I am going to trust you on all the rent, buy and HOA numbers you have provided though HOA seems little conservative for new condos. Anyway, Please note that only interest in your mortgage is deductable and not your pinciple payment. Also, can anyone confirm if HOA dues paid are tax deductible? I don’t think so since they pay for water&gas utilities, exterior maintenance, etc so I haven’t included those in calculation but being a small number they should vary result by just about $70. Note that I am giving you this calculation for nealy 7-8 years as it is a very optimistic belief that you will stay in this smallish condo for 30 years considering marriage, children, job loss, emergency and everything. Here is the low down for you and please correct me where I am wrong.
BUYING:
Average Equity built per month = ~ 460.
HOA = 200.
Tax deductable Mortgage Interest + Property Tax = 3938 – 460 – 200 = 3278.
Per month aftertax return on downpayment of 120K at 4.5% = ~$480
Maintenance = 100.
Appreciation = 0.
Tax benefit if you itemize = 3278*0.34 = 1115.
Per month cost to buy = 3938 + 100 + 480 – 1115 = $3400.
RENTING:
Per month cost to rent = $2300.
AMOUNT YOU OVERPAY FOR BUYING = ~$1100 per month.
So MrWrong let me know what you think I have missed. You seemed to imply in earlier post that the principal you are building is some kind of investment that will grow but note that this growth is actually appreciation on your house which is pretty much 0% or even negative for next 5 years. Why would you like to start putting money (principal equity built for 5 years + 20% down) for next 5 years on the worst piece of investment possible in current scenario when you know that you can get the same condo for much less in next 5 years? Why not rent and use that down payment + monthly principle payment to invest in equities, precious metals, commodities, international markets, etc or diversify as you may like. Also note that these investments are much more liquid as compared to your condo, in case life throws something bad at you. Oh and I haven’t including all the costs for selling your condo (5% of condo price).
To me, since the ammount you are paying to buy is nearly 45% more than current renting price, so the price of that condo needs to come down to around 450K for me to consider it attractive. MrWrong, I hope you make the right decision.
