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    What’s a better way to think about the buy vs. rent decision? Zillow has just introduced the “breakeven horizon” which is how many years of homeownership it would take before owning a home becomes more financially advantageous than renting the same home.

    Zillow’s breakeven horizon is computed at the home level and incorporates all possible costs and benefits associated with buying and owning a home, such as the down payment, purchase costs, mortgage payments, property taxes, utilities, maintenance costs, tax benefits etc., as well as all the costs associated with renting the same home. It also includes expected home value and rental price appreciation.

    They must give a lot of weight to the home-value appreciation factor, which on their chart for San Diego is only +1.6% for the next year:

  2. Really interesting Jim, thanks for sharing. I own in Lemon Grove and its listed as 2.1 for the breakeven horizon.
    I would tend to agree with this chart as I bought at the end of 2010.
    SOme other cities that are much larger might be tough to nail down averages, but still cool to see.

  3. Jim, inflation is the biggest factor by far. A 1.6% increase with 5x leverage (20% down) is an 8% increase in your equity. Compound that for a few years and it becomes so big that it’s the only factor that matters.

    It’s disappointing that Zillow doesn’t allow users to change inflation assumptions, or even disclose its internal appreciation assumptions. Is Zillow using the same 1.6% forever for all cities in the San Diego area? Who knows?

  4. Agreed, the nytimes version is much better and more practical.

    How many people will say, “Dang, I was only planning to stay 3.4 years, so I guess I’m supposed to rent.”??

  5. HOA should not be a headache other than the inevitably growing fees if all it does is maintaining the grounds like it’s the case in so many SFR communities. Things get complicated when its fees cover the structures, the pool and other facilities. Watch out for special assessments.

  6. There are too many individually unique factors and strategies to encompass into a calculation like this.

    For example, I average 15% to 25% return on my invested capital and have been doing so for the past 8 years. Therefore, my opportunity cost is very different than someone who stashes their money in US treasuries to avoid risk.

    Unfortunately, people want to be told what to do, not think for themselves. Oppressive dictators exploit this to stay in power. If people understand the important drivers, they can make a personal decision that is far more accurate than a one-size-fits-all graph.

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