The equilibrium between renting and buying was discussed by the three realtors in the last ‘Shop Talk’ video, and commenters thought we should look into it further.

Doug hangs out in Rancho Santa Fe, where the rent vs. buy comparison is extreme.

Recently there was a house in Rancho Santa Fe that the owner was willing to sell for $1,400,000 that had been rented for $6,900 per month.  I used this rent vs. buy calculator because it includes the extra expenses that we should all consider about homeownership:


I used 1% annual appreciation, 20% down payment, 5% mortgage rate, $2,000 annual homeowner’s insurance,  $15,000 property taxes, $6,000 annual maintenance, 7-year comparison, 33% tax bracket (should be higher) 1% return on savings, and 2% projected inflation.

Buying came out $138,356 ahead of renting in today’s dollars.

But like livincali pointed out in his comment, the down payment is the sticking point for most.  People who pay $6,900 per month in rent have to be thinking about buying, mostly because they need the write-off. 

Are there enough higher-end renters that want to put down roots, commit to owning long-term, will take the write-off in trade for the extra expenses like property taxes, insurance and maintenance, and roll the dice on appreciation vs. depreciation that can save up 20% down payments?  We’ll see!

Here is the investor cash-flow evaluator featured here previously: http://www.finestexpert.com/

Another buy vs. rent calculator:



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