Preface to Homeownership, Part III – Motivation

The comparative monthly savings point of view is interesting, but in reality homeownership isn’t exactly a short term concept. My motivation for the short term savings comparison of Parts I and II was this: if our monthly costs of homeownership are greater than our monthly costs of renting (HO > R) to the point where our monthly savings are higher while we rent than they would be if we bought (SR > SHO – which would require that P < HO – R as I learned in Part I, meaning that L > Q*R as I learned in Part II), then the higher monthly savings SR that we gain while we rent might allow us to converge on getting a better home (higher value V) more quickly than if we bought one now, built up equity (from the P of our M payments), and then sold it to upgrade.

Hmmmm… these kinds of statements are easier to write than they are to read, so I’ll relax a constraint and rephrase for good measure:

The Main Motivational Question: If our monthly costs of homeownership HO are greater than our monthly costs of renting R, will we be able to buy a better home sooner if we a) keep paying rent R and build up money for our down payment DR , or if we b) buy a place now, simultaneously build up equity E and money for a down payment DHO, and then move?

I suppose what this is all really about is determining which scenario actually results in us having the greatest “worth” over time. To keep things simple, I define our worth while we are renting WR to be the money we have available for a down payment DR (WR = DR) and our worth while we are homeowners WHO to be the equity in our home E plus the money we have available for a subsequent down payment DHO (WHO = E + DHO). So, in order to answer the main motivational question, I need to compare the rate of change of our rental worth dWR /dT to the rate of change of our homeownership worth dWHO /dT while HO > R. (I’m using capital T for time… T is normally temperature for me, but I’ve already used lowercase t for my tax rate. Woe.) Things are probably going to get a bit heavier from here, so if you’ve made it this far and this question does not interest you… then I understand if you want to go. Maybe I should have told you what it was all going to be about back at the beginning of Part I, but I honestly didn’t really know until I began to think it through.

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  1. By christian on July 27, 2014 at 8:28 am

    sympathized@infect.meteoritic” rel=”nofollow”>.…

    tnx for info!…

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