It is all lies and based on assumptions, like it says.
1. a $210k home…show me one in socal
2. they assume a down payment. most people are using 100% financing these days.
3. they assume a 30 year fixed. most people use interest only or arms that would pay off no or very little principle balance.
4. they lie about the mortgage price. A $200k loan with 6.5% fixed rate for 30 years gives you a payment of $1264 for principal and interest ONLY, it does not include taxes, insurance, mortgage insurance(less than 20% down) and or HOA expenses. Realistically this payment would be about $1500 per month or more.
5. The biggest flaw. They assume that homes will appreciate 4.5% per year. Did they forget the past? This is like saying the stock market only goes up. Housing is equally as volotile. In the next 10 years, homes will most likely go down and then back up, and they will be lucky to break even.
6. A $210k home that appreciates 4.5% per year would be worth about $330k in 10 years. At $1500 per month you would have spent $180k in 10 years on payments plus your $10k down and closing costs coming close to $200k total invested. WAY higher than the $137k that the renter has paid. If you take a look at the amortization schedule, you will see that with their loan suggestion, you would still owe $170k at year 10. You take $330k home value – $170k loan balance – 6% commision(about $20k) and you get $140k net worth like they say.
7. If you rented and invested the $10k down payment in a modest CD account(we’ll say 4% even though 5.25% is common now)and contributed the extra $400 per month difference between rent and mortgage payment to the account, you would have a net worth of $74k in 10 years.
8. As you can see in this scenerio, they’re math is all fugged up. And I was conservative on all my numbers. In the real world, one may earn a higher rate of CD’s or investments. I also didn’t include closing costs or repairs to the home which the renter wouldn’t have to pay.
Bottom line is if the house value stayed the same, and neither went up or down in value in the 10 years, the renter would be way ahead. $210-$170-$12.6k= $27k The renter would have $47k more in his pocket than the owner. Of coarse the smart renter will rent untill the market bottoms out, then purchase a home, enjoy the appreciation, and make a much larger profit than either case here.
Why own, when you can rent!
P.S. “why own, when you can rent” is available in English ONLY.
