Friday, January 20, 2012

Wrong Again, Matt.

This type of thing still pisses me off. Yes, it's true that if I buy a house for $200k and live in it and then 10 years later it is worth $350k, and I sell it I wouldn't really have built wealth in one sense, because I then have to find somewhere else to live...but that's still short sighted. If I live in my house for 15 years, then my "rent" is fixed for that time, and my payments are effectively savings to purchase anew if I then sell and move. This is true even if every house appreciates at the same rate and from the same starting point:

Buy house A for $200k when house B is worth $200k have mortgage ($200k) plus everything... of $1500/mo.

Live there 10 years. Maintenance and taxes go up a bit, but much less than rent would have so maybe paying $1600/mo.

Sell house A for $300k (use ~$160k to pay off outstanding mortgage), have $140k left.

Buy house B for $300k using $140k down leaving a mortgage of...$160k! Depending on terms the "rent" here will be ~the same.

Meanwhile someone who rented at the same average rate over 10 years (rent control or started lower, but went higher) would have ~$0 extra to put into the purchase of house B and would have a subsequently higher rent. Wealth lost.

Aside from rent control and forced savings issues, once a mortgage is paid off suddenly lots of extra $ is available wealth. Not having to pay as high a rent in the future is an excellent wealth building strategy.

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