[quote=livinincali][quote=AN]
Transaction cost only apply if you sell. You’re, right, there is maintenance cost. If you add that, you should also add appreciation as well.[/quote]
But you can’t realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.
The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It’s only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.
The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.[/quote]You can keep it simple for try to add more variables into the equation. They result is still the same. The house I gave as an example, P+I is ~$1600/month. Rent for that house is ~$2100/month. $1600/month gets you a 2/2 condo in Mira Mesa. So, if you buy this house, your mortgage would be equivalent to renting a 2/2 condo.
Actually, for this example house, MID would only be about 1/2 of property tax. Which is why I add it in there. Just so there’s a clearer picture of what the exact yearly cost would be vs rent. I would say appreciation far out pace maintenance. Even at a modest 3% appreciation, you’re looking at ~$13k/year. There’s no way you would spend that much on maintenance. I haven’t spent close to that over the last decade.
Also, assuming price doesn’t change, the equity you put into the house through principle would surpasses transaction cost at ~44 months. So, if you stay in the house 5+ years, you’ll put more principle into the house than the 6% transaction cost. Keep in mind you have option to pay less than 6% transaction cost.
So, it comes down to how long you intend to stay in the house. If you plan to stay only 3 years, obviously, you should be renting, not buying. Not only because of the finances, but it would save you a lot of headache with buying and selling since your time frame is too short.
