# Investment math



## TxGypsy (Nov 23, 2006)

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.


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## Danaus29 (Sep 12, 2005)

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.


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## TxGypsy (Nov 23, 2006)

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


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## Danaus29 (Sep 12, 2005)

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.


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## doc- (Jun 26, 2015)

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.


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## gilberte (Sep 25, 2004)

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


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## frogmammy (Dec 8, 2004)

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


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## Micheal (Jan 28, 2009)

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....


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## starrynights (Oct 7, 2021)

gilberte said:


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


me too!


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## The Paw (May 19, 2006)

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.


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## TxGypsy (Nov 23, 2006)

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


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## Terri (May 10, 2002)

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


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## TxGypsy (Nov 23, 2006)

doc- said:


> 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.


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## TxGypsy (Nov 23, 2006)

Terri said:


> 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%


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## Backroad Acres (5 mo ago)

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


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## TxGypsy (Nov 23, 2006)

Backroad Acres said:


> 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% 🤷


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## Danaus29 (Sep 12, 2005)

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






Buying savings bonds — TreasuryDirect







www.treasurydirect.gov





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


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## TxGypsy (Nov 23, 2006)

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


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## Danaus29 (Sep 12, 2005)

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.


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## Evons hubby (Oct 3, 2005)

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%.


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## MichelDoms (5 mo ago)

Investment mathematics is a very useful thing. I remember when thefinitygroup.com helped me correctly calculate compound interest and understand how dividends are accrued from the sale or purchase of shares. 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!


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## yordankamotivated (6 mo ago)

Oh, I'm really bad at investment calculations. I understand perfectly what situation you are in. I don't know if my advice is correct, but in your place, being retired, I would opt to rent an apartment for 500 dollars a month. Five hundred dollars a month is not such a big amount, and it is worth it. Buying a house is a much too complicated process; I don't know if it's worth it. The interest rates will be too high. But if you want to be sure that you are taking the right step, read about how you should invest correctly so that you don't have problems later. Regarding investments, the advice I found on moneyunder30.com helps me a lot. I recommend you to analyze them too.


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## boatswain2PA (Feb 13, 2020)

TxMex said:


> I can currently get 6.5% on a 6 month CD.


Where in the world can you get 6.5% on a 6 month CD?


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## TxGypsy (Nov 23, 2006)

boatswain2PA said:


> Where in the world can you get 6.5% on a 6 month CD?


LOL that should be obvious. Mexico. 
I checked last week and it's bumped up to 6.75%


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## boatswain2PA (Feb 13, 2020)

TxMex said:


> 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.


Are tenants in Mexico responsible for hot water tanks, roofs, plumbing leaks/plugs, bad outlets, etc. Painting the house, redoing the fence, replacing the HVAC, replacing the fridge? If not, then "all those other expenses" are NOT the same if you rent vs own the house, as those are expenses you would have if you own.



TxMex said:


> 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.





TxMex said:


> 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%


That's not how CD's (or any other interest bearing accounts) work. If you have 6.5% on a 6 month CD, that 6.5% is an ANNUAL rate. So if you could expect to make (a touch over) 3.25% in 6 months. 

Think of it this way, if you got a 13% rate on a 2 year $1000 CD. You don't have $1130 at the end of 2 years, you would have that at the end of the FIRST year, and the second year would have $1276 (actually a touch more since it is calculated monthly and not annually).



TxMex said:


> 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.


Yeah, but renting buys you time to make decisions. Let's you slow down and breath, figure out EXACTLY what/where you want, and gives you time to find it.



TxMex said:


> 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.


This calculation ignores the $42,000 you would pay rent ($500x12mox14yrs), taking that gains on that $80,000 principle from $145,600 back down to $143,600.



TxMex said:


> 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


.

This is understandable, but do you need to prep soon, or prep right?

Renting buys you time to prep RIGHT. Gives you a few months/year to settle down, look around, see what you really want, and not force you to buy something that won't work.

Lots of smart people on both sides of the "housing bubble" argument. I think there will be a bubble in the suburban McMansions, but I don't think the rural homestead type houses, nor the inner city small inexpensive houses, are going to drop considerably in price. The very wealthy will maintain the market for the former, and those who are affected by Bideneconomics and laid off will have to have a place to live/rent. Just my opinion, I'll tell you in 5 years if I'm right.


TxMex said:


> 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.


Sounds like you would be able to stay below the penalty phase if you rented, and would be able to afford a good solar system for when you buy.



TxMex said:


> 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.


I think this is the most important thing you have shared with us.

Okay - my solicited advice.

Put your money in 6 month CDs, and put your stuff in storage, then rent for a while. Give yourself TIME for your life to settle down, TIME to explore where you WANT TO LIVE FOREVER, TIME to make sure that you are ready. I would NOT rent FOREVER, but put a time range on it, from say 6 months to 2 years. It will take you at LEAST 6 months to look and find your perfect place, but if you haven't found it by 2 years then you need to consider looking elsewhere or re-imagining your perfect place.

The absolute best real estate purchases I have ever made, including the purchase of our dream property and the building of our forever home, was made when I was not rushed. We spent almost 5 years looking for our dream property, looked at scores of properties across hundreds of miles. When we walked out on that ridge of our property, where we are now building our forever house, we looked at each other and said "this is it!" and we put a full price offer on it the 2nd day it was on the market. We found the beautiful land, just a few miles from a little town that has everything we need in it, and it was very poorly priced to our benefit.

We were able to do this because we were patient.

Renting gives you that patience.


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## gilberte (Sep 25, 2004)

TxMex said:


> LOL that should be obvious. Mexico.
> I checked last week and it's bumped up to 6.75%


Is the interest paid in pesos or dollars?


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## TxGypsy (Nov 23, 2006)

gilberte said:


> Is the interest paid in pesos or dollars?


Pesos of course, which have a dollar value. If I were making these investments to then exchange it back to dollars I would be losing some money both ways due to bank charges. Of course you also want to keep a close eye on the exchange rate when you transfer one way or the other.
When I an living there and spending pesos it doesn't really matter. Just as when I make a CD in the US I don't consult the exchange rate of the yen. It is only important when I make the initial transfer.

I'd also like to mention that this isn't something available to the average investor. I am a permanent resident of Mexico.


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## TxGypsy (Nov 23, 2006)

@boatswain2PA bless your heart. You took all those words to basically tell me that I don't know what I'm talking about 🤣

Estoy vivo en México mucho. Es razón por mi nombre aquí! De verdad no es porqué mi come comida de tex-mex 🤣
También estoy una pensionista de edad 35 😉

No my Spanish isn't correct but my Mexican is pretty danged good


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## boatswain2PA (Feb 13, 2020)

TxMex said:


> @boatswain2PA bless your heart. You took all those words to basically tell me that I don't know what I'm talking about 🤣


Well, that was certainly not my intent. It's unfortunate that it came across that way to you.

Best of luck to you in all of your endeavors


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## kristaevans (3 d ago)

Thanks for sharing your thought process on whether to rent or buy. It's a tough decision to make, and there are a lot of factors to consider, especially in 2022.


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## Alice In TX/MO (May 10, 2002)

Everyone has to tune their personal investment strategy to their situation. I really enjoyed this video today.

The Art of Life - YouTube


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