This is why I don't buy the home I live in as an investment. It conflates two very important things:
* My home.
* A large financial investment.
Changing one affects the other. I'm skeptical that life circumstances will magically align so that when it's a good time for me financially to sell my home, it will also be a good time for me to change location (or vice versa).
I bought a duplex, live in one side, rent the other. First time owner 5% down. Obama gave me $8000 to live in it for 3 years. mortage+insurance+taxes - rental income == about 1/2 what I would pay to rent similar place. I get many tax benefits (rental 1/2 counts as business). My equity + 8k (which was a one time thing but you should have taken advantage of it) is already more than my downpayment after 2 years. In another year or two I'll move out and rental income will be paying everything including building equity and providing a $4-500 of profit (which I expect to mostly used up in maintenance).
Duplex living is great deal. Assuming of course you live in a non-suck market (realestate and job). If I had the money for 20% down payment I'd be buying more.
The counter argument is that the rent you are putting down is not being invested into your home. I think that is a very cogent argument, but it relies on your ability to sell (or willingness to sell later on).
I concur with your analysis though, and don't plan to buy for a long time (ie, when I am ready to put down roots for 10-20 years).
Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay).
Many people think home buying is a good financial strategy because most people don't have the discipline to save this extra cash. It benefits the buyer in the same way a forced retirement savings plan would.
Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay).
Roughly speaking you might wind up with the same upside. I consider rent+invest the more risky option even if you do have the discipline to do it, since there are lots of scenarios where you wind up behind.
What does winding up behind mean? It means being 85 years old, retired, and not having enough money to pay the rent. I think it's worth buying a house just to have the peace of mind of knowing you'll have somewhere to live once you're retired.
Yeah... Peeps I know in the Republic of I who bought are average 100K in negative equity, meaning, even if they sell, they still owe 100K. The risk depends on the market levels. 7% annual rent to price, or 3.5 times median income is the general long-term trend (OECD report), and if your house is way above that then worry.
I purchased a home due to mortgage payments (including taxes and insurance) being equal or less than renting somewhere reasonable. This is in Louisville, KY which may be an outlier.
An additional point is that in the US if you live in your home and owe money on it, your investment has significantly better leverage via the mortgage interest deduction.
True, but the MID will very possibly go away or be significantly reduced in the future. During the debt ceiling talks, the proposal by the Gang of Six would have significantly reduced the value of the MID to many people. Of course, the proposal wasn't passed, but I think it shows that the MID is no longer viewed as untouchable the way it once was (as recently as a year ago).
In the US, is all interest deductible? And since your taxes are spread across federal/state/municipal, is it deductible from the tax basis (don't know what the exact term is - the amount your net taxes are calculated on) for all of them?
Interest is deductible in various situations, but for typical filers only interest on their primary residence is deductible.
This is the case for federal taxes. State stuff is all over the map; I don't believe mortgage interest has been deductible in any of the states I've paid taxes in (MD, MA, CA, IL) but there may be some where it is. For the most part there are no municipal or county-level income taxes, so the whole issue is moot for those jurisdictions.
That's commonly said but frankly I don't see why, when you invest in an (index) fund (as you should if you're not a 'professional'). It takes about as much work and intelligence to choose one or a few funds as it does to choose a mortgage and do total-cost-of-ownership vs rent calculations.
* My home.
* A large financial investment.
Changing one affects the other. I'm skeptical that life circumstances will magically align so that when it's a good time for me financially to sell my home, it will also be a good time for me to change location (or vice versa).
So I rent.