This might be duh for some people, but if you’re like me and considering a mortgage; at today’s rates in the US at around 5-6%, over 30yr mortgage you will pay about same in interest as you will for your house price.
Your $500k house will cost you around $1M total over thirty years.
I was surprised.
I don’t understand how the investments from renting are so high at the end. Can you show your maths?
After a few years rent will be more than the mortgage payments, so there is nothing extra to invest. The person with the mortgage can now offset to save interest or invest the difference from renting.
They must live in a magic house with taxes that never go up and no major maintenance.
and a magic apartment with infinite rent control
Here’s the spreadsheet I used (web version w/o formulas; [https://docs.google.com/spreadsheets/d/e/2PACX-1vRNuWRCNyNxRnYu-gwHe_8OQXI-Omr9QWW3IB8GyPGP_5W69yh73u1wXw5dZgh5Mc4y5KYfzAnsPFfW/pub?output=ods) (LibreOffice native format w/ formulas). This exercise was motivated by this video by Ben Felix.
It looks like I was calculating rent increase incorrectly (only increased one year), so I fixed that and the total was below the house value. However, I also wasn’t accounting for maintenance, so I added that in at 1% of house value per year (this article claims 1-4% per year, and the numbers are about what they were in my original post.
Here my calculation for investments while renting (I’m using monthly compounding):
FV(10%/12,12,(mortgage - rent)+(house maintenance/12),investment value)Investment value starts at the down payment, and otherwise we’re investing the difference between the mortgage and rent as well as how much the home owner would be paying for maintenance. There are still some things not being accounted for, like renter’s insurance, home insurance, taxes, etc, but I think those would favor renting as well, so I left it to a configurable percentage of the house value. You can play w/ the spreadsheet by using a fixed value (i.e. if you’re into DIY), adjusting the percent, changing borrowing rates, etc.
I compared my calculations w/ this investment calculator to make sure I did things correctly.