Friday, March 28, 2014

Buying vs. Renting

Buying vs. Renting
After certain considerations I am coming back to review whether it worth buying a house or keep on renting.
Here is our current assumptions:
Desired house price – $ 450 K, current rental price for the home we live in -  $ 16.8 K ($ 1,400 a month).
Available saving for closing cost and down payment - $ 100 K, net annual money available to pay mortgage $36 K.
Mortgage – 6% interest rate, annual real estate price inflation (appreciation) – 4%.

Cost of buying (closing cost) will include – mortgage arrangement fee, moving in cost,  property buying tax, structural survey of the house – all together $ 20 K
We have accumulated deposit of $ 100 K, so after cost of buying (closing cost) the house we could pay $ 80 K, as downpayment or 18%.

One of the most important things to understand it how much you could afford to spend net (after tax) towards your mortgage. This will determine how much could borrow, comfortably. Of course, there is rule of thumb, when buying a property – to have 20% as downpayment and  amount of money a bank lend you is 3 times of your gross income (before tax).   We have been tracking our family budget for last 5 years, so do have pretty good idea how much do we spend and where the money are going to.

In our case we could comfortable put a side $3 K a month for mortgage (principal and interest) and some additional $ 200-250 a month to cover house and life insurance. 

Another factor to consider : depreciation and re-decoration.  People  frequently focus on how home prices are appreciating, but they forgot that those prices are for well maintained hoses.

Same as with the original example on the property owning, we set up periods:
-         Redecorating house  - every 10 years, this would cost about $ 40 K (new kitchen, equipment, central heating, windows, doors, etc…) or $4 K a year.
-         Replacing house – every 60 years . My estimate that out of $ 450 K , half of it is the prices of the house.
$240 K for 60 years - $ 4.2 K .

Wednesday, March 12, 2014

March 2014 update ($274,320 -$30,940 or -10%)

Vanguard ETF gained 1,500 USD
Vanguard VOO gained 900 USD
Company shares gained 110 USD
Accumulated $8,000 USD as part of my annual savings goal.
Gold gained $530 USD
Grand total additions: $11,040

Gazprom shares lost 39,650 USD
Rosneft shares lost 1,930 USD
GBP lost towards USD and EUR. My loss is 400 USD.
Grand total losses: $41,980