If you are happy renting a place for $2000 a month, does it make financial sense buying that $1,000,000 home down the street? Let's compare the two scenarios.
Scenario 1: renting for 30 years
Assuming:- Rent is $2000 a month now, growing at 5% a year.
- The stock market is growing at 10% year.
Renting for 30 years costs roughly: sum(24000 * 1.05**i * 1.1**(30-i) for i in range(30)) => $7M.
Scenario 2: buying a place and living in it for 30 years
Assuming:
- Buying a place for $1M leaves annual payment of 5,368.22 * 12 = 64,418.64.
- Mortgage interest of 5%.
- House is appreciating at 5%.
- Taxes are 1% and going up by 2% a year.
Over time:
- Cost of the house comes out to: sum(64418.64 * 1.1**i for i in range(30)) => $10.6M.
- The house is now worth 1000000*1.05**30 => $4.3M.
- Taxes: sum(10000 * 1.02**i * 1.1**(30-i) for i in range(30)) => $2.1M
