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