Is that the Airoso development, by any chance? I know that area fairly well. If so, I think you forgot to add the Mello Roos taxes (total tax rate is something like 1.8%, I think, rather than 1.25%). Also, the rent you’re using may be a bit high. $2,200 is possible, but $2,500 quite unlikely, I think.
You may also want to include realtor fees. When you sell, 3 to 6 percent of the selling price will go to agents (even if you do FSBO, you’ll probably have to offer a buyer’s agent commission, otherwise nobody will show up). There may also be carrying costs if your house stays empty on the market for several months until it is sold. If you decide to use a figure of 5% for “selling expenses”, and you plan to stay in the house for 10 years, that works out to about 0.5%/year.
As for the risk premium, this is very hard to estimate, as it depends on sentiment in the market. But now that I think about it, you may have taken it into account already, without realizing it. This is because you didn’t assume any price appreciation at all. A correct calculation would have assumed a historical price appreciation of, say, 4%/year, offset by the risk premium, which historically also runs at about 3-4%. Considering further price appreciation in these bubblicious times smacks of craziness, but a cold logical calculation would actually need to include it.
Your method (assume you buy the house at 600K and sell it at the same price later on) is probably as fair as it can be. But, if you assume that the selling price down the road is 500K or 700K, your results, as they say, will vary 🙂
And a personal perspective: I did a “buy vs rent” calculation for myself, and, like you, I found that the numbers were in the same ballpark (a bit cheaper to rent). But I judged, based on historical trends, that the risk of a price decline was substantially higher than the risk of a price increase, so I decided to wait for a few years.
