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Subject:  Re: Early IRA withdrawal without penalty Date:  1/30/2006  4:06 PM
Author:  pussinboots1 Number:  83189 of 127753

Most people forget to include the very significant annual carrying charge when they talk about real estate returns -- namely, real estate taxes.

Each case is different, but I think even accounting for all expenses you would not incur renting, it's still very possible that'd you'd do as well or better with the money as (up to 20%) principal rather than in (say) VTSMX in a SEP/IRA. Note that with an 80/20 mortgage and an assumed 5%/year return on real estate, you're making a raw 25%/year return on the invested money (down payment). If RE taxes are 1% of the home value, you're still making 20%/year (before other expenses/benefits). Don't forget to account for the fact that rent generally increases over time.

Besides the cheap margin, U.S. homeowners also get the interest deduction and the ability to refinance w/o penalty (in many cases).

In our case, the interest deduction covers RE taxes; refinancings have made it so that our interest+taxes+insurance+maintenance+water/sewer costs are no more than what rent would be on a comparable place. And, we've only owned for 4.5 years...


P.S. Once we got to 20% equity, all of our refinancings have been 0/0 30FRMs.

P.P.S. The rate of return clearly drops over time (as equity increases), unless your mortgage is interest-only, or you're doing cash-out refinancings.
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