[dimes]

I made a spread sheet comparing renting to buying a few years ago. The premise was that I wanted to compare my investment in my home vs. paying less to rent and investing the difference in the stock market. The assumptions were something like a 3.5% mortgage rate (30y) and 4% appreciation on my home, vs. a 7% appreciation in the market.

What I found is that on a time horizon of ~7 years, it absolutely makes sense to buy a home. The reason is that when you have a mortgage, you're making a highly leveraged investment. If you buy a house for 100k and put 20k down, then you're 5x leveraged. If you're able to sell the house for 110k. The price has increased 10%, but your ROI is 50%.

There was a definite inflection point after 7 years, however, where the amount of leverage decreases to the point that the higher gains in the market begin to dominate the modest increase in home value.

[milkytron]

Did you include closing fees?

Those can take a big chunk out of the appreciation when you sell and buy, and could make a difference of not breaking even for an additional year or two.

[dimes]

Yes, fees were included for selling the house, but I did not include capitol gains taxes in the investment calculation.

[snowwrestler]

You should because that can be a big factor in comparing returns between home ownership and equities. You can keep $250k of capital gains on your home tax free, while the lowest capital gains rate you’ll pay when selling equities is 15%. That can be a significant difference in what you take home.

[fairity]

> The reason is that when you have a mortgage, you're making a highly leveraged investment.

You can lever up an equity portfolio as well. Moreover, the going interest rate for a margin loan is only 1-2% (less than the cost of a mortgage).

[fshbbdssbbgdd]

Although mortgages have some big advantages:

1. Interest rate can be fixed for 30 years.

2. Interest is tax-deductible.

3. No margin call. If the price drops, you can wait until it recovers.

There’s really nothing similar available to the average person for other investments.

[jjeaff]

Is that the going rate for a margin loan? I have only found IBKR to have rates that low.

[thebean11]

Can you just take the equity back out of your home and put it into the market?