Athen Apaquette

For some people renting truly is better than buying. If you have plans to be a creator, or move a lot, or building a business, you foresee a decrease in income for some reason or some other priority where your cash for a down payment is needed elsewhere. But I submit that the numbers “for” owning are much more compelling.

Here is a personal story of a house bought for $240,000 in 1992 that later funded buying another house and grew my wealth. This house was bought for $240,000 and sold in 2000 for $360,000. The monthly payment made was lower than rent. My payment for the house was $900 (PITI) instead of $1050 rent (which increased to $1200 by 2000 and is now $2400 in 2019). This amount is not rent for a house but an apartment but I had bought a house.

I compare to rent of an apartment as that’s the most economical rent around and because the other is probably thinking of that low rent not the apples to apples of renting a house with a yard versus owning a house.

One house equity buys another: With that $120,000 from the sale of my starter home, I bought a $700,000 home where the PITI was $3000 and market rents were $2800 ( I had a write off that the renter doesn’t have). Within a couple of years (by 2003) rents exceeded my mortgage payment since they had climbed to A$3450 for a similar house with no view.

Fast forward to 2019 value of the home was 1.5mil and now 2019 my neighbor just sold for 2mil, same model home. Lesser view than mine. If I rent out my house today to the average renter I would get $7000 my ALL in mortgage payment is now $4300.

My internal rate of return on the first one was $120,000 divided by $240,000 is 50% over 8 years or 6.25% AND the market rent was $2100 per month had I kept it and rented it out.

The return: On my first home, I put down $80,000 on $240,000 gained $120,000 (minus fees so this is -oversimplified) my cash-on cash return or return on equity was 150% in 8 years or 18.75% – respectable and as I recall the stock market, especially the S&P, suffered some bumps with Japan’s stock market crash and our dotcom bubble.

Sell now? On my current home if I were to sell it now the return would be:

1.3million on a $120,000 investment over 19 years, with tax benefits along the way.

$1,300,000 ($2,000,000 sales price – $700,000 purchase price) \ $120,000 (initial investment) =

1083% total return \ 19 years = 57% per year return.

But what about repairs/upkeep? I could subtract the little fix ups here and there or remodeled kitchen but I took cash out to reimburse myself so those numbers are already baked in.

I have many examples of this in other people as well because I have been a mortgage lender for almost 30 years. I have evidence of people who hold for full cycles tend to do very well in owning a home. Usually the largest asset they have to fund retirement.

So given these numbers and that it didn’t cost me any more to live here than the rent a similar house at any time along the way (since inflation affects renters’ rents going up and property owners equity to go up)

So, is he right?

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