| Alternative methods of building equity |
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hardwickj
New Poster
Cash: $ 0.45
Posts: 2
Joined: 25 Jun 2006
Location: Minneapolis, MN
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| Alternative methods of building equity |
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So I have recently graduated from school and started my first job. Other than a small portion of my current student loans (I am leaving enough money in student loans to make maximum use of my GI Bill loan repayment program), I will have all debt paid off by early next year. At that time, I will have approximatly $2000/month of disposable income, after paying most bills. Now, I think I would normally prefer to buy a house immediatly (which I would rent out a couple rooms) but the price of houses in my area (Minneapolis/St. Paul) has made me look at alternative forms of building my finances. I don't have a preference for any which method, other than which one will make me the most amount of money. These methods include:
-Continue renting at ~$500/month and invest ~$1500/month
-Buy a house, rent a couple rooms, pay off, then invest
-Buy a house, rent a couple rooms, and invest simultaneously.
So I threw together a spreadsheet with each method roughly calculated out for 20 years. For investing I used an average annual return of 8% compounded monthly. For the house, I calculated in renting two rooms for an additional income of $1000. The spreadsheet can be found at:
http://studentweb.uwstout.edu/hardwickj/equity.xls
I know there are many things I am not considering, such as taxes, tax breaks, inflation, appreciation, increasing disposable income, etc, but this does a good job of just giving me an idea of the alternatives.
This goes a bit against the grain of what most people recommend, but I am by nature a risk taker. I have nothing tieing me down, and am willing to go whichever route would pay off in the long run.
Any input/suggestions from those of you more experienced in such matters?
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Sun Jun 25, 2006 3:59 pm |
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oldguy
Senior Member
Cash: $ 751.85
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Location: arizona
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HW, try adding the appreciation into your third scenario. RE, over the long haul, appreciates at about 6% (at least that's about what my rentals did for 30 years, then they doubled in the last 3 years but you can't count on that). After 20 years, your market value would be about $823k and you would owe about $32k plus you would have the $412k in funds.
You can accelerate this process by refinancing the house after 6 or 10 years, taking out $50k to $100k, and adding it to your funds where it will start making 8% (hopefully 11% or 12%). And in 6 or 10 more years, refi & repeat. Avoid paying down the mortgage - you derive the same appreciation whether or not the house is mortgaged - and prepaying the loan provides very little return compared to putting that money to work elsewhere.
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Tue Jun 27, 2006 12:37 am |
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