• Hank Wedow

Renting Vs. Owning

Updated: Oct 23, 2019

Yesterday, my man the Money Wizard posted a blog laying out his "Golden Rule" for the never ending rent vs. buying question.


My commentary below:


"To answer this question you have to solve for two problems:


1) The opportunity cost of $40,000 ($35,000 Down, $5,000 Closing Costs)


2) The delta between the cost of home ownership and the cost of renting (for savings reasons)


For argument's sake let's just say the intangible benefits/costs of owning and renting cancel out one another. In other words, you are indifferent between owning and renting. (On one hand I can have the TV loud without worrying about my neighbor complaining, but on the other hand I have to mow my lawn).


I disagree with the premise that you should NOT include home equity in your net worth. It is a savings vehicle with value like anything else.


Despite this disagreement, the Wizard comes to a sound conclusion with the +/- 20% rule. It is true that if you can save +/-20% (exact % depends on your assumptions. I bet a lot of people in Seattle and Las Vegas are glad they bought a home 10 years ago even if their costs were >20% that first year of renting...) by renting and investing those savings every month, the returns on those contributions when compounded may outperform your investment in real estate in the long run.


It really depends on your assumption of three things:


1) How the stock market will perform

2) How your home's value will perform

3) Over what period of time you are analyzing the following


Rock on,


Hank"


Check out the Excel file through the Google Drive link below to come to your own conclusion. Obviously, you can tweak the assumptions or make this model as complicated as you'd like.


https://drive.google.com/open?id=1wOcCmybDM3c0wODVzJ2usa68jRoUX-Jp

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