Counterpoint to buying a house

I suggest everyone go to this website http://www.salemfive.com/cobrand/CALCULATORS/index.html, they have a great set of calculators for different financing things (we are using it in my finance class up at WWU). I by no means am an expert, however, there were a few little facts I have learned recently in my accounting degree that have indicated buying a house is not as valuable as investing free money.

Here are two fairly common (and I am sure wiggles can verify the numbers aren’t that out of line) house loans.

APR: 6.900 %
Payment Term: 360 Months (30 years)
Total amount financed: $250,000.00
Monthly Payments: $1,646.50
Total payments: $592,740.60
Finance charge* $342,740.60
Amortization method: Normal

This is for a fairly standard 250,000 house. So in the end you are paying over 150% worth of the house’s value in interest alone. This is only for a 30 year loan.

Now, you want to make it a little cheaper, go for the 40 year loan:

APR: 6.900 %
Payment Term: 480 Months (40 years)
Total amount financed: $250,000.00
Monthly Payments: $1,535.45
Total payments: $737,022.67
Finance charge* $487,022.67
Amortization method: Normal

So in the end for a 250,000 house (which seems low to average for Whatcom County) you are paying almost 3/4 of a million dollars, you are saving 130 a month, but paying 165,000 dollars in interest extra to save you that 130 a month. YOU ARE PAYING ALMOST 3 TIMES THE VALUE OF THE HOUSE.

Now, if you were to invest this money, say 1,000 a month, and then spend the other 600 for rent (which apartments run in the market) you can earn this by investing that supposed house payment into real things like stocks/bonds/etc. Here is what you can earn.

APR: 6.90%
this is pretty average return, stocks can go as high as 10% which increases the amount you earn alot
Monthly Payment $1,000
Payment Term 360 Months (30 years)
Amount of Return of Investment: $1,196,170.35
Amount this will have Grown to in 30 years with that return:

Now lets do this for 40 years.

APR: 6.90%
this is pretty average return, stocks can go as high as 10% which increases the amount you earn alot
Monthly Payment $1,000
Payment Term 480 Months (40 years)
Amount of Return of Investment: $2,552,250.79
Amount this will have Grown to in 40 years with that return:

So what we are saying is either A: you can pay 592,740 for 30 years to own a house (or 737,022 for 40 year mortgage). and have a house not worth to even close that.

Or you can invest that money in stocks/bonds/mutual funds/ cd’s get the 6.9% fairly easy and make after thirty years 1,196,170.35 in the bank (at $1,000 a month) or after fourty years make 2,552,250.79 at 1,000 a month investment.

Sorry, houses are only good for people that can buy, and then turn around and sell them for a profit in a relatively short time.

None of this takes into account the bubble bursting, which there are signs of in New York and Boston. One of the ways the realty people are getting around the bubble bursting now is by offering 50 year loans back east.

In addition, that monthly house payment of 1600 DOES NOT INCLUDE INSURANCE OR TAXES which are pretty hefty in themselves, there is an additional 500 a month at least that could be added to your investing (which more then 150% bonus to investment  with the way returns work) or can get you an $1100 apartment which is pretty nice.

Seriously, whats a better investment, pay for a house, that you have to worry about paying off for 30 or 40 years (or if your really stupid 50) and have to repair out of your own pocket, or rent an apartment, and invest that money to get 1.1 or 2.5 million in the bank.