Financial Samurai: The Return On Rent Is Always Negative 100%: Here’s How To Live For Free

#1

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.

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#2

Can he pick a better time period to buy and sell? I wish I am living in US in 2011. :slightly_smiling_face:

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#3

Exactly. 2011 to now, so long you have bought houses, you make :grinning:

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#4

We need to look ahead guys. I think we are entering an interesting time yet again. House prices have gone down a little bit in the last few quarters. Big question is will the IPO boom reverse the course and boost up housing prices? Or will prices continue its downfall?

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#5

I answered those questions. Apparently you don’t agree :rage:

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#6

What did you say again?

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#7

:face_with_symbols_over_mouth:

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#8

The key to the debate is “overpaying”. As long as the job market is strong, people will continue “overpaying”…just like in 2011.

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#9

Isn’t this a positive?

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#10

True. It should not have been included. The net proceed of selling the house already included the principal pay down.

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