Right, property tax is already included in rent, as is upkeep/maintenance. Therefore, those needed to be added to the ownership costs to make it an apples to apples comparison.
Interest is 100% loss also, so what's your point? The cost of both are already factored into the calculations.
$400/yr insurance is not going to cover anywhere near the full cost of maintenance and upkeep.
The problem with the comparison of what you can invest if you don't buy a house is that you have to have the cash for plowing into other investments and still pay for a place to live.
The only money you really have to play with is the down payment and closing costs to make up for the month to month loss of equity and difference between renting and mortgage+incidentals (renting is usually still costlier since owners like to make a profit) in the rent-vs-buy comparison.
As for maintenance costs:
I've had my air conditioner, garage door, stove door, heater, and dish washer all fixed over the last couple of years.
Granted, you have to pay $80 for the repair visit but it is better than paying $1K to get my garage door repaired.
The only things it doesn't cover are normal wear and tear. So, yeah, it doesn't cover the full cost but it goes a long, long way.
If the carrying costs of ownership are higher than rent (which they are in a lot of markets), it's fair to include that difference as amounts that can be invested. I personally do not think of forced savings as a benefit; if someone cannot exercise enough self-control to put aside part of their income to invest, they should probably think twice whether they're ready for one of if not the most significant, long-term financial decisions of their lives.
A down payment is usually a significant chunk of money, and should definitely be factored in.
Also keep in mind that when you get a mortgage, you are effectively debt leveraging, which although magnifies your gains will also magnify your losses. So the idea that real estate is inherently safer is not necessarily true. Whereas most people think of buying stocks on margin as being insanely risky, they don't think twice about doing the equivalent with housing. And stocks have historically consistently outperformed housing.
>I personally do not think of forced savings as a benefit;
That is true only if the alternative is doing something financially productive. In this case the alternative is spending the money.
You are seeing the house as an investment. Your analysis is spot on when talking about a house that is not the primary residence. But it fails when applied to the primary residence because the money is being spent on housing either way...
Why is the alternative necessarily spending the money? If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account?
This analysis is specifically taking into account that money is spent on housing either way. Otherwise, we'd be comparing the ROI of purchasing a house and renting it out as a business in comparison to other forms of investment.
>If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account?
Right. What I'm talking about is the differential between the carrying costs of ownership, and the cost of renting, which is what's often referred to as 'forced savings'. Nowhere am I saying you don't have to pay rent. If renting costs less than the carrying costs of owning (which it often is), you can take those cost savings to the bank to be invested. This should also be factored into the cost comparisons.
Owners of rental properties wish to make a profit. Therefore renting is more expensive, month to month, than owning a property even after factoring in all costs involved.
The only time this isn't true is if the owner has a very old mortgage or outright owns the home.
> Interest is 100% loss also, so what's your point? The cost of both are already factored into the calculations.
Everybody knows that. That's why you can take positive action to minimize interest outlay over the lifetime of the loan and reduce that loss. From refinancing, to shorter loan terms, to early principal pay down. You can't do anything analogous as a renter. Interest is only a small part of the total mortgage payments, while rent is a 100% loss always.
> $400/yr insurance is not going to cover anywhere near the full cost of maintenance and upkeep.
Maintenance and upkeep on my house costs way under $400/year.
What are you actually including in that $400/year though? Are you taking full maintenance and upkeep costs into account?
A new roof and new coat of paint will already blow your budget. Your pipes will also need replacing after 30 years, as would your hot water heater, among a plethora of other expenses that come up.
So yeah, if I had to replace all of my appliances, get a new roof, repaint all of the interior and include having bi-weekly yard maintenance for 6 months a year then over 30 years I'm probably looking at over $400. But nobody does that unless you've bought a lemon.
Roofs last about 25 years except in very unusual circumstances that insurance covers, our appliances are 10 years old but work fine. I could probably do with a new washing machine, but it's okay. I won't pay more than $500 for one anyway. I'll cross fingers and hope that my hot water heater and heating a/c make it 20 more years. If not, it's not like the cost to fix comes anywhere near the 100% a month in rent I'd be throwing away so my landlord could replace everything with refurbished second rate equipment.
Nobody replaces pipes after 30 years except for leaks or lead.
But let's differentiate normal maintenance from repairs (just like with cars, oil changes from engine replacements). If I had to guess, I'd say my monthly maintenance on my house was under $50/mo? Amortize the repairs I've put in over the last 10 years? I've probably put in $1000 in work or less than $3/mo over 30 years. So I have a lot of room.
The smartest thing to do is buy a home under the condition that the previous owners do all that work right before you move in and absorb it out of their equity.
Look at it another way. You're already paying for this stuff built into your rent. If luck happens and nothing breaks, that's money the landlord pockets and you don't have anymore. If you own it, it's just extra money you can use to pay down your principle, reduce your interest losses and pay off your mortgage faster.
Interest is 100% loss also, so what's your point? The cost of both are already factored into the calculations.
$400/yr insurance is not going to cover anywhere near the full cost of maintenance and upkeep.