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Rent vs Buying simple analysis
Assumptions
1. Both begin with $65,000
2. economy is correlated to a low inflation, low rates & low inflation environment.
3.Inflation & wage track 2.2% (expected in low interest rate environment)
4. House appreciation tracks wage growth at 2.2%
Assumptions
1. Both begin with $65,000
2. economy is correlated to a low inflation, low rates & low inflation environment.
3.Inflation & wage track 2.2% (expected in low interest rate environment)
4. House appreciation tracks wage growth at 2.2%
5. There is no crash or boom
6. Interest rates remain at 3.7% for the 30 years
7. Rental growth tracks income growth at 2.2%
8. The renter uses $65,000 + gap from rent to mortgage repayments ($249 p/w) & invests via an ultra-conservative risk portfolio @4.0 %
9. Comparison @ 30y
6. Interest rates remain at 3.7% for the 30 years
7. Rental growth tracks income growth at 2.2%
8. The renter uses $65,000 + gap from rent to mortgage repayments ($249 p/w) & invests via an ultra-conservative risk portfolio @4.0 %
9. Comparison @ 30y
(buyer)
House was bought for 750,000 with a 65,000 deposit over 30 years @ fixed 3.69%
House appreciation: Final value= Present value (1+i)n = 750,000 (1+0.022)30
= FV= 1,440,748
Total repayments
@3.69% (inc fees): Principle= 685,000, Interest= 452,264
Total= 1,137,264
House was bought for 750,000 with a 65,000 deposit over 30 years @ fixed 3.69%
House appreciation: Final value= Present value (1+i)n = 750,000 (1+0.022)30
= FV= 1,440,748
Total repayments
@3.69% (inc fees): Principle= 685,000, Interest= 452,264
Total= 1,137,264
Ongoing out flows: Council+ water rates, insurance, maintenance totals $5800 p/a
Inflation adjusted= 5800x30=174,000
174,000(1+0.022)30 = $334,257 over 30 years.
One off payments: SD 18k, lawyer, insp, reno’s & LMI. Total = 78k
Inflation adjusted= 5800x30=174,000
174,000(1+0.022)30 = $334,257 over 30 years.
One off payments: SD 18k, lawyer, insp, reno’s & LMI. Total = 78k
After 30 years: Assets v Liabilities inflation adjusted=
A: house is worth $1,440,748.
L: Paid a total of $1,479, 591
(renter)
Starting point: 65,000
Pays 480 p/w= 24,960 p/a. Total: 748,880 over 30 years
Inflation adjusted to 748,880 (1+0.022)30 = $1,438,443
A: house is worth $1,440,748.
L: Paid a total of $1,479, 591
(renter)
Starting point: 65,000
Pays 480 p/w= 24,960 p/a. Total: 748,880 over 30 years
Inflation adjusted to 748,880 (1+0.022)30 = $1,438,443
Savings:
= $249 x 52= $12,948 x 30= 388,440
compounding @ 4% p/a over 30 years = $1,259,865
+ $65,000 initial investment= 65,000 (1+0.04)30 = $210,820
Total accrued= $1,470,685
= $249 x 52= $12,948 x 30= 388,440
compounding @ 4% p/a over 30 years = $1,259,865
+ $65,000 initial investment= 65,000 (1+0.04)30 = $210,820
Total accrued= $1,470,685
Conclusion:
After 30y
Owner: has an asset worth $1,440,748 and paid $1,479, 591.
renter: paid $1,438,443 to rent. Has no assets but earnt $1,440,748 via a low risk portfolio. The buyer achieved financial security, the renter has achieved financial freedom. Both came out even.
After 30y
Owner: has an asset worth $1,440,748 and paid $1,479, 591.
renter: paid $1,438,443 to rent. Has no assets but earnt $1,440,748 via a low risk portfolio. The buyer achieved financial security, the renter has achieved financial freedom. Both came out even.
