To demonstrate further, I researched an equivalent rental home in my neighborhood. There are only very few available to begin with. The cost to rent per month on a comparable home is greater than our interest expense, real estate taxes, insurance and annual maintenance combined. Let's call that a wash. Therefore, the analysis would only compare the return on the original cost to purchase the home versus the return on a money market fund. There's also additional tax benefits as I can deduct mortgage interest and real estate taxes on our tax return.
I purchased a home in July 2022. I'm 35 and married with two children. Since then, the home has appreciated roughly 7% annually. Not only does this exceed the return on a money market fund, it is a levered asset so the return is much greater than 7% on the invested capital. Even if you backed out the transaction costs to sell it, I would have earned roughly 60% on the original equity outlay in 2.5 years. True, we had to furnish it and spruce it up cosmetically but these costs are only a fraction of the appreciation we've enjoyed. In addition, money market interest income is ordinary income while the appreciation on a home is not taxable up to $500k if you are married. The home is a four-bedroom which is very difficult to find if you are renting and have children. The rent forever idea seems unrealistic if you are looking to raise a family. Lastly, the market in which you purchase the home makes a big difference. I live in the NY metropolitan area where home supply is constrained and my neighborhood is in high demand due to the schools and its strong sense of community. These areas will remain in high demand in perpetuity.
Comments:
To demonstrate further, I researched an equivalent rental home in my neighborhood. There are only very few available to begin with. The cost to rent per month on a comparable home is greater than our interest expense, real estate taxes, insurance and annual maintenance combined. Let's call that a wash. Therefore, the analysis would only compare the return on the original cost to purchase the home versus the return on a money market fund. There's also additional tax benefits as I can deduct mortgage interest and real estate taxes on our tax return.
Post: Rent Forever?
Link to comment from January 10, 2025
The interest is simply the equivalent of paying rent elsewhere. I'd call that a wash.
Post: Rent Forever?
Link to comment from January 10, 2025
I purchased a home in July 2022. I'm 35 and married with two children. Since then, the home has appreciated roughly 7% annually. Not only does this exceed the return on a money market fund, it is a levered asset so the return is much greater than 7% on the invested capital. Even if you backed out the transaction costs to sell it, I would have earned roughly 60% on the original equity outlay in 2.5 years. True, we had to furnish it and spruce it up cosmetically but these costs are only a fraction of the appreciation we've enjoyed. In addition, money market interest income is ordinary income while the appreciation on a home is not taxable up to $500k if you are married. The home is a four-bedroom which is very difficult to find if you are renting and have children. The rent forever idea seems unrealistic if you are looking to raise a family. Lastly, the market in which you purchase the home makes a big difference. I live in the NY metropolitan area where home supply is constrained and my neighborhood is in high demand due to the schools and its strong sense of community. These areas will remain in high demand in perpetuity.
Post: Rent Forever?
Link to comment from January 9, 2025