemygirl View Post


 


 

I didn't mean to imply that taxes being more than rent is the norm but just to point out that it does happen. The taxes where I live are more than 1/3 of our rent payment. It's still a good deal for the landlord but that doesn't mean it's not a lot of money in taxes. 

The average rent for a house where I am is about $1500 per month. The average property taxes on that home is about $700 per month. 

 

In cases like Sharlla's I think buying was an amazing opportunity and a really smart move. In a lot of other cases it's not as clear cut though ...


$700 per MONTH!! Wow! What is the value of a house with taxes so high? Our property taxes are around $150 per month and it's worth about $200k. Is that a typical figure for property taxes in the US? I have no idea if my figure is typical for Canada.

Oh, and for the posters mentioning the tax credit on mortgage interest and wondering about other countries, that does not exist in Canada.
post #44 of 85

I have not finished reading the thread, but I had some ideas I wanted to get out before I got too distracted.

 

1. Homes. You have to live somewhere, and very few people have a rent free option. Say you purchase a $120,000 home, and take out a mortgage of $100,000 at 5%. Your monthly payment will be around $500. Add in taxes, insurance and home maintenance costs you are maybe looking at around $750 a month in housing costs. Over 30 years you would pay $270,000 towards your housing costs, but after that your monthly housing costs drop to $250.

 

So say, instead of buying you apply that $750/month towards a rental. Let's say it is a magical place with 100 year leases or rent control so your rent never goes up. Over 30 years you will also pay $270,000 in rental costs. But after that, you will still be paying $750 until you don't need housing anymore. That is $500 more a month than if you had purchased your housing initially. If you need housing for an additional 20 years that is at a cost of $120,000 over purchasing.

 

You'll notice that neither of these examples are about building wealth. This is about providing a future where you can actually live on your retirement income which is probably going to be drastically smaller than during your earning years. As a person goes into their late 30's or early 40's, if they haven't already purchased a home, it's a really good idea to start to think about how you're going to pay for housing once you retire and start funding your retirement plan appropriately. Before that, during the "building years" home ownership is not as important to long term housing security. But it is one of those things, that the sooner you start, the sooner you can finish those mortgage payments.

 

2. Vehicles. This really depends on how often you need a vehicle. If you own your vehicle you have it available to you at all times. If you rarely need a vehicle, you can rent when you do and then you always have the right type of vehicle for the job. If you're going to the hardware store - a pick up, up to the snow a 4x4, etc. If you do need a car often enough that it is more cost effective to own one, I think most people should own the cheapest and most fuel efficient vehicle that holds their whole family. If you don't live off unpaved roads you don't need 4x4, so if you go on a vacation sometime to the country or mountains you can always rent one for that short time instead of paying a premium the other 51 weeks of the year. The same thing for people who say they need a big truck to haul a boat or trailer. How often is that really going to happen?

 

3. Appliances. I don't know how they are in your area, but here the WORST possible way to get appliances is to rent them. It costs around $20 a week to rent a washer and dryer, and for that money you can buy a midline set with an extended warranty and service plan, which will keep them good for 3-5 years at least. Although I've had my midline set for 5 years already and have zero problems. It will probably be at least another 5 years until I even consider replacing them. My MIL had her old washing machine for 25 years and her dryer for 30. My mom had her set for 28 years. If you don't have a lot of bells and whistles, they really last.But, let's just say you can expect it to last 5 years. So $20 a week for 5 years - $13,000. I paid $850 for my set.You can see how purchasing a set is going to be the winner in 99.9% of cases. If you are in your building years and still moving around a lot, it might not be worth it to purchase a set if many of the rentals in your area either include the w/d or have laundry facilities on site. Or if hookups aren't common. But once you're established somewhere, there are so few reasons to rent appliances that I can't think of any. I guess, one. If your old ones die and you want a specific new one that is a special order. Then you might want to rent to close the gap. Other than that, it makes no sense to rent appliances.

post #45 of 85

I think what it comes down to is what you can afford. If you have $1,000 a month, $12,000 a year for a mortgage payment you cannot afford a $300,000 mortgage. I have never heard of a 60 year mortgage, It seems to me that you would be paying almost all interest and hardly any principle for a LONG time. Part of the housing crisis here in the U.S is that lenders approved loans that borrowers could not really afford, 100% financing, interest only loans and adjustable rate mortgages. A 60 year mortgage to me falls into this category. 

The bottom line is, buy something you can afford. Where you live has a lot to do with if you can afford a home. If its going to take you 60 years to pay off a house you cannot afford it.

 

As far as appliances I got my washer and dryer off craigslist for $30 they work great.

 

Cars are not an investment they depreciate in value. I bought my car used and got a good deal on it, I have always owed less than it is worth and plan to drive it till it dies. 

post #46 of 85

I bought in late 2006 at the peak of the market and paid high San Francisco Bay Area prices. Depreciation here has been close to 25% so I've lost my entire down payment and more. Am slightly underwater. I know many are worse off but in my book this venture turned out pretty horribly and I have lost untold sleep over it. 

 

But I still find it hard to regret buying. Here are my perspective points:

 

1) The mortgage interest tax write off is absolutely huge. It brings us a massive tax refund each year when otherwise we'd still owe. 

2) Property taxes eat up about half of this windfall, so that partially evens out

3) But if you take what's left and spread it out over 12 months, it brings our monthly mortgage costs well underneath what it would cost to rent our place. 

 

The math may be different for everyone depending on that price of your home and your wages. But in our case, buying led to a really nice month-to-month situation, even if the total overall situation was a disaster. We like our place and we're happy to stick with it for a while. Our roof could fall in and that would throw all of my math off. But so far we're holding tight. 

post #47 of 85

a friend of mine was just telling me about housing prices in australia, i was shocked!! i don't even want to touch the housing market with a 10 ft pole.

 

vehicles- my dh is pretty good with cars and he has a great mechanic that he trusts so we manage just fine with a 10 year old car. i would never ever buy a new car. or lease a car.

 

appliances, i would not buy new unless i absolutely had to- even then it would be basic with no bells or whistles. we have always had great luck with appliances on craigslist. my mom has had her same washer 12 or 13 years and it seems to be fine with a tune up every now and then.

post #48 of 85
Quote:
Originally Posted by ahilal View Post

I bought in late 2006 at the peak of the market and paid high San Francisco Bay Area prices. Depreciation here has been close to 25% so I've lost my entire down payment and more. Am slightly underwater. I know many are worse off but in my book this venture turned out pretty horribly and I have lost untold sleep over it. 

 

But I still find it hard to regret buying. Here are my perspective points:

 

1) The mortgage interest tax write off is absolutely huge. It brings us a massive tax refund each year when otherwise we'd still owe. 

2) Property taxes eat up about half of this windfall, so that partially evens out

3) But if you take what's left and spread it out over 12 months, it brings our monthly mortgage costs well underneath what it would cost to rent our place. 

 

The math may be different for everyone depending on that price of your home and your wages. But in our case, buying led to a really nice month-to-month situation, even if the total overall situation was a disaster. We like our place and we're happy to stick with it for a while. Our roof could fall in and that would throw all of my math off. But so far we're holding tight. 

 The property taxes are also deductible in the US from your federal income taxes, and in many places the property taxes are going down -  mine have fallen dramatically over the last 5 years. My county has automatically lowered them 3 times. I also do not regret buying at all despite "losing" so much. We have a place we know is ours and the landlord isn't going to decide to sell, we can afford it and know the "rent" isn't going to go up significantly any time soon, at the most $10-50 per month each year (Actually, we pay less now that we did when we bought because the property taxes are about half of what they were then), and we like where we're at. We'll be here at least 5 more years, years that we would have to be paying rent somewhere, might as well be to pay down our mortgage.
 

 

post #49 of 85

Regarding housing prices....rent goes up considerably over time, where a fixed rate mortgage only varies based on the property taxes.


For example....my MIL has lived in her apartment (in NYC) for roughly 60 years. She has rent control pays $115 a month in rent. The nice girl who moved in across the hall, in the same exact apartment pay $3500 a month.  My parents recently finished paying their mortgage, they took it out about 30 years ago. Their mortgage payment (without property taxes) - huge house, very nice area, land - was less than half of what I pay in rent, to live in a less desirable area, in a 2 bedroom on the 3rd floor in a crappy neighborhood. My view is the highway, theirs...priceless.

 

DP has rental units in two of his houses. His renters cover all the expenses of owning the homes (mortgage - although it's paid now, taxes, water, heat, garbage, sewer, sinking fund for repairs), hiring a property management company, plus a profit. Both homes are paid for, due to the renters. Granted, it may be cheaper for his individual tenents to rent (the houses are a 2-family, and a 3-family) than to own,  but there are downsides. The houses are shared, you have to deal with the people living next-door. Shared yards, noise, barking dogs etc.

 

 

 

As far as appliances go....my $100 washer has been going strong for 10 years. I've never had to fix it, or replace a part. $10 a year, assuming that the costs to run a machine at home were comparable to laundermat prices - although I bet washing at home is cheaper. So....considering I do roughly 15 loads of laundry a week for our family of 6....$10 a year seems like a great deal to not haul 15 loads of laundry to the laundermat down the street and spend half a day sitting there waiting for it to be done. At home, I can spend the time the laundry is washing doing other things.

post #50 of 85

The theory with homeownership is that you should be paying approximately the same for a 30 year mortgage (monthly) as you would to rent the equivalent place.  In this situation, even without significant appreciation, you should come out "ahead" with owning.  Additionally, the payment stays the same and after 30 years goes (for the most part) away.  There are some locations where you actually pay much less to own than to rent--- it's a GREAT idea to buy there.  There are some places where it is MUCH more expensive to own than to rent--- it's a HORRIBLE idea to buy there and that is where bubbles greatly expand.  Eventually enough people are priced out of the market that the bubble "pops" and housing prices readjust.  I was recently looking at some home prices in the Palo Alto area--- there were places that would cost, literally, three times as much to buy as to rent.  You are betting on HUGE appreciation in those places and it's just not a risk I would take.
 

I feel buying our home when we did (2001) in the area we did is a good example of how home ownership is supposed to work.

 

I looked on zillow for recently sold homes and homes for rent in my neighborhood.  I found two that are the same age, same size, same builder, etc...  One was recently sold and one is for rent.  They are both approximately 9 years old.

 

House A:

Price in 2001: $344K

Price in 2010 (sold): $469K

 

House B:

Current rent: $2350

 

Assume a 30 year mortgage at 5%. $4K property taxes yearly, another $600/year for homeowners insurance and you have a total cost of:

$143K + $36K + $5K

$184K

 

Meanwhile, another family rents.  Rent has actually gone down in this area, so I will use the $2350 cost for every month for the entire nine years.

12 months * 9 years * $2350

$254K

 

So, in this case, it's clearly WAY better to have owned.  At the end of the 9 years, the owner sells the home:

Selling price - pay off mortgage - commission to realtor

$469K - $288K (amount still owed based on 30 year mortgage) - $28K

$153K

 

So, in this case, the owners not only paid $70K less over the course of the 9 years, but they also come out of the situation with $153K to put down on their next home.

 

 

Quote:

Originally Posted by ollyoxenfree View Post

 

Australian real estate is crazy though and I think you have to be careful comparing Australian and North American situations.  Despite its huge landmass, the vast bush and desert, Australia is one of the most urbanized countries in the world. 90% of Australians are city dwellers. Over 50% of Australians live in just 4 cities - Sydney, Melbourne, Perth and Brisbane, and I think if you take into consideration the greater urban regions of these cities, it's something closer to 75%. It places enormous pressures on housing demand and real estate prices are accordingly astronomical. Yet if you compare Australian wages to North American wages, there isn't an astronomical difference.


How do rents in Australia compare to costs of home ownership *in Australia*, though? 

 

 

Quote:
Originally Posted by beansmama View Post

You know, one thing I never really thought of, and admittedly, I didn't read all the responses, so someone might've brought it up (if so, sorry!).

 

Sure, homes increase in value (assuming it's a "real" home, not a manufactured/trailer)...but...do they REALLY?

 

The OP mentioned interest. If you take out a typical loan for 30 years and end up paying twice as much (or more!) in interest than the actual sell price of your house...will your house EVER be worth the ACTUAL price you paid for it?

 

Like...your $100,000 house that you actually ended up paying $267,000 for (rough estimated based on trulia.com calculation)...is your house EVER going to be worth that price? Probably not. Then again, if you dig in your heels and pay all cash or mostly cash, take out a 15 year loan and pay it in half or a quarter of that time...it's probably worth it.

 

Hmmm...


But you would have had to pay rent during that time.  When we bought we were paying $1035/month for a 900 square foot, 2 bedroom, one bath, 1 covered parking space apartment. If we had continued paying that amount for the last 9 years, 7 months (and if the rent didn't go up at all) we would have paid $119K in rent. 

 

Our mortgage payments (including taxes & homeowners insurance) would have been about $161K.

 

So, how *I* view it is not that my house cost $161K, but the amount that WOULDN'T have gone to rent.  So, $161K- $119K = $42 K

 

And our house has increased in value conservatively at least $100K (this is $125K under it's high value).  AND we would owe approximately $40K less on the house than we did at the beginning. 
So, for a $42K investment, we would end up coming out over $100K ahead.  And this is across a very bad housing market.  If we had sold at the height, we would have been looking at $200K instead.

 

So, yes, I would say it is very possible to have a house that ends up being worth much more than you put into it.  You just need to remember that you need a place to live and to account for that accordingly.  Oh, and of course, during that time I was living in a house in a better school district with a two-car garage and twice as much space as the apartment.  Quite the deal, huh?


 

Quote:
Originally Posted by ahilal View Post

I bought in late 2006 at the peak of the market and paid high San Francisco Bay Area prices. Depreciation here has been close to 25% so I've lost my entire down payment and more. Am slightly underwater. I know many are worse off but in my book this venture turned out pretty horribly and I have lost untold sleep over it. 

 

But I still find it hard to regret buying. Here are my perspective points:

 

1) The mortgage interest tax write off is absolutely huge. It brings us a massive tax refund each year when otherwise we'd still owe. 

2) Property taxes eat up about half of this windfall, so that partially evens out

3) But if you take what's left and spread it out over 12 months, it brings our monthly mortgage costs well underneath what it would cost to rent our place. 

 

The math may be different for everyone depending on that price of your home and your wages. But in our case, buying led to a really nice month-to-month situation, even if the total overall situation was a disaster. We like our place and we're happy to stick with it for a while. Our roof could fall in and that would throw all of my math off. But so far we're holding tight. 


And that is the BIG lesson to take from this.  We have never viewed our house as an investment.  We have viewed it as a place to live.  A house is a hedge against inflation--- once you have a set mortgage, your living costs are locked in a bit more than if you are in an apartment.  It's worked for us and it's worked for a lot of other people as well.

 

post #51 of 85

Wanted to continue.

 

As for cars...

 

What you are getting when you *own* a car rather than rent a car is constant access.  If you dont' want constant availability, it might be a better idea to rent.  But if you are going to want a car daily, that $25/day adds up quick.  To $750/month and that wouldn't include gas! 

 

The last thing is utilities...

 

Logically, it is cheaper to own than to rent.  You can tell this quite simply--- if it wasn't, then there would not be laundromats.  They have to *buy* the equipment and the location and still make a profit.  It if wasn't possible to do that, they wouldn't exist as a business.  Once again, though, if you don't want to use the laundry as much as you need to make it cost effective then paying for the constant access may not be worth it *for you*.

 

Even say a $1200 washing machine, that is $120 a year for 10 years.  $10/month.  We do about a load a day and I can't think of a laundromat I could do it for cheaper than that.  Now, if you only did one load a month, that probably wouldn't be worth it!

post #52 of 85

We rent and have a W/D unit that comes with the place. Works for us. I own an old car, which also works for us. We pay for repairs, insurance and gas.

 

Owning has major advantages, especially in the US, which is big on subsidizing homeownership through the tax code. However, I think for our family, renting is better because we're 100% debt free. We live on one modest income. If anything happened to that income, we could finish out the lease and move somewhere cheaper with ease. We also have liquid savings, not savings in an asset that may or may appreciate or may or may not sell if we need to liquidate. FDIC insured baby! 

 

We'd like to buy someday, ideally, a duplex so we could have a side stream of income. Sometimes, I want that to be soon and sometimes I'm convinced I'm making the smarter choice. 

 

The short answer to your question is: IT DEPENDS (lol)

post #53 of 85

You know, whether you rent or have a loan payment, you're still paying for housing.  Only when you own, over time your payment will be less and less compared to a monthly rent payment.  Then, at some point, you have no more payments.  You'll have maintenance and taxes, but that's small-beans compared to rent.  The landlord of the house I'm renting bought it in the 70's, and the taxes are $1300/ye and maintenance is very little.  Nothing at all since we've been here aside from a plumber replacing a pipe under the sink for $120.  We're paying $2k/mo to live in this house. I'd rather own the house and have the taxes and maintenance.

 

When we retire, social security won't be there for us.  Many of our generation won't retire.  But by owning a house, the chance of getting to do so is better.  You can even get a reverse mortgage to live off of.  Much better to pay money into this sort of security than to burden your children with supporting you.  (I've had to support my mom, and it's harder than it sounds.)

 

The cost of appliances is small beans.  We own our fridge and washer and dryer.  If one goes out, replacing it is a pain, but not the end of the world.  If we owned, it'd be even easier.

post #54 of 85
Quote:
Originally Posted by Ella Enchanted View Post

 

When we retire, social security won't be there for us.  Many of our generation won't retire.  But by owning a house, the chance of getting to do so is better.  You can even get a reverse mortgage to live off of.  Much better to pay money into this sort of security than to burden your children with supporting you.



But, I don't see why you think renting automatically means you retire with no savings! Where I live in Northern California, it would cost more per month to own than to rent. So if I rent, but put aside the difference between rent and what a hypothetical mortgage would be, in a safe investment earning say 5%/ a year, I should end up with a chunk a cash in retirement that is equivalent to whatever the house (I didn't buy) would've been worth. No?

 

To me, it seems like the advantage of a mortgage is just forced savings. If you are disciplined enough to rent (for less) and carefully invest the difference, you will have the $$ in your old age to rent a place. The homeowner will probably be dealing with selling their too-big house that they raised their kids in and trying to figure out a new situation.

post #55 of 85



 

Quote:
Originally Posted by traceface View Post





But, I don't see why you think renting automatically means you retire with no savings! Where I live in Northern California, it would cost more per month to own than to rent. So if I rent, but put aside the difference between rent and what a hypothetical mortgage would be, in a safe investment earning say 5%/ a year, I should end up with a chunk a cash in retirement that is equivalent to whatever the house (I didn't buy) would've been worth. No?

 

To me, it seems like the advantage of a mortgage is just forced savings. If you are disciplined enough to rent (for less) and carefully invest the difference, you will have the $$ in your old age to rent a place. The homeowner will probably be dealing with selling their too-big house that they raised their kids in and trying to figure out a new situation.

I think what she means is that if you own your home and work to pay off your mortgage, once it's paid, no longer have to pay for housing.  Your outgoing in retirement, based off this idea, is lower.  So for example

 

You rent, you pay $1000 a month in rent.  Your friend buys, she pays $1500 a month.  You both save an equal amount for retirement each month, but you save an additional $500, as the difference between your housing payments.  And both stay in the same spot your whole lives.  At the end of your friend's mortgage, she no longer is paying $1500 a month in house payments, you are still paying $1000 a month in rent.  Your friend now has $1500 more a month in her budget, because seh no longer has a housing payment. 

 

 

post #56 of 85
Quote:
Originally Posted by TiredX2 View Post

The theory with homeownership is that you should be paying approximately the same for a 30 year mortgage (monthly) as you would to rent the equivalent place.  In this situation, even without significant appreciation, you should come out "ahead" with owning.  Additionally, the payment stays the same and after 30 years goes (for the most part) away.  There are some locations where you actually pay much less to own than to rent--- it's a GREAT idea to buy there.  There are some places where it is MUCH more expensive to own than to rent--- it's a HORRIBLE idea to buy there and that is where bubbles greatly expand.  Eventually enough people are priced out of the market that the bubble "pops" and housing prices readjust. 

 

Great post!  I was going to write something like this, but you beat me to it.  We bought 7.5 yrs ago and got more house at a lower monthly cost than we could have rented for.  We *just* bought a new house & we have the same thing going on.  We also own an investment property and we make more than we spend on it each month & did from the get go.  And that's not counting any of the tax breaks and payments toward principal.  

 

As far as vehicles, if you have adequate public transportation, then vehicle free is definitely the way to go!  I wish we could do that.  We can't, though, but we do buy our vehicles used (3-5 yrs old, just after the biggest depreciation), buy vehicles with great track records for reliability (check Consumer Reports...this is our #1 consideration when buying a vehicle, and boy, does it pay off!), and keep them for as long as possible.  We've ran two vehicles into the ground and totaled another one in an accident.  Oh, and this is super important, too: PAY CASH!  We only had a loan for one of our vehicles.  We paid it off as fast as we could, and then started putting that money into savings, allowing us to buy the next vehicles outright.  

 

post #57 of 85
Quote:
Originally Posted by Ella Enchanted View Post

You know, whether you rent or have a loan payment, you're still paying for housing.  Only when you own, over time your payment will be less and less compared to a monthly rent payment.  Then, at some point, you have no more payments.  You'll have maintenance and taxes, but that's small-beans compared to rent.  The landlord of the house I'm renting bought it in the 70's, and the taxes are $1300/ye and maintenance is very little.  Nothing at all since we've been here aside from a plumber replacing a pipe under the sink for $120.  We're paying $2k/mo to live in this house. I'd rather own the house and have the taxes and maintenance.

 

When we retire, social security won't be there for us.  Many of our generation won't retire.  But by owning a house, the chance of getting to do so is better.  You can even get a reverse mortgage to live off of.  Much better to pay money into this sort of security than to burden your children with supporting you.  (I've had to support my mom, and it's harder than it sounds.)

 

The cost of appliances is small beans.  We own our fridge and washer and dryer.  If one goes out, replacing it is a pain, but not the end of the world.  If we owned, it'd be even easier.



I don't buy the social security argument and never will. This country is made up of voters, the vast majority of who want social security. 

 

I get the arguments for ownership, but if it makes you stick around in one place when you might lose a job in one place and not be able to find another one? Well, that's happening to millions right now and it's not going well for them. Plus, my parents' financial advisor thinks prices are about to fall again. 

post #58 of 85

For us, the main benefit of owning is that we will eventually..OWN the place.  Which is what is going to allow us to retire.   No more housing payment is key to that goal.  Sure, we'll have taxes and insurance, but those aren't much.  So for us, it's absolutely worth it. 

post #59 of 85
Thread Starter 

Out of curiosity I have been mucking around with compound calculators. orngtongue.gif

 

If you save as much as you can (after paying rent) and save up over many years you reach a point where the interest on the savings is actually enough to live off. As you get more and more interest each year you are slowly able to increase the amount of payments you are making a well and truly cover rent costs and more. So when I was doing the calculations, after 10-12 years I would have had enough to live off the interest alone. And then because I would still be making contributions every week and they could be quite high (given that my living costs were taken care of) the savings and the interest were still increasing by quite a lot each year. In contrast, I *maybe* could have managed to pay out the mortgage on the home in that time, but more likely it would take twice that time. At which point I would still be paying rates, insurance and other household costs. In contrast to living off the interest of an ever-growing and pretty sizable nest egg that would actually be able to support me so I wouldn't have to work. Maybe I'm missing something? As I'm pretty new to the whole world of finances. But seems to me that owning and not paying rent is not as good as having your own income stream salary that pays for rent and everything else and at the end of it all leaves you a lot of money in case circumstances change and you do decide to buy. Which you could then afford to do outright and still have plenty of savings to earn interest on. Hope that made sense nut.gif

post #60 of 85
Quote:
Originally Posted by Logan View Post

Out of curiosity I have been mucking around with compound calculators. orngtongue.gif

 

If you save as much as you can (after paying rent) and save up over many years you reach a point where the interest on the savings is actually enough to live off. As you get more and more interest each year you are slowly able to increase the amount of payments you are making a well and truly cover rent costs and more. So when I was doing the calculations, after 10-12 years I would have had enough to live off the interest alone. And then because I would still be making contributions every week and they could be quite high (given that my living costs were taken care of) the savings and the interest were still increasing by quite a lot each year. In contrast, I *maybe* could have managed to pay out the mortgage on the home in that time, but more likely it would take twice that time. At which point I would still be paying rates, insurance and other household costs. In contrast to living off the interest of an ever-growing and pretty sizable nest egg that would actually be able to support me so I wouldn't have to work. Maybe I'm missing something? As I'm pretty new to the whole world of finances. But seems to me that owning and not paying rent is not as good as having your own income stream salary that pays for rent and everything else and at the end of it all leaves you a lot of money in case circumstances change and you do decide to buy. Which you could then afford to do outright and still have plenty of savings to earn interest on. Hope that made sense nut.gif

 

Yes!  That's the beauty of compounding interest! smile.gif

 

But, a couple of things you may have missed:

-rents (with rare exception) increase over time at a faster rate than any increases in homeowner's insurance & taxes

-these days it's very hard to find an interest rate on savings that beats inflation, but perhaps your are assuming your fund is invested in the stock market at an average rate of return (I'm curious about what exact numbers you used)

-in our situation, we are spending less per month to buy than to rent an equivalent property. Plus we are saving and investing extra income.  So we're getting the best of both worlds!

 

Also relevant to this discussion: don't forget the power of prepaying your mortgage &/or starting out with a shorter than 30 yr mortgage.  And if you're prepaying (paying extra towards principal) the sooner, the more, the better.  (And those are some fun calculators to play around with!)
 

 

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