The first is 5% interest. Mortgages can be significantly less interest - mine is 1.08% right now (fixed for 2 years, but those are the most important 2 years for paying down).
The second is that you'd pay the mortgage off over 30 years. It's entirely possible to pay off much quicker - perhaps 15 to 20 years - in which case the total interest paid drops significantly.
2. The article completely misses the other huge value of buying a home - risk mitigation. You can't be evicted suddenly for reasons out of your control, you're not subject to market whims in rent (there's an upside to this, but generally rents are sticky - you need to move house to get a better deal even in a falling market), you have no unexpected moving costs, your kids can stay in the same school. Looking at it purely from a monetary point of view completely misses the point.
Ultimately the benefits of stability are worth a lot, especially as you get older.
We have examples of folks losing their homes to build gas pipelines and shopping malls.
As renters are also fully exposed to those, the existence of them does not alter the degree of the stability advantage for home ownership over renting.
>“Rachel’s landlord needs to make money. How could he/she possibly earn a profit under this scenario?”
>Here are many ways Rachel’s landlord could benefit:
>The landlord could purchase the property at a steep discount, such as through a foreclosure auction, short sale, estate sale, or by “driving for dollars” (making direct contact with the owners of distressed property.) This allows him/her to purchase the property significantly below market value.
>The landlord could be holding the property for the sake of inflation-protected wealth preservation, rather than as a cash flow investment. (Don’t assume all landlords share the goal of cash flow. Some simply want to diversify their assets.)
>The landlord could be making a speculative play on potential appreciation. (I don’t recommend this technique, but many landlords do this.)
>The landlord could have inherited the property. The landlord could have purchased the property decades ago, paid off the mortgage, and now enjoys the cash flow. They don’t want to sell/trade into a different property due to the hassle involved, so they let this property ride.
The other secret is, many people, at the end of the day, simply make very little to no money as landlords. My parents were landlords for many years and broke even for all those years thinking that the profit was going to be right around the corner. Never came. The steps to being successful at real estate is not 1) buy house 2) print money like a lot of people think going in.
The other thing is, their calculations take in opportunity costs of having your money in your house vs having it in a better performing asset, which a lot of people simply ignore as "not a cost."
It's also highly dependant on your local market which one is cheaper.
If there's a long list of situations in which owning is less expensive than renting, it is intellectually dishonest to then assert that they cost the same.
The key mental breakthrough for understanding homeownership is that it's just like renting, except you are the landlord as well as the renter. So if you can imagine a bunch of different ways in which a landlord makes money with a rental property, then you can start to imagine situations in which homeownership will be better than renting for you.
You can buy foreclosures, short sales, estate sales, or just contact someone to buy their house.
You can hold property for the benefit of inflation-protected wealth preservation (in fact, this is one of the main ways homeownership helps build wealth).
You can speculate on potential appreciation (in fact, many people do this when selecting where to buy).
You can inherit property, or (more under your control) you can pass property on to your children.
You can hold a piece of property for decades, pay off the mortgage, and enjoy the greater cashflow--in your case, from income that would have gone toward rent.
Etc.
Plenty of people buy investment properties generating them 2% a year thinking they're doing great!
This is however generally different to owning a house. If you want to own a house, it shouldn't really be seen as an investment, more as a place to live and put down some roots.
You shouldn't invest in putting the best kitchen in your rental property, but you can do that in your own house if you want to.
That's a false dichotomy - we should "buy low, sell high." Obviously both events contribute to your total ROI.
1% may not seem like much, but consider that you only pay 3.33% of the amount owed every year on a 30 year mortgage. Not only are their monthly payments lower, but they pay more principal sooner.
The article differentiated two different investment strategies:
Low income property with a decent profit over monthly expenses.
High income property with little to no monthly profit, but large appreciation in value over a short time period.
So, instead of buuying one or two high income properties, one could purchase 5 to 10 low income units.
I found it interesting and a new perspective for me.
In the long run, these two factors tend towards irrelevance, relative to the tens or hundreds of thousands of dollars of wealth you build that you couldn't have built through rent payments.
Housing raises your risk; it doesn't lower it.
1. Over time, renting and owning cost similar amounts: https://affordanything.com/is-renting-better-than-buying-sho....
2. You run great risk in terms of the market: look at anyone who bought in Detroit, pretty much ever. Buying in West Coast housing markets may look hot right now, but the minute a big earthquake hits one, a lot of people may be financially wiped out. A serious recession could do the same. Miami? It may be literally underwater. https://www.newyorker.com/news/news-desk/miami-faces-an-unde...
3. The neighborhood may change for the worse.
4. Given birth rates, you should be worried about deflation, not inflation.