Our favorite personal financial blogger breaks down the rent-vs-own basics:
Here’s the profile of a 3/2 home that was purchased for $1.3 million in 2011 and sold for $2.2 million in early 2019. He put down 20% and took out a $1,040,000 mortgage at 3.5%. Below are some approximate numbers.
Positives
- Monthly rent avoided for eight years: $5,500
- Total rent avoided after eight years: $440,000
- Net proceeds after fees, principal pay down, all taxes from selling house: $1,100,000
Negatives
- Opportunity cost of not investing $260,000 (down payment) in the stock market from 2011 – 2019 = $286,000 (110% appreciation to $568,000)
- Net mortgage interest cost after eight years = $203,000
- Net property taxes after eight years = $90,000
- Maintenance cost after eight years = $20,000
- Principal pay down over eight years = $100,000
Net cost of living = ($440,000 + $1,100,000) – ($286,000 – $203,000 – $90,000 – $20,000 – $100,000) = $841,000.
If this simple math is right, not only was my friend’s family housing free for eight years but he was also paid $841,000 to live in San Francisco . That’s pretty good value for just living.
