| In the classic and ongoing argument of benefits for | | | | What rental calculators don't tell you is what would |
| renting versus owning, advocates for home | | | | have happened had the Smiths invested their |
| ownership always say that when you own a home, | | | | $20,000 down-payment in a modest mutual fund or |
| you're paying yourself every month and building | | | | GIC (Guaranteed Investment Certificate) and put |
| equity. What they neglect to take into consideration | | | | their extra $800 to $1000 every month into other |
| is that with the money you save by renting, you | | | | low-risk investments. Well, let's find out. |
| could be paying yourself a whole lot more. | | | | Comparing Against Other Investments |
| Keep reading for a full breakdown of an example | | | | Even if they had put their money in a modest |
| family and how, if they rented instead of owned, | | | | high-interest savings account or GIC at just 4% and |
| they could actually wind up significantly better off | | | | contributed just $800 a month, saving the rest for |
| financially in just ten years. | | | | fun and entertainment, they would have a nest egg |
| Let's Consider an Example | | | | worth almost $157,000 after ten years. |
| The Smith family buys a home for $200,000 in 1998, | | | | Subtract that modest investment income from the |
| putting $20,000 down. Ten years later, thanks to a | | | | Smith's rental living costs for the last ten years |
| boom in the market, their home is now worth | | | | ($157,000) and you'll quickly see the Smiths actually |
| $350,000. That means their home appreciated at a | | | | broke even. Had they diversified their investment |
| fairly standard rate of about 5% per year. | | | | portfolio or made more aggressive investments, they |
| While the Smiths got a few tax breaks thanks to | | | | could have even made money. |
| their home ownership, they also had to pay about | | | | Remember, while buying a new home may be |
| $2000 a year in property taxes, $2000 a year for | | | | appealing. You have to do the math, especially if |
| insurance, and about $200 a month or $2400 a year | | | | you're considering purchasing in a market that's |
| in maintenance, repairs and house upkeep. In addition, | | | | depreciating or not appreciating at a healthy rate. |
| their utility bills cost them roughly $100 a month or | | | | Though homes historically appreciate at a fairly |
| $1200 a year and, of course, interest on their | | | | steady rate, this is not an inevitability. In a down |
| mortgage. | | | | housing market, homeowners and home investors |
| With a 7%, 30-year mortgage, an assumed inflation | | | | can actually lose. |
| rate of 3.5%, and their appreciation rate all taken into | | | | Certainly owning a home has many of its own great |
| consideration, the Smiths paid approximately $107,000 | | | | advantages, not the least of which include relative |
| to live in their home for 10 years. | | | | freedom to do what you want with it, investment |
| Use of a Rental Calculator | | | | potential if you've bought prudently, and greater |
| Now, a basic rental calculator will tell you that had the | | | | control over the home's longer-term costs. But if |
| Smiths rented a comparable home for $1200 a | | | | your primary concern is with the overall financial |
| month, plus about $2000 a year for utilities and | | | | value, don't discount renting a house as a viable |
| insurance, they would have paid approximately | | | | option. |
| $157,000 to live in their home for 10 years. | | | | |