Quote:
Originally Posted by agrant
Well, you do kinda throw away money when you rent. When you buy a place, the equity slowly changes, and over time you build up a big nest egg. How many people who rent actually put away as much money? If you can afford a place, why would you choose not to buy???
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It really just take discipline. In a mortgage, that discipline is externally imposed... and you're charged for it.
You throw your money away when you buy as well.
The logic the renters are throwing away money only holds true when mortgage payments and rents are roughly in line with each other. When there is a large discrepancy between these two, it's different. Property tax, maintenance and renovations are all very non-free things. Not to mention the biggest money toss of all: Interest.
Condo: $550,000
A $500,000 30-year mortgage at 4.14% interest will cost you:
mortgage: $2417.37 / month.
property tax: ~$230 / month.
maintenance/upkeep/other: ~300 / month
(Condo fees)
Total's about $3000.
Assuming one has put down $50,000 from their savings.
After 5 years, you own almost ~$98,000 of your house (including down payment), so you've paid about $800 / month towards your "nest egg" and
"thrown away" $2200/month.
Say you rent a place for $1400 now.
If you put that $50,000 in a 5-year GIC (conservatively @ %3) and add the difference (~$19,400) at the end of each year (let's say you can get a return on that at 3% too for simplicity's sake)
You end up (without any REAL thought about investing) ~$160,000.
If you were to sell your place, my "guess" is that you'd need to get minimum $620,000 just to break even after real estate fees etc. That will depend on house prices increasing 2.5% YOY for the next 5 years.
Will it? I don't know? Will it go down? Will it stabilize? Will it collapse? I don't have the answers to those questions. I know money isn't everything when it comes to buying. Owning a place is more than just an investment. It's about a lifestyle. It's about having control over your own place and a sense of ownership. That isn't free.
Note, these are conservative numbers, but it does illustrate that RIGHT NOW renting isn't necessarily throwing away your money. Given the disparity between the cost of buying and renting right now, paying rent is much less than the interest paid on a purchase. Remember, agrant, when you purchased, there wasn't a HUGE discrepancy between buying and renting, as you mentioned. Those situations are typical when what separated renters from buyers was the ability to have enough discipline to save up for a down payment. Different story, then.