I was reading an article about whether it’s better to rent or to buy a home. Of course I’m a bit biased, but in fact the numbers prove that buying wins hands down.
When thinking about real estate as an investment, whether it’s your principal residence or a rental, most people look at the entire purchase price to determine their return on investment. This is a mistake. You should be looking at the cash you’ve actually invested. Here’s a simplified example…
Initial Value: $100,000
Amount Invested: $5,000
Mortgage Amount: $95,000
Mortgage Interest: 6%
Projected Annual Growth: 5%
Projected Value in 10 years: $155,000
Projected Profit: $55,000
Projected Return on Invested Capital: 1,100%
Of course, this is a simplified example. There are additional expenses that you will have, many of which are offset by tax deductions, depreciation and/or rental income. But the point is that real estate, over the long term, can be an EXCELLENT investment. Renting for the long term doesn’t even start to come close to making sense compared to the returns you could get from buying.