[TxMex]

These numbers are not going to line up with anything you are familiar with so yes I know you can't buy a house or get rent for these prices most places.
Trying to decide whether to rent or buy.

I can buy a house for $80,000 or rent a house long term for $500. One of the complications in this formula is that if I use too much electricity there is a huge penalty and my bill will go from under $100 to over $500. I can install solar panels and avoid having a bill at all if I own the house.
Taxes would be about $600 per year on a house. All other expenses would be the same in a rental or an owned house.

I can currently get 6.5% on a 6 month CD. So that $80,000 would yield $10,400 annually or $867 per month. $367 over the price of rent.

If I were to take the cost of rent and apply it towards a house purchase as though I were making simple payments (no borrowing will occur so no interest). It would take 14 years to pay for the house.

If the interest rate were to stay the same during that time...and that's probably a decent average....the $80,000 that would go to buying a house over 14 years time would produce $145,600 on interest income. That's with drawing off the interest and not rolling any over.
The house would be unlikely to go up in value by $65,600 in that length of time.

However there is the consideration of the security of owning a home and the benefit of having no electric bill. If the world markets go pffft I would have nothing.

I am an early retiree and my income is from investing. At some point I'll have to quit claiming the early part lol. I've been retired 16 years.

 

[Danaus29]

My problem with renting a house is that you never know when the owner will sell it and you will have to move when your lease is up.

My mom rented a house in the city. It was sold a couple months before her lease expired. New owners wanted to live it in which put her in a bind trying to find another place she could afford in a bit less than 2 months.

 

[TxMex]

That likely wouldn't be a problem in this case but good point!
The landlord was very fortunate that your Mom didn't sabotage the house showings. Most renters don't want to lose their house and will make it as unappealing as possible during showings

 

[Danaus29]

Mom made us clean the house, wash the dishes, keep up with the laundry and leave the house for showings. It sucked, big time! But my mom never was a vindictive person. It wasn't what she wanted so she went house shopping and was lucky enough to buy a house before that one sold. It wasn't a great house, but it was home for several years.

 

[doc-]

a) Where are getting 6% for a CD? I wanna buy some too. 1.25% is more like it. Best 6-month CD Rates for July 2022 | Bankrate

2) How old are you? At my age, a 14yr pay-off probably wouldn't get paid off.

C) While a renter may get forced out by a sale of the property, an owner could lose his shirt when the neighborhood turns bad or the taxes go sky high when RE values go up (Sure, rents go up when taxes go up, but there's a limit to rent-- the landlord doesn't want the property to lie vancant.)...Renting also gives you mobility.

4) How much extra power usage triggers the penalty? A whole house PV system is gong to cost you 5 figures. Conservation efforts may be the best choice.

 

[gilberte]

I'd like to know more about the 6% CD rate also.

 

[frogmammy]

I'd say, go for the rental. You never stay in one place long. And it's the associated costs with buying, ie, upkeep, "new owner changes" that eat up the $. You looking at a house where? Look at a place to see if THAT is the market you should be BUYING in, or RENTING in.

Check the math on that CD. Which by the way are paying a touch over 2% here, SW MO.

Mon

 

[Micheal]

Somewhere I heard (read) that if you plan on staying in a place for less then 5 years it's better to rent. If staying longer then 5 years buy.....
But I guess it becomes an individual's choice.
And I'm not going to ask about that 6 month CD....

 

[starrynights]

I'd like to know more about the 6% CD rate also.

me too!

 

[The Paw]

As others have said, the 6.25% on CDs seems too high for current conditions. Also, if the 6.5% is an annualized rate, you aren't going to get $10,400 a year, you are only going to get half that. Otherwise it would be an effective annual rate of 13%, and that doesn't seem possible.

I would look at it this way. Your return on investment for the $80,000 would be $500 in save rent. That works out to $6000/$80,000 or 7.5% which is very good. Plus, you would gain any appreciation in property value, which carries some risk, but is probably net positive. So from a numbers perspective, it makes sense to buy.

However, if you are at a stage of life where health may cause you to relocate within the not-too-distant future, or if you are just the type of person who moves a lot, it might make more sense to keep the money liquid. From what I have seen of your posts, you may fit into this category. When you come right down to it, $500/month rent is pretty cheap, and it is offset by whatever your $80k can earn. Having the liquidity and flexibility might be more important.

 

[TxMex]

LOL I should have known I'd get these responses.
Yes the CD will yield what I said it will because it is a 6 month, not a year.
The investment is out of country and not something you can do from here or I'd share. It is forecast to go up to 8% in a few months but with variations in the market over the time period I'm looking at 6% is a good average. I've done these investments before and it's fluctuated between 8.5 to 3% so it isn't always up but usually better than CD's in the US. It's also not insured.
I usually make 6 different CD's and keep them rolling over to produce a monthly income.

Doc you should know not to ask a lady her age! I'm in my very early 50's. There will be no house payments as I would pay cash. I was looking at paying rent and letting that money make interest as opposed to having the money invested in a house. I used a baseline rental cost as my determining factor to figure pay off time.

The point about me moving around is absolutely valid. If I could, I'd buy a big sailboat with a water system, put in a hydroponic system on gimbals and a large store of dry goods and just not visit land until the economy settles down(yes I've figured out the logistics lol). Because of medical that isn't possible 😥
I am considering buying rather than renting because of that instability. It's easier to install reserve water tanks, stores of dry goods and set up a hydroponic system in a house I own rather than one I rent.
The advantage of having that money making money is a huge plus. Also if this does turn out to be a housing bubble in the US I would be in a good position to take advantage of that

 

[Terri]

How long do you intend to live in that house? It is far easier to get rid of a house when you are renting.

What is the rate of inflation compared to the interest rate being offered? A long time ago I knew a man who had a fixed rate mortgage at 3% and the rate of inflation was 6%. He could have paid it off but figured that he was making a 3% return on his money which was more than the interest the banks were offering on savings accounts

 

[TxMex]

4) How much extra power usage triggers the penalty? A whole house PV system is gong to cost you 5 figures. Conservation efforts may be the best choice.

Again, the prices you are familiar with won't apply. On my last house it cost $6,000 and they oversold me on panels. I could have easily gotten by with fewer.
I don't remember the exact amount that triggers going into the penalty charges but at that point I was married and he kept the house like an ice cave. With it just being me it is much less likely to happen. The thing is, when you go into penalty phase it is for the next 12 months! So at a minimum of $500 per month bill if you trigger that, my solar system paid for itself quickly.

 

[TxMex]

How long do you intend to live in that house? It is far easier to get rid of a house when you are renting.

What is the rate of inflation compared to the interest rate being offered? A long time ago I knew a man who had a fixed rate mortgage at 3% and the rate of inflation was 6%. He could have paid it off but figured that he was making a 3% return on his money which was more than the interest the banks were offering on savings accounts

In complete honesty I can't say. I would plan to be in the house long term but my life seems to be a crazy series of events.

Excellent point about rate of inflation. Currently it is officially at 7.28%. That's the wildcard that worries me. There is no way to predict it.
Current rate in the US is 8.6%

 

[TxMex]

I don't think you are going to find CDs that are paying 6.5% but these I bonds are pretty interesting.

Again....not the US.

Just got an update and 6 months is now 6.75%. 1 year is 8%. Now this makes no sense to me unless they are counting on people not being good at math.
If I do a 6 month CD and immediately roll it back into another... I'm making 13.5% per year. Why would anyone do 8% 🤷

 

[Danaus29]

ibonds are paying 9.62% if purchased before the first of November.

Individual - Buying Series I Savings Bonds

I don't know if bonds or silver would be better. Silver has dropped quite a bit lately.

 

[TxMex]

The drop in the price of silver is surprising. In the current financial climate people should be buying silver and the price should be going up

 

[Danaus29]

Gold is dropping quite a bit too. My panda has lost about 1/3 of it's value in the past 10 years. I always buy stuff at the wrong time.

 

[Evons hubby]

Back in the day when I was investing regularly I shot for 100% return in 1 year. Didn’t always work but usually came close and sometimes way better. these days I’m content with 8 - 10%.

 

[MichelDoms]

Many investors do not understand investment mathematics, so their investment tactics are not as good as they want. I know that if you have studied investments, especially investment mathematics, you will definitely succeed. Good luck to everyone!