Buying a home

“Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.” – New York Times, “Homeownership & Affluence,” op-ed article

We thought you might have a little fun playing with calculations. You may perform calculations based upon your own specific financial situation and future projections and also see the definitions for all the terms used in this analysis:

Please Note: Rent vs. buy calculations can be performed a variety of ways, and results will depend on your own financial circumstances and economic projections, which you should review with your accountant. The below calculations represent just one scenario.

This rent vs. buy analysis compares the monthly housing cost of buying a San Francisco home at the Q4 2019 median sales price of $1,600,000—adjusting for tax deductions and principal pay-down of the mortgage—with the cost of renting a San Francisco 2-bedroom apartment at the Q4 2019 median asking rent of approximately $4750/month (as of 10/19 per Zumper.com). It also attempts to compare—while adjusting for inflation and other factors—projected asset appreciation between investing the down-payment monies (instead of buying a home) and using them in one’s home purchase.

Assumptions: 20% down-payment ($320,000); 30-year fixed-rate loan at an APR of 3.8%; and closing costs; property taxes; ongoing insurance and maintenance costs; annual inflation (2%), outside investment returns (3% after taxes) and home appreciation rates (5%) – all at what seems to us to be reasonable projections. We’ve used a combined income tax rate of 25% for the mortgage interest and property tax deduction. When projecting variable economic factors over long periods of time, many of these figures will simply be best guesstimates.