I don't agree. You also struck gold in a real estate boom in 2020-21, it's very rare historically for a home to appreciate 7.2% annualized over four years. Normal home appreciation is closer to like, 3 or 4 percent annualized and if you hit a 2008-2010 situation you're boned.
You also have to deduct the closing costs of both buying and selling (tens of thousands, probably), the fact that (unless your paid cash) you only built a fraction of the total equity in the home, and the costs of maintenance which probably were multiple thousands per year. In a normal market home ownership is a much worse investment than it happened to be the last few years.
You paid 219k for the house and sold it for 290k, a gain of 71k. But unless you were making giant extra mortgage payments you had at most 30% equity in the house after 4 years. So your 71k profit is really 21k. You also paid closing costs on both the purchase and sale of the home, those closing costs likely totaled at least 18k and probably more. I don't want to make too many assumptions, but if your home purchase was conventional your investment probably barely broke even and could easily have been a net loss.
More than happy to expand on that. This break even is before you take into account the homeowner’s housing payments. Compare your 20k on rent to the homeowners 20k on principal, interest, maintenance, insurance, and taxes. You’re running even with them.
In more detail,
Homeowner gets 21k profit on appreciation, 21k loss on closing costs, 20k per year loss on housing expenses (mortgage, interest, taxes, insurance, maintenance).
Your fullthroated cries that homeownership is actually worse than renting fail to account for the fact that my rent frequently jumps up by 10-15% per year while a mortgage is locked at a fixed rate.
Yeah sorry, I oversimplified a lot. I put 20% down, currently have around 60k equity. And you're right about closing costs and all; Maintenance cost was really low though, I only replaced a stove appliance. Everything else was just minor upkeep. So, its not quite 'rent free', but it was still a really big step up on being a renter. Not to mention the fact a landlord isn't in control of everything I do here, and I get way more sq ft.
But unless you were making giant extra mortgage payments you had at most 30% equity in the house after 4 years. So your 71k profit is really 21k.
Is that how mortgages work for you guys, you get $150K mortage on a $200K home and now the bank has a 75% share in the house? Over here it's just a giant loan, if my house goes up $50K in value, no part of that $50K gets added to the mortgage debt.
Let's say you put 50k down on a 200k house. You have 25% equity in the home, the bank has 75%. Makes sense, you paid for 25% of the house. As you make payments, you build more equity in the house. After 5 years you've built another 10%, now you have 35% stake in the house. The payment is fixed the whole life of the mortgage (unless you purchase an ARM instead).
Your mortgage debt doesn't go up based on home appreciation, but you don't have 100% stake in a home you only paid 35% of.
Okay, but I think you're now double dipping. Let's take the earlier example, $150K mortgage on a $200K home. Let's assume the mortgage is interest-only to keep things simple, and forget about sale-related costs for the same reason. The value of the house goes up to $250K and I sell it. I get $100K, the bank $150K. There is no 'equity' involved here, it's just a loan.
I don't agree. You also struck gold in a real estate boom in 2020-21, it's very rare historically for a home to appreciate 7.2% annualized over four years. Normal home appreciation is closer to like, 3 or 4 percent annualized and if you hit a 2008-2010 situation you're boned.
You also have to deduct the closing costs of both buying and selling (tens of thousands, probably), the fact that (unless your paid cash) you only built a fraction of the total equity in the home, and the costs of maintenance which probably were multiple thousands per year. In a normal market home ownership is a much worse investment than it happened to be the last few years.
You paid 219k for the house and sold it for 290k, a gain of 71k. But unless you were making giant extra mortgage payments you had at most 30% equity in the house after 4 years. So your 71k profit is really 21k. You also paid closing costs on both the purchase and sale of the home, those closing costs likely totaled at least 18k and probably more. I don't want to make too many assumptions, but if your home purchase was conventional your investment probably barely broke even and could easily have been a net loss.
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More than happy to expand on that. This break even is before you take into account the homeowner’s housing payments. Compare your 20k on rent to the homeowners 20k on principal, interest, maintenance, insurance, and taxes. You’re running even with them.
In more detail,
Homeowner gets 21k profit on appreciation, 21k loss on closing costs, 20k per year loss on housing expenses (mortgage, interest, taxes, insurance, maintenance).
Renter gets 20k per year loss on rent.
Tie game!
When was the last time you rented something?
Your fullthroated cries that homeownership is actually worse than renting fail to account for the fact that my rent frequently jumps up by 10-15% per year while a mortgage is locked at a fixed rate.
Yeah sorry, I oversimplified a lot. I put 20% down, currently have around 60k equity. And you're right about closing costs and all; Maintenance cost was really low though, I only replaced a stove appliance. Everything else was just minor upkeep. So, its not quite 'rent free', but it was still a really big step up on being a renter. Not to mention the fact a landlord isn't in control of everything I do here, and I get way more sq ft.
Is that how mortgages work for you guys, you get $150K mortage on a $200K home and now the bank has a 75% share in the house? Over here it's just a giant loan, if my house goes up $50K in value, no part of that $50K gets added to the mortgage debt.
Our mortgages work the same way.
Let's say you put 50k down on a 200k house. You have 25% equity in the home, the bank has 75%. Makes sense, you paid for 25% of the house. As you make payments, you build more equity in the house. After 5 years you've built another 10%, now you have 35% stake in the house. The payment is fixed the whole life of the mortgage (unless you purchase an ARM instead).
Your mortgage debt doesn't go up based on home appreciation, but you don't have 100% stake in a home you only paid 35% of.
Okay, but I think you're now double dipping. Let's take the earlier example, $150K mortgage on a $200K home. Let's assume the mortgage is interest-only to keep things simple, and forget about sale-related costs for the same reason. The value of the house goes up to $250K and I sell it. I get $100K, the bank $150K. There is no 'equity' involved here, it's just a loan.
Oh, yeah, you're right there. I misspoke.
Thank you for the correction, comrade.