Message Font: Serif | Sans-Serif
No. of Recommendations: 1
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.
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.