[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example
25% on a $400K unit is $100K
assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?
[/quote]
Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.
Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.
