Re:Renting is Throwing Money Away, Right? (2015)
by cko on Monday April 23, 2018 @07:47AM
(#16902528)
> Generally, with 20% down you are leveraged 5:1. So even if your home is just keeping pace with inflation of 3%, you actually experience 15% growth on your investment.
In a 30-year loan, it’d be actually less than 15%. It’s 15% the first year.
Calculating the compounded return, it’s 1.03^30 * 5, then you raise all of that to the (1/30) power. You get a 8.7% compounded annual return, assuming 20% down. Then I think you subtract the 3% inflation. 5.7% is better than just tracking inflation, of course.
The return is different if it’s not owner occupied, since you need 25% down and there’s capital gains tax. But then there’s cashflow, depreciation tax shelter, etc.
In a 30-year loan, it’d be actually less than 15%. It’s 15% the first year.
Calculating the compounded return, it’s 1.03^30 * 5, then you raise all of that to the (1/30) power. You get a 8.7% compounded annual return, assuming 20% down. Then I think you subtract the 3% inflation. 5.7% is better than just tracking inflation, of course.
The return is different if it’s not owner occupied, since you need 25% down and there’s capital gains tax. But then there’s cashflow, depreciation tax shelter, etc.