patrick.net

If you intend to live in your purchased property until your death, you will most likely spend more money than if you had rented a similar property until you died. But this, of course, depends on the local market. When you purchase a property, you will have to pay for maintenance costs, property taxes, insurance, water/sewer, HOA fees (depends on property), etc. on top of the mortgage. Furthermore, the downpayment will be tied up in the house and will not be able to be invested in other investments and the downpayment will essentially be thrown away and not collecting interest. On top of all that, any appreciation of the property will not be actualized because it's only available when the property is sold.

Here are some real world numbers for thought (numbers were plugged into NY Times Rent vs Buy Calc):

Assumptions:
Rent for a studio in Hawaii: $900
Purchase price: $160,000
Downpayment: $40,000 (25%)
Annual Property Tax: $720 (0.45%)
Time of death: 20 years from purchase price
Rental and Property Appreciation: 3%/yr

Total spent on rent over 20 yr period: $290,200
Total spent on the property over 20 yr period:
$419,740, which includes:
Down payment: $40,000
Closing costs: $6,400
Mortgage payment: $122,679 (4% apy)
- Principal $63,415
- Interest $59,265
Condo/common fees: $87,471 ($300 per month includes utils)
Property taxes: $15,942
Renovations: $8,008
Maintenance: $8,008
Homeowner’s insurance: $22,141
Lost opportunity costs:
Down payment/initial costs: $30,377(3% APY invested)
Yearly costs savings invested: $78,714 (3% APY invested)

It's common for people to say it's good to buy if you intend to stay for the long-term, which is true only if you eventually sell it at a higher price and either rent or buy somewhere where the cost of living is significantly lower. If you buy in the local market, you will have to contend with higher real estate costs, and you will tie up your downpayment again. But if the long-term is until death, well then you will likely be spending more on housing than renting.

#housing