- May 22, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Analysis of Housing Options
I have recently sold a property and now have $800k in the bank that I am considering using to provide housing for my family. One option I am exploring is buying a basket of dividend blue chip stocks that pay an average of 5%, which would generate $40k/year in dividends. These dividends would not only cover the cost of renting a house worth $800k ($2,500 a month), but also leave me with extra cash every year. The dividends are expected to grow annually, potentially outpacing the rise in rent costs and creating a sustainable source of income for housing.
Another option would be to purchase an $800k house outright, but this would require additional funds for property taxes, insurance, and maintenance costs (estimated at $10k/year). To make a fair comparison, I could consider buying a $600k house and retaining $200k to generate income at 5% to cover these expenses. However, this would mean living in a less luxurious property and missing out on the extra income generated in the first scenario.
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****** just grabbed a
While the math may work, you might have to consider your landlord kicking you out in 20 yesrs time to develop the land or to move in themselves. While finances are important, security in housing is also important, if not more important.
People who ask this question generally cannot afford or can barely afford to buy housing. However, in your case, you can and imo, you should
One of the benefits of real estate is the access to leverage. Hard to find any other asset where you can lever up to 90% LTV.
In this rate environment, leverage isn’t accretive, but (as I’m sure you experienced) it can be huge in lower rate periods.
If the rent for a $800k house is indeed only $2500 a month, you’d have to be a total fool to buy.
Your portfolio will pay your rent and you live for free!
How about a bit of both?
Buy the house with 200k downpayment, mortgage the rest.
Keep the 600k in those divided stocks.
Assuming 600k mortgage at 5% fixed interest for 30 years . It’s about 3200/month. Plus your approx 800$/m for ppty tax and maintenance etc. total 4k expenses.
But keeping the 600k in stock at 5% divided gives you 2500$/m.
So you are negative 1500 a month initially. But over the years your mortgage payment will decrease and dividend will increase. Closing that negative cash flow then positive.
In 30 years. Mortgage free, and still have a huge stock portfolio.
Also the 1500$ cash flow negative is not really a true negative as you have principle pay down from the mortgages adding into your equity.
[deleted]
Have you considered the idea of leveraging your house? Why pay for it in cash? Why not carry a mortgage and invest the difference from your 800k less closing costs and down payment? Put down 20%, avoid additional mortgage insurance, and invest the remaining 640k in your existing investment strategy. Use the dividends from the 640k, at your 5%, $32,000 annually, to pay for your mortgage, property tax, insurance, utilities.
As Ramit Sethi wisely said: “rent is the maximum you will pay, while mortgage is the minimum you will pay.” So rent sometimes makes a lot of financial sense.
You’ll be better off in the long run with your plan to rent and invest. Homeownership is overrated.
So If you do it your way you’ll pay $30k in rent per year and about 5k of taxes, so you’ll make a yearly “profit” of $5k. Also your Money will not grow with inflation.
If yiu buy a place the home will. Probably keep up with inflation
20-30 years from now that rent could be $8,000/mo not 2,500
Rent, not a chance real estate outperforming stock in the next 10yr
What if the stock market crashes
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[deleted]
How old is OP and how long til retirement?
Option ‘C’ would buy with 50% DP (example) and invest the other 400K in equities.
It doesn’t have to be blow the load all on stocks or in a house.
One key factor concerns your discipline in not touching the money you invest to generate income to pay for your rent and future increases. Other issue which is separate is your desire to rent for 6 months of the year in muskoka. I don’t know the market there and whether that possible without paying a high premium for that level of flexibility. Either way it sounds like you are going to be fine and hopefully content. Have a great day
[OP 2 weeks ago](https://www.reddit.com/r/PersonalFinanceCanada/comments/1cfb8d8/renting_is_cheaper_than_owning_right_now/l1o6srb/).
Your math isn’t forward looking.
The rent cost that much NOW… The house cost 800K NOW.
Remember how much rent was 20 years ago? Remember how much home prices were 20 years ago?
Not saying you’re wrong, but a lot more math is needed here.
What if you take a 400K mortgage and invest the other 400K in dividend stocks? What if you do that with a higherlower mortgage?
Please everyone, tell me how intelligent I am.
Don’t pay for the entire house in cash.
Mortgages are the cheapest loans you can get, often close to real rates of zero (when you factor in inflation).
Then you can buy but also invest a huge chunk and you get both of what you’re trying to decide.
Now you’re diversified and you have both tangible and intangible assets.
Here’s my suggestion. Buy a house. Rent out 2 rooms.
(2500*12) / 0.05 = 600k Value for that house. Rent.
Do you have any other income? Spending all your money for a single asset that needs consistent money for upkeeping is not an ideal scenario.
I feel like reading your post and your comments that you have thought this through better than most posters on reddit.
The argument for or against any investment is weighed against the likelihood of that investment failing to meet your goals and needs in the future.
You accept the possibility of a housing or a stock market crash and no one has a crystal bal to help out of the probabilities on these things.
Canadians by and large cannot fathom a world where RE does not go up and up and frankly it’s difficult for many to contemplate given that their financial hope for the future is now tied to this.
If you want my informed opinion housing has had it’s run for the time being and a decade of stagnation underway but I am just one guy on reddit.
>we don’t value the intangible benefits of owning more than we do the flexibility of renting.
This type of analysis may be the most actionable for you. If you value flexibility and think things through in terms of what you want you can maybe make a decision without needing a crystal ball to predict the markets.
So your end goal is to have the maximum digits in your bank account by the time you die? Sure put it all on the stock market but most of your money will be inherited by your kids anyway…and hopefully you teach them financial literacy
I’ve drank the real estate*KoolAid*. Over 40 years of “investing” the best return for me by a multiple is real estate.
The cycle we’re in right now? It’s nothing special, I’ve seen much worse over my life. The underlying conditions of housing scarcity and population growth haven’t changed. Every government is going to pursue population growth as Canada really can’t sustain growth without people.
Homes won’t suddenly sprout as the trades are having difficulty recruiting and have had for years. That will also affect the rental market driving low vacancy rates.
You don’t seem to be considering the value of the house going up
That $800k house will likely appreciate by well more than $10k a year, and the rent on it will follow the value. If you stay too long in the rental and diverge too much from the market rate, whoever owns it will move in themselves or sell it to someone who will.
Renting isn’t intended to be long term.
The real answer is you should buy the house, then get a HELOC and invest much of the equity.
[deleted]
Homeownership is overrated! Invest
You will always make money on real-estate. Tho depending. Where you live.
You need more $. This is not enough $