Primary Residence
A big decision at the time
When the cost of ownership is less than the cost of renting.
Cost of Ownership is equal to the monthly recurring expense. Expenses such as interest payments, property taxes, maintenance expenses, principal payments, insurance and so on.
Cost of Renting is equal to, you guessed it...rent for an equivalent apartment.
Buy / Not Rent
Own where you live. More control
Build equity in a modestly appreciating asset
Tax advantages. Interest is tax-deductible
Capital gains rolled over to next property
Be the landlord. Lease out parking or storage or the spare bedroom for passive income
Rent / Not Buy
Better amenities at some rent-only apartments
Large upfront investment (down payment)
Value is largely driven by location
Could be cheaper than ownership after accounting for the opportunity cost of down-payment.
Simple Math
Assumptions
Property Value: $500,000
Down Payment: $100,000 (20%)
Loan Amount: $400,000
Interest Rate: 5%; Term: 30-year
Property Taxes and Insurance: $250 /month
HOA fees / Maintenance: $500 /month
Results:
Mortgage Payments: $2,147 /month
Cost of Ownership: $2,897 /month
Complex Math (IRR)
Assumption:
Transaction costs: 7%
Home value appreciation: 1% p.a