Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

So your first sentence is mostly true.

The 2nd home was definitely an upgrade, but the price inflation from 2020 to 2025 was wild and what drove us purchasing "more" than we needed. The new home wasn't much larger--maybe 200 sq ft--but it was better built and in a better zip code...but with an interest rate that was double what our first home was.

So, in that sense, it was too much home. I define too much home as more than you can comfortably afford. We could afford the mortgage...as long as a job wasn't lost, wild circumstance change, etc. So we liquidated assets to get that mortgage number down to where, even with a job loss, we're good.

Wasn't ideal, but it is what it is. We've learned, and will be a bit more prudent moving forward.

re: That rare piece of advice: I mean, buying as much as you can afford ultimately makes sense. If it doesn't put you in an untenable situation, or lead to stress about what happens if there is a catastrophe, then do it...though I'd argue buy a bit less for your first. Most people carry more crap with them and think they need more than they actual do. The amount of crap we've brought to Goodwill is insane, and we still have a ton more crap.

I will say a 3rd car garage was a non-negotiable after our first home was a 2-car.

Ultimately: Live within your means.

FHUAggie said:

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Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

. So we liquidated assets to get that mortgage number down to where, even with a job loss, we're good.

---

why would you do this on speculation?
Why not liquidate the assets if/when a job loss actually happened and you know you need it?

62strat said:

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FHUAggie said:

---

Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

. So we liquidated assets to get that mortgage number down to where, even with a job loss, we're good.

---

why would you do this on speculation?
Why not liquidate the assets if/when a job loss actually happened and you know you need it?

---

Ben the Good Ag nailed in above me--my own risk tolerance just wasn't high enough to continue taking that route...as that was the route we were originally on.

It's certainly a fair question--but those assets were a few individual stocks we had ridden to a decent growth margin over 4-5 years...and we took the Dave Ramsey advice, got out of being super exposed with individual stocks, de-risked, and pivoted our investment strategy to mutual funds/ETFs.

100%, 10/10 worth it for my family, our future, and my much-valued peace of mind.

Eh, maybe it is a lame cop-out, but it didn't feel that way to me. He was not under any obligation to offer stock and the other benefits weren't bad. That, and I remember it being more about selling stock to employees.

Either way, it was thought-provoking.

Diggity said:

---

I bleed maroon said:

---

62strat said:

---

Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

also, market conditions.

But also;
We wouldn't be in our forever home if it weren't for the money we were able to get from our first home which became our deposit for second home.
Had we just rented that whole time (which was equivalent to our mortgage when we bought) we would have had no down payment 7 years later. Instead, when we sold we got a lot of those payments back plus the appreciation, giving us $40k to work with.

I think it makes more sense to simply get in a home as early as possible, so you're not wasting rent, have a chance at appreciation, and hopefully maybe in a decade, you can get that upgrade. If you can do this by your early 30s, then you're in a good spot. You can follow the payment schedule and still be paid off by early 60s.

---

This is not necessarily good advice. It can work out in times of rapid appreciation due to market conditions, but not all aspects are considered above. I know 62strat extrapolates his (or his parents) experience to his recommendations which is understandable, but consider this:

1. Rental rates are almost always lower than mortgage payments, which can be 15-20% cash flow savings. If you have discipline and invest that savings in low/moderate-risk investments, you may come out a good bit ahead. Yes - it's not going to home equity, but in a side vehicle with much more flexibility (including for your next downpayment).

2. The operating costs of home ownership are MUCH higher than rentals (where you just call your landlord if anything breaks). One A/C system replacement and a water heater replacement can cut your "$40k equity" in half immediately, not to mention the small repairs that occur pretty frequently.

3. Transaction costs (both buying and selling) can easily amount to 6- 8% or more each time for commissions, closing costs, carrying costs and dual living expenses, fix-ups, decorating, etc. (cue 62strat saying his dad sold his own house for no commission, etc.). There goes another big chunk of equity (maybe the rest of it?).

4. Market conditions: "Over the past 50 years, US housing appreciation has averaged 4.3% to 4.7% annually", per the web. In Austin today, if you bought in 2018, you might have a 50% gain, but if you bought in 2022, you might have a 25% loss. Are you ready to take that risk? Maybe so, but if you rent, you just walk away if you don't want to renew your lease.

Just saying - it's not a slam dunk. Proceed with caution.

---

if you're talking about 4 walls and bathroom/kitchen...sure. Otherwise, the options for a family in TX (most of the folks posting on here) aren't necessarily going to be any cheaper in desirable areas (with good schools). The studies you see about renting being cheaper than owning just look at median rent costs and median home costs...which is a flawed comparison.

Any time this subject comes up, I'm reminded to go search HAR for homes near town that fit the bill as described. It's always very slim pickings.

---

I am actually talking apples-to-apples (houses on same street or next door, even). It depends on the market segment and mortgage interest rates, of course, but after decades in Austin and Houston, my experience is equivalent houses rent for 10%+ less than buying in Houston, and 20-25% less in Austin. I'm with you - all real estate is local, and some generic median rent study for a city or even a zip code isn't usually accurate. I see with high-end homes the disparity is even more (in favor of renting).

I bleed maroon said:

---

Diggity said:

---

I bleed maroon said:

---

62strat said:

---

Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

also, market conditions.

But also;
We wouldn't be in our forever home if it weren't for the money we were able to get from our first home which became our deposit for second home.
Had we just rented that whole time (which was equivalent to our mortgage when we bought) we would have had no down payment 7 years later. Instead, when we sold we got a lot of those payments back plus the appreciation, giving us $40k to work with.

I think it makes more sense to simply get in a home as early as possible, so you're not wasting rent, have a chance at appreciation, and hopefully maybe in a decade, you can get that upgrade. If you can do this by your early 30s, then you're in a good spot. You can follow the payment schedule and still be paid off by early 60s.

---

This is not necessarily good advice. It can work out in times of rapid appreciation due to market conditions, but not all aspects are considered above. I know 62strat extrapolates his (or his parents) experience to his recommendations which is understandable, but consider this:

1. Rental rates are almost always lower than mortgage payments, which can be 15-20% cash flow savings. If you have discipline and invest that savings in low/moderate-risk investments, you may come out a good bit ahead. Yes - it's not going to home equity, but in a side vehicle with much more flexibility (including for your next downpayment).

2. The operating costs of home ownership are MUCH higher than rentals (where you just call your landlord if anything breaks). One A/C system replacement and a water heater replacement can cut your "$40k equity" in half immediately, not to mention the small repairs that occur pretty frequently.

3. Transaction costs (both buying and selling) can easily amount to 6- 8% or more each time for commissions, closing costs, carrying costs and dual living expenses, fix-ups, decorating, etc. (cue 62strat saying his dad sold his own house for no commission, etc.). There goes another big chunk of equity (maybe the rest of it?).

4. Market conditions: "Over the past 50 years, US housing appreciation has averaged 4.3% to 4.7% annually", per the web. In Austin today, if you bought in 2018, you might have a 50% gain, but if you bought in 2022, you might have a 25% loss. Are you ready to take that risk? Maybe so, but if you rent, you just walk away if you don't want to renew your lease.

Just saying - it's not a slam dunk. Proceed with caution.

---

if you're talking about 4 walls and bathroom/kitchen...sure. Otherwise, the options for a family in TX (most of the folks posting on here) aren't necessarily going to be any cheaper in desirable areas (with good schools). The studies you see about renting being cheaper than owning just look at median rent costs and median home costs...which is a flawed comparison.

Any time this subject comes up, I'm reminded to go search HAR for homes near town that fit the bill as described. It's always very slim pickings.

---

I am actually talking apples-to-apples (houses on same street or next door, even). It depends on the market segment and mortgage interest rates, of course, but after decades in Austin and Houston, my experience is equivalent houses rent for 10%+ less than buying in Houston, and 20-25% less in Austin. I'm with you - all real estate is local, and some generic median rent study for a city or even a zip code isn't usually accurate. I see with high-end homes the disparity is even more (in favor of renting).

---

The issue with this argument is that it's looking at single moment in time to compare the two prices.
In reality, when you buy, you lock in your 'rental' rate, whereas when you rent, you are paying more every new year.

So what dollars are you saving after a few increases? A 10% difference today will be eaten up in a few years of rent increases.
In my case, 13 years later, the rent near me is way more than what I'm paying. I just did a quick search, only 1 home that is 5/4 within a few miles from me, and it's more than 2X than my current PITI @ $4500.

QBCade said:

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BenTheGoodAg said:

---

62strat said:

---

Why not liquidate the assets if/when a job loss actually happened and you know you need it?

---

I previously worked for a private-held company, and the owner was often asked about issuing stock for employees. At one of the all-hands meetings, he gave an answer that has stuck with me. He didn't want to have his workforce invested in his company because if they company ever went bust, not only would people lose their livelihoods, they also might lose their retirement savings in one fell swoop.

No two situations are the same, but I think about your question through the lens of my own life. Single income family, in a medium-sized city, and I work for the largest employer in the region. The risk is low, but if there ever was a lay-off for my employer, it would be hard to sell a home for a while in this community, so you're potentially double screwed.

We talk a lot about diversification of assets, but I think diversification of risk is also worth considering. To a family with two incomes in a large community like Houston, this could be a completely irrelevant risk. For our personal situation, it makes a lot more sense.

---

I completely disagree with his take and IMO, he just wants to keep ownership. It isn't about being generous, but the opposite. Also, as others have mentioned, it's not binary. Meaning, he could give some ownership, but retirement accounts don't have to be company stock. Actually, I believe this isn't allowed anymore post Enron. Giving employees ownership IMO helps foster more pride in the company and more desire to perform and you have more vested.

---

Agree - there are many reasons to offer equity with several key arguments against (and the excuse given isn't really a valid one). First, it's his business, and they can devise any comp scheme that lets them attract and retain the types of employees they want. He may not wish to dilute his ownership, lose control, deal with significant and bureaucratic regulations regarding equity awards, or other valid reasons. BUT...

There are many reasons why it may be worth his while, such as:
- May be a more compelling way to both attract and especially retain key employees. It "puts some hooks into them".
- Instills a longer-term ownership mentality in employees, along with goodwill associated with sharing profit.
- Cost-effective way to make benefits and comp richer without materially impacting current cash flow and capital strength.
- For the "ruin your retirement" argument, you can institute a stock purchase program, and encourage people to cash out each tranche of awards, and not hold the stock long-term (many people already do this).

As a former M&A guy, I would love to buy this company, slash expenses and boost profits, and offer an equity award program to keep and motivate the people of significant value. I think your guy might be a bit short-sighted in his thinking.

agreed about it being market specific.

I would guess it's a lot more attainable in the suburban areas because of inventory.

In my case, I searched for 3/2+ single family homes - zoned to a decent school inside/near the loop (or Spring Branch) for under $4K. I went a bit smaller than my current home to try to capture more.

I did a brief search for something that wasn't in completely original shape (or hideously updated) and I found 6 listings. I tried to be open minded...I promise!

I would prefer none of them to where I live now for considerably less. Granted, my cost basis is lower than anything for sale right now, but that's some slim pickings.

You know that 2X over 13 years supports my argument, right?

Hey - I've owned homes for over 40 years, so I'm not arguing the choice. However, it's as much a lifestyle choice as a financial decision, and probably moreso. It's not the right decision for people who live somewhere only a few years, or those who have viable rental alternatives.

To those who note the lack of rental supply, I concur with your objection to a degree. This is highly influenced by government subsidizing home ownership. If it were a level playing field, it would make my argument much stronger.

And y'all attack us over excluding homes in net worth calculations. I live where I want to or need to live due to life circumstances. Primary home is not an investment vehicle. Second homes and rental property yes.

(yes I'm bringing this up again)

I bleed maroon said:

---

You know that 2X over 13 years supports my argument, right?

Hey - I've owned homes for over 40 years, so I'm not arguing the choice. However, it's as much a lifestyle choice as a financial decision, and probably moreso. It's not the right decision for people who live somewhere only a few years, or those who have viable rental alternatives.

To those who note the lack of rental supply, I concur with your objection to a degree. This is highly influenced by government subsidizing home ownership. If it were a level playing field, it would make my argument much stronger.

---

wait.. I thought you were arguing that renting is ~10% cheaper than buying, so you can rent and save over a decade for down payment vs buying and getting appreciation.

Diggity said:

---

I bleed maroon said:

---

62strat said:

---

Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

also, market conditions.

But also;
We wouldn't be in our forever home if it weren't for the money we were able to get from our first home which became our deposit for second home.
Had we just rented that whole time (which was equivalent to our mortgage when we bought) we would have had no down payment 7 years later. Instead, when we sold we got a lot of those payments back plus the appreciation, giving us $40k to work with.

I think it makes more sense to simply get in a home as early as possible, so you're not wasting rent, have a chance at appreciation, and hopefully maybe in a decade, you can get that upgrade. If you can do this by your early 30s, then you're in a good spot. You can follow the payment schedule and still be paid off by early 60s.

---

This is not necessarily good advice. It can work out in times of rapid appreciation due to market conditions, but not all aspects are considered above. I know 62strat extrapolates his (or his parents) experience to his recommendations which is understandable, but consider this:

1. Rental rates are almost always lower than mortgage payments, which can be 15-20% cash flow savings. If you have discipline and invest that savings in low/moderate-risk investments, you may come out a good bit ahead. Yes - it's not going to home equity, but in a side vehicle with much more flexibility (including for your next downpayment).

2. The operating costs of home ownership are MUCH higher than rentals (where you just call your landlord if anything breaks). One A/C system replacement and a water heater replacement can cut your "$40k equity" in half immediately, not to mention the small repairs that occur pretty frequently.

3. Transaction costs (both buying and selling) can easily amount to 6- 8% or more each time for commissions, closing costs, carrying costs and dual living expenses, fix-ups, decorating, etc. (cue 62strat saying his dad sold his own house for no commission, etc.). There goes another big chunk of equity (maybe the rest of it?).

4. Market conditions: "Over the past 50 years, US housing appreciation has averaged 4.3% to 4.7% annually", per the web. In Austin today, if you bought in 2018, you might have a 50% gain, but if you bought in 2022, you might have a 25% loss. Are you ready to take that risk? Maybe so, but if you rent, you just walk away if you don't want to renew your lease.

Just saying - it's not a slam dunk. Proceed with caution.

---

if you're talking about 4 walls and bathroom/kitchen...sure. Otherwise, the options for a family in TX (most of the folks posting on here) aren't necessarily going to be any cheaper in desirable areas (with good schools). The studies you see about renting being cheaper than owning just look at median rent costs and median home costs...which is a flawed comparison.

Any time this subject comes up, I'm reminded to go search HAR for homes near town that fit the bill as described. It's always very slim pickings.

---

Still have to factor TCO which is going to be higher for a single family home than it will be to rent almost 100% of the time if you are comparing like properties.

also, as I am looking at places in Florida you have to add in Hurricane insurance which is extremely expensive.

much less pay for the damage from actual hurricanes. and regular maintenance in a warm weather and muggy climate near the beach.

the only thing I am not invested in is a private real estate property- but do have REITS.

it just seems to make more sense financially and not having to worry to rent rather than to buy- especially at age 55.

Would someone please start a thread about whether home equity should be included in net worth for purposes of claiming to be a millionaire or not? We can get this thread back on track.

I can attest to this living on the coast. We have three different home insurance policies that add up to be just under what we pay for property tax.

Not cheap.

topher06 said:

---

Would someone please start a thread about whether home equity should be included in net worth for purposes of claiming to be a millionaire or not? We can get this thread back on track.

---

No, because the answer, by definition, is yes. No need to.

I don't really care what the answer is one way or another, but this thread has devolved into bickering about that question. I personally think all that matters is liquid assets, but acknowledge that home equity should be part of "net worth".

Even investments in a very illiquid assets (like private equity) cannot be readily accessed so they don't enable you to feel like a millionaire, even if they are often prudent investments to make (they may make you be able to feel like a hundred millionaire or billionaire since you don't need to access as much of a percentage of your wealth at that point).

In any event, the counting home equity thing seems to have become a lever some use to count themselves as millionaires and some others may be using to try to deny people that status here. This thread started off, at least it seemed to me, more as celebrating a milestone. Why not let people celebrate that if they want to include their home equity or not?

Not like being a millionaire means the same thing as it did when this thread was started anyway, given the higher inflation in the intervening period (which was actually much higher than the government claimed).

It is in net worth. Absolutely. Not trying to pee on anyone's cornflakes. It's fun to look at to get a bigger number, but IMHO not good for financial planning. I won't discuss again...

I bleed maroon said:

---

62strat said:

---

I bleed maroon said:

---

You know that 2X over 13 years supports my argument, right?

Hey - I've owned homes for over 40 years, so I'm not arguing the choice. However, it's as much a lifestyle choice as a financial decision, and probably moreso. It's not the right decision for people who live somewhere only a few years, or those who have viable rental alternatives.

To those who note the lack of rental supply, I concur with your objection to a degree. This is highly influenced by government subsidizing home ownership. If it were a level playing field, it would make my argument much stronger.

---

wait.. I thought you were arguing that renting is ~10% cheaper than buying, so you can rent and save over a decade for down payment vs buying and getting appreciation.

---

Yep. Investing the difference would usually outperform your rate of return significantly over that timeframe, netting you 3X or more. It's just math.

---

But you can only invest the difference in the first year or two, since your rent will increase to 10% more in 2 years which leaves no difference left to invest. Then within a few more years, you're in the red (monthly speaking) compared to the mortgage, so now the home owner has the chance to invest that difference as well, far negating anything the renter saved in the first couple of years, especially if we're talking 13 years.

Sorry, but I'm not following you at all when you say I'm supporting your argument.

If I was investing the difference of a comparable rent right now, we're talking $2k a month for that last handful of years. Is that just math too, or no?

I bleed maroon said:

---

62strat said:

---

I bleed maroon said:

---

You know that 2X over 13 years supports my argument, right?

Hey - I've owned homes for over 40 years, so I'm not arguing the choice. However, it's as much a lifestyle choice as a financial decision, and probably moreso. It's not the right decision for people who live somewhere only a few years, or those who have viable rental alternatives.

To those who note the lack of rental supply, I concur with your objection to a degree. This is highly influenced by government subsidizing home ownership. If it were a level playing field, it would make my argument much stronger.

---

wait.. I thought you were arguing that renting is ~10% cheaper than buying, so you can rent and save over a decade for down payment vs buying and getting appreciation.

---

Yep. Investing the difference would usually outperform your rate of return significantly over that timeframe, netting you 3X or more. It's just math.

---

Not sure you are factoring in the appreciation on the leveraged portion of an owned home in your comparison.

YouBet said:

---

Diggity said:

---

I bleed maroon said:

---

62strat said:

---

Principal Uncertainty said:

---

So, you bought a smaller starter home and then after a few years decided to upgrade?

That brings up a rare piece of advice I once heard that would put Ramsey in the ICU; "Buy as much house as you can afford for your first home" The thought being that your tastes will grow, your stuff will grow, your family will grow and your income will grow, so that first home will look too small and you'll be trying to make that flip sooner than you realize. So, get that extra bedroom and 3rd car garage from the start and you won't feel like you have to make the move later. Obviously, this doesn't count job loss, transfer situations, divorces, etc (unexpected life changes) that might say otherwise.

---

also, market conditions.

But also;
We wouldn't be in our forever home if it weren't for the money we were able to get from our first home which became our deposit for second home.
Had we just rented that whole time (which was equivalent to our mortgage when we bought) we would have had no down payment 7 years later. Instead, when we sold we got a lot of those payments back plus the appreciation, giving us $40k to work with.

I think it makes more sense to simply get in a home as early as possible, so you're not wasting rent, have a chance at appreciation, and hopefully maybe in a decade, you can get that upgrade. If you can do this by your early 30s, then you're in a good spot. You can follow the payment schedule and still be paid off by early 60s.

---

This is not necessarily good advice. It can work out in times of rapid appreciation due to market conditions, but not all aspects are considered above. I know 62strat extrapolates his (or his parents) experience to his recommendations which is understandable, but consider this:

1. Rental rates are almost always lower than mortgage payments, which can be 15-20% cash flow savings. If you have discipline and invest that savings in low/moderate-risk investments, you may come out a good bit ahead. Yes - it's not going to home equity, but in a side vehicle with much more flexibility (including for your next downpayment).

2. The operating costs of home ownership are MUCH higher than rentals (where you just call your landlord if anything breaks). One A/C system replacement and a water heater replacement can cut your "$40k equity" in half immediately, not to mention the small repairs that occur pretty frequently.

3. Transaction costs (both buying and selling) can easily amount to 6- 8% or more each time for commissions, closing costs, carrying costs and dual living expenses, fix-ups, decorating, etc. (cue 62strat saying his dad sold his own house for no commission, etc.). There goes another big chunk of equity (maybe the rest of it?).

4. Market conditions: "Over the past 50 years, US housing appreciation has averaged 4.3% to 4.7% annually", per the web. In Austin today, if you bought in 2018, you might have a 50% gain, but if you bought in 2022, you might have a 25% loss. Are you ready to take that risk? Maybe so, but if you rent, you just walk away if you don't want to renew your lease.

Just saying - it's not a slam dunk. Proceed with caution.

---

if you're talking about 4 walls and bathroom/kitchen...sure. Otherwise, the options for a family in TX (most of the folks posting on here) aren't necessarily going to be any cheaper in desirable areas (with good schools). The studies you see about renting being cheaper than owning just look at median rent costs and median home costs...which is a flawed comparison.

Any time this subject comes up, I'm reminded to go search HAR for homes near town that fit the bill as described. It's always very slim pickings.

---

Still have to factor TCO which is going to be higher for a single family home than it will be to rent almost 100% of the time if you are comparing like properties.

---

I guess the entire rental industry is set up to subsidize tenants?

Thanks AI.
I will use the following typical Texas rates for a $500,000 home:
* Property Tax Rate (Annual): 1.8% of the home value (a mid-range estimate for Texas).
* Home Insurance (Annual): $4,500 (roughly \$375/month, based on high state averages).
Scenario 1: Homeownership (Buying)
Initial Assumptions:
* Home Price: $500,000
* Down Payment: $100,000
* Loan Amount: $400,000
* Mortgage Rate (20-year fixed): 6.0%
* Home Appreciation Rate: 4.0% per year
* Investment Return on Equity: 8.0% (used for net gain calculation)
1. Monthly PITI Payment
| Component | Calculation | Monthly Cost |
|---|---|---|
| Principal & Interest (P&I) | $400,000 @ 6.0% / 20 years | $2,866 |
| Property Tax (T) | (\$500,000 \times 1.8\%) / 12 | $750 |
| Insurance (I) | \$4,500 / 12 | $375 |
| Total Monthly PITI | $2,866 + $750 + $375 | $3,991 |
2. Final Value After 20 Years
* Appreciated Home Value: \$500,000(1.04)^{20} \approx $1,095,562
* Final Home Equity: $1,095,562 (Since the 20-year mortgage is paid off).
Scenario 2: Renting & Investing
Initial Assumptions:
* Initial Rent: 10% cheaper than the full PITI payment.
* Total PITI Payment: $3,991
* Investment Return Rate: 8.0% per year (compounded monthly)
1. Monthly Cash Flow and Investment
The renter's monthly cost is lower than the full PITI payment.
* Initial Monthly Rent: \$3,991 \times 0.90 = \mathbf{\$3,592}
* Monthly Savings to Invest: \$3,991 - \$3,592 = \mathbf{\$399}
2. Total Investment Value After 20 Years
A. Initial Down Payment Investment
The $100,000 is invested immediately at 8.0% for 20 years.
* Value of Initial Investment: \$100,000(1.08)^{20} \approx $466,096
B. Monthly Savings Investment
The $399 in monthly savings is invested at 8.0% for 20 years.
* Value of Monthly Investments: \approx $236,252
C. Total Investment Portfolio
* Total Investment Value: \$466,096 + \$236,252 \approx $702,348
Rerun 20-Year Comparison Summary
| Scenario | Final Asset Value |
|---|---|
| Buying a Home (Equity) | $1,095,562 |
| Renting & Investing (Portfolio) | $702,348 |
| Difference | $393,214 (Buying is ahead) |
Key Takeaway
Even with the high property taxes and insurance costs typical of Texas factored into the analysis, buying the house remains significantly more financially advantageous over the 20-year period under the assumed appreciation and investment rates.
The reason is still the power of leverage:
* The Buyer earns 4.0% appreciation on the full $500,000 asset.
* The Renter only invests the initial $100,000 and the relatively small monthly savings of $399.
The extra monthly costs of PITI ($750 + 375 = \$1,125) did increase the renter's monthly savings from the initial calculation ($287) to the new value ($399), but this additional investment amount was not enough to overcome the massive long-term benefit of the home's appreciation.
Would you like to see how the results change if we assume a higher home appreciation rate (e.g., 5% or 6%) or a higher investment return (e.g., 10%)?

harge57 said:

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Thanks AI.

Even with the high property taxes and insurance costs typical of Texas factored into the analysis, buying the house remains significantly more financially advantageous over the 20-year period under the assumed appreciation and investment rates.
The reason is still the power of leverage:
* The Buyer earns 4.0% appreciation on the full $500,000 asset.
* The Renter only invests the initial $100,000 and the relatively small monthly savings of $399.
The extra monthly costs of PITI ($750 + 375 = \$1,125) did increase the renter's monthly savings from the initial calculation ($287) to the new value ($399), but this additional investment amount was not enough to overcome the massive long-term benefit of the home's appreciation.
Would you like to see how the results change if we assume a higher home appreciation rate (e.g., 5% or 6%) or a higher investment return (e.g., 10%)?

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I didn't see the rent increasing in your analysis.. did I miss it?

No way that renter has $700k after 20 years of rent increases. The rent is more than the mortgage after about 3-5 years (based on 2-4% increase per year).
So the last 15 years, you are taking money from your investments to pay the rent.

Or, give the homeowner a chance to invest the difference between PITI and rent after year 5 when rent is more.

I agree was giving him every benefit of the doubt. Even if rent never went up you end up with less.

It's just math.

In reality buying the home is somewhat a leveraged investment and it's higher risk than renting so it better have a higher reward.

The analysis matching the 4.0\% annual rent increase to the 4.0\% annual home appreciation clearly demonstrates the overwhelming financial power of leverage in the homeownership scenario.
Despite the renter achieving an aggressive \mathbf{10.0\%} investment return, the wealth gap is substantial.
Final 20-Year Analysis (4.0% Rent Increase = 4.0% Appreciation)
| Scenario | Final Asset Value |
|---|---|
| Buying a Home (Equity) | $1,095,562 |
| Renting & Investing (Portfolio) | $180,572 |
| Difference | $914,990 (Buying is ahead) |
The total value gap is now nearly $915,000. The renter's portfolio value is barely above the initial \$100,000 investment, meaning the \mathbf{4\%} rent increase consumed almost all of the \mathbf{10\%} investment returns earned on the monthly savings over 20 years.
20-Year Total Asset Value Comparison