I’m always pumping out spreadsheets analyzing the best way to use your money. We’ve been living in our house for almost 2 years and Susan is ready to trade up. It’s common knowledge that you should rent if you’re going to live somewhere for less than 5 years, own if you’ll be there 5 years or longer. Is common knowledge correct?<\/p>\n
Let’s take a look at how the numbers actually break down:<\/p>\n
Mortgage = 2,300 \/ month
\nImprovements \/ maintenance = 200 \/ month
\nCost to rent equivalent home = 1,900<\/p>\n
$80k down payment = $466 \/ mo opportunity cost (assuming a 7% return if invested that cash)<\/p>\n
Mortgage interest tax deduction = $650 \/ month<\/p>\n
2,300 + 200 + 466 – 650 = 2,300<\/p>\n
Equity = $15,000 over 21 months = 1.6% equity growth or $714 \/ month<\/p>\n
$400 difference between rent and own – $714 equity growth = $314 \/ mo we come out ahead.<\/p>\n
Fees to buy \/ sell = $30k (3% of purchase price and 3% if you sell yourself, which we plan to do)<\/p>\n
$30k \/ $314 = 95 months or 7.9 years.<\/p>\n
We must hold the house for 7.9 years to reach break even, unless equity growth increases. Wow, not the best situation. Unfortunately equity growth is typically around 3% (house prices should mirror inflation). If equity were at 3% then you can figure 4 years would roughly be the break even point. I’d say common knowledge wins this argument. <\/p>\n
We are 500 yards away from the metro station that is being built in Reston, so I believe we will catch back up with the standard equity growth after it’s completed. Sadly, for Susan that means waiting another 2-3 years, and alas, living here for the standard 5 years.<\/p>\n","protected":false},"excerpt":{"rendered":"
I’m always pumping out spreadsheets analyzing the best way to use your money. We’ve been living in our house for almost 2 years and Susan is ready to trade up. It’s common knowledge that you should rent if you’re going to live somewhere for less than 5 years, own if you’ll be there 5 years […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[45],"tags":[],"class_list":["post-620","post","type-post","status-publish","format-standard","hentry","category-economics"],"_links":{"self":[{"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/posts\/620","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/comments?post=620"}],"version-history":[{"count":2,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/posts\/620\/revisions"}],"predecessor-version":[{"id":622,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/posts\/620\/revisions\/622"}],"wp:attachment":[{"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/media?parent=620"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/categories?post=620"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/pandawagon.com\/index.php\/wp-json\/wp\/v2\/tags?post=620"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}