I know this was addressed, but it does not seem that it is clear yet.
The original assumptions took the principal portion out of the calculations because that goes to the equity. This is fine, but you cannot then look at the equity buildup as one of the benefits.
asianautica had it right by comparing the interest only scenario. If you don’t want to use the I/O comparison, put everything back in and don’t skip any steps.
Purchase Price $600,000
Transaction Cost: $18,000 (3%)
Down Payment (DP): $120,000 (20%)
Interest Rate: 6.75% (30 yr fixed) assuming no points.
Property Tax Rate: 1.25%
Return on Down Payment: 7%
Mortgage (PI): $3113
Property Tax: $625
HOA: $200
Maintenance: $100
——————–
Monthly Outlay: $4038
Tax Savings: $1130 (Interest in the first month is $2700. It will decrease every month, but we’ll let this stay in favor of owning)
——————–
Cost of Ownership (before Opp Cost of DP): $2908
Ten Year Equity accumulation: $190,555
Renting:
Rent: $2350
DP invested: $138k at 7% (4.62% after tax) over 10 yrs becomes $216,783.
Investing difference between owning and renting: $76,083 at $500 per month at 7% (4.62% after tax).
At the end of ten years, assuming flat prices and rents, the equity accumulated would be $190,555 for owning, and $292,866.
Of course, if you assume that the townhouse will appreciate and rents will go up, all of this changes. Normally those would be safe assumptions, but right now they are clearly up for debate.
This, of course, also assumes that your original assumptions are reliable. As you can tell by my name, I am not a San Diegan. My brother lives in San Marcos, and because of the “canary in the coal mine” analogy, I watch San Diego with great interest. But I do not know local rental and housing rates as well as most on here.
