BUY
House purchase $600,000
Closing cost $12,000
20% down payment ($123,000)
30 yr mortgage at 4% $28,188
Annuity required to pay mortgage assuming return on investment is inflation (3%) plus 7% (after tax which is minimal) $294,000
Annual expenses that are subject to inflation (assume 3%) Insurance, HOA, Maintenance, Tax etc. $12,000/yr
Annuity required to pay for annual inflation adjusted expenses $124,000
Total required cash outlay to own home for 30 years = $123,000+$294,000+$124,000=$541,000
House value after 30 yrs = $600,000 * 1.04)^30 = $1.48M (assume house increases at 1% above inflation rate)
RENT
Rent = 5% of house cost increased by inflation (3%)
Invest $541,000 at inflation plus 7% in BRK. Capital gains tax minimal on the amount removed each year to pay for rent.
At 30 years, BRK value is $2,28M or $600k better than buying
Iâm not sure your conclusion would be any different, but your calculation seems to be missing a few considerations, unless I am missing something. Youâre assuming that a BUY expense at year 29 is the same as a BUY expense at year 0, which is clearly not going to be the case. That $541k you used for RENT is probably more like $400k in todayâs money, just guestimating.
If youâre looking at it as an investment, you should maximize your house as an investment. No one pays 20% down anymore, 10% is decent, you can get away with 5%. Also for me the home mortgage interest deduction is key, try to max it 750k, depending on your tax bracket and your interest this is maybe $15k a year in fed tax savings, maybe a couple in state tax savings. It seems likely that youâd have some moving expenses with RENT as youâd be unlikely to stay in the same place for 30 years. Also, rent goes up faster than inflation, how much, the first link on google says since 1980 rent has gone up 8.9% a year, I think inflation is generally lower than that (maybe not this year).