This chart was put together by our preferred lender, Prosperity Mortgage, and uses very conservative numbers on the buying side and very liberal numbers on the renting side. If you show me an investment vehicle that will earn me a 10% return, sign me up! :-) I thought the results were interesting:
This Chart Compares Buying a $400,000 Condo Vs. Renting It Over The First Five Years
BUY IT RENT IT
Cash Invested 10% down payment = $40,000 May or may not have a
3% closing costs = $12,00 Security deposit
Total = $52,000 Total = $0
Monthly Payment PITI plus $300 condo fee = $2,813 Total Rent = $2,000
less interest tax deduction
Total Housing Expense = $2,300
Costs Over 5 Years Calculated by taking interest paid, less tax $2,000 per month with
deduction, plus property tax, plus condo fee 5% increase annual
Cost to Own = $114,000 Cost to rent = $132,600
Gain Over 5 Years Gain in Property Value = $36,497 $52,000 invested @ 10%
Year 1 = -2% Earns = $22,546
Year 2 = -1% Also, $300 invested each month
Year 3 = 3% (the diff in rent vs. mortgage
Year 4 = 4% payment) @ 10%
Year 5 = 5%, Avg 1.8% Earns $5,231
Avg appreciation over past 25 years Total gain = $38,787
in DC = 6.9%
Total Gain = $36,497
Paying Yourself Principal Reduction = $23,000 Saving $300/month = $18,000
Add It All Up Cost to own $114,000 Cost to rent $132,600
Less gain in value $36,497 Less investment gain $38,787
Less principal reduction $23,000 Net cost to rent: $75,813
Net cost to own: $54,503 Or $1,264 a month
Or $908.00 a month
;)
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interesting break down. Its pretty obvious that buying is usually the better choice. i haven't come across a lot of buyers locally that have 40,000 dollars to put down on a house. Which not only prevents them from buying but also prevents that them from realizing a 10% return as renters.