Difference Between Rent all life and Invest Vs Buy a House and invest less

Investing
#1

Hello,

In an hypothetic scenario;

  1. Rent whole life, $1,700 per month and Invest $500 (Index funds) In a period of 30 Years
  2. Buy a House $2,000 Per month and Invest $200 (Index funds) for 30 years

How much should be the net worth at the end of the 30 Years? Including of course the value of the house and the growth of the money invested.

Thanks!

#2

You can probably do this math yourself based on assumptions you want to make about the growth of your index fund and the growth of your property. Going with broad strokes, historical averages, a US index fund grows at about 10%/year and a home in the US grows in value about 4% per year. We’d need to know how much you buy your home for to project the future value and total net worth.

In this case, I’m pretty sure buying would win though. Although keep in mind the mortgage on a home purchase alone only makes up about half of home ownership expenses. (Don’t forget to include property tax, insurance, maintenance, realtor fees on the sale, etc). So you gotta be pretty honest about all the expenses and your ability to invest to run a projection like this. But generally if you buy the EXACT SAME HOUSE you were gonna rent and live there for 30 years, you’ll definitely come out ahead buying. But if you do the (more typical) behavior of buying way more than you rent and selling/moving every few years, renting can certainly come out ahead.

You’re scenario also didn’t make note of how much of a down payment you’re putting down and if that would be invested in the renting scenario. :slight_smile:

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#3

Yes, I ran a few numbers but I’m not sure if I’m doing right, let me complete the info used ;

  1. Renting $1,700 per Month

• Initial invested $24,000 FIPFX (Index fund)
• Investing $500 Monthly
• Potencial growth 10% per year

• Total assets in 30 years = $1,504,446 •

  1. Buying house $2,000 per Month

• House price $300,000
• Down payment $24,000 (4% down 4% closing cost)
• Potential growth 4%
• Initial invest $1,000 FIPFX (Index fund)
• Investing $200 Monthly
• Potential growth index 10% per year

• Total assets in 30 years = $1,424,733 •
( $973,019 future home value + $451,714 index)

I love to do numbers and scenarios! Tell me what you guys think about it.

Thanks!

#4

Renting wins, hands down. Your scenario for buying a house does not include the $400 a month for taxes, or the minimum of $100 a month for maintenance, or the occasional big spend ( new roof, furnace fails in January, etc ) that always happens at the wrong time. Ask me how I know about all these expenses LOL

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