For primary residence home, condo / townhome with HOA. Is my logic flawed?
Buy: every month the money I “thrown into the water” is mortgage interest + HOA + property tax + insurance + maintenance [Edit: not monthly mortgage payment, but only what I explicitly pay for the interest, since principles are technical still money I can retrieve later when selling]
Rent: the money that is absolutely gone is rent + renter’s insurance
So roughly, as long as the first one is less than the second one for similar homes, I won’t be doing too bad buying?
I am aware of the opportunity costs. Note in the following discussions, mortgage interests are out of the picture because it is factored into the cost of living as the above discussion.
Essentially, with buying, it’s like I purchase a huge amount of 30-year bond upfront with leverage, so I have to pay off the principles monthly. The rough rate of return is appreciation value of the home. In my current area, that would be 3 ~ 6%.
With renting, I don’t need to pay off principles monthly. So I can use the downpayment + monthly pay for principle for other investment opportunities. e.g. 10% annual return for stock.
I was appalled at first seeing the huge monthly payment if I am to buy a home, but then realized part of the money is not “thrown into the water”. In other words, I force myself to put some money into a piggy bank (borrowed principle). and can only withdraw it 30 years later. Although my qualify of life and risk tolerance might suffer due to decreased cash flow, I am not becoming poorer.
Especially if I am a conservative investor who doesn’t like to buy stock, and if my down pay would be sitting in the bank otherwise.
I also ignored closing costs, rent increases, inflations, tax benefits etc in this discussion.