Quote:
Originally Posted by polak
You'll be behind renting if you count the equity you would gain from owning over 2-3 years as your savings from renting are not enough to make up the gap through even the most successful investing.
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You can't just make a broad generalization without running the numbers. You may gain equity, but you also lose some of that equity on closing costs & realtor fees when you sell. You also lose out on opportunity cost of the downpayment had it been invested.
There are examples where even after 3 years, if the value of the property stayed mostly flat, you could still end up with nothing at the end of the sale, after the CHMC fees, closing costs, & realtor selling fees eat up all the equity you gained.
Quote:
Originally Posted by Temporary_User
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I'm glad you posted this Temp.. as it can be a pain to run the numbers myself. Here's a super easy example to disprove you Polak.
The condo I live in is worth about $280,000 (recent sale of identical unit). With 10% downpayment, 3% interest rate, $380/month in condo fees, rent at $1400 (what I pay). Also made some other assumptions.. 5% rate of return on investment, 36% marginal tax rate, 3% inflation rate, closing cost of 3%, selling cost of 5%, 25 yr mortgage, and the rest I kept default.
Assuming a 2% per year increase in home value, and 3% increase in rent (default numbers), you would only break even at year 4 so if you sold before year 4, you'd be behind a renter in the same situation. If the value of the condo stays flat for a couple years, you're waaay behind by buying.
If you're going to stay in the property long term, it's almost always a good idea to buy but buying & selling fees eat up too much equity for it to always be a good idea short term.