# How much are you in debt ?

russ_watters
Mentor
Monique said:
What is....
From time to time, I like to play with the calculators on sites like this: http://www.mortgage-calc.com/

Clicking on the "amortization calculator" and using values of $120k at 6% for 30 years (roughly what my roommate is paying for his 3 bedroom condo) gives$719. a month. His condo fee is about $300 a month. That works out to a toal of$264,153.60 paid for the property, plus $108,000 for services (trash, maintenance, snow removal, lawn care, etc) over 30 years. So assuming no appreciation (there will almost certainly be some) and no inflation (there will certainly be some), in 30 years, he'll own a$120,000 condo and will have flushed $144,153.60 down the toilet (that's the bank's income). He'll have paid an additional$108,000 for services.

The amortization schedule says in your first month, $119 goes to principal and$600 goes to interest. Basically, that's $119 back into his pocket and and$600 down the toilet. It should be noted that if you get a good loan and double-up your payments, every cent of the doubled-up payment goes to principal - it goes straight back into your pocket.

Compare that to renting: My roommate's 3 bedroom condo would go for about $1,000 a month renting (maybe even$1,200). Subtracting out the services ($108,000), over 30 years, that's$252,000, every cent of it straight down the toilet.
I agree if you get rid of your mortgage soon, it's a good deal.

Otherwise you're just paying a lot of money without owning anything.
Its important to remember that equity is ownership (you wouldn't be able to borrow against it later it if it wasn't). If a house is worth $100,000 and you put in a$20,000 down payment, you own 1/5 of a house before you even start making payments. If you suddenly need to sell, you get that money back. From above, his first payment meant he owned $119 more of the house than he did before. house prices are at its peak, they risk losing value on the house, not owning a brick of it, while having put money into it for years. Prices are high and interest rates are low and they typically are opposites of each other. So actually, the total price of a piece of real estate is relatively constant (before appreciation). And again, from the first day, you do own a brick of it - essentially, you are buying the house one brick at a time. Since a lot can change in the short term, like any investment, owning property is better long term. If you're not planning on keeping a house for more than 5 years, you are gambling on market conditions and yes, it is possible to lose money. But the longer you own it, the less the risk. And again, compare that to renting: with renting, you are guaranteed to lose every cent you put into it. Monique Staff Emeritus Science Advisor Gold Member russ_watters said: in 30 years, he'll own a$120,000 condo and will have flushed $144,153.60 down the toilet (that's the bank's income). He'll have paid an additional$108,000 for services.
So that is $120,000 that he can get back and$252,153.60 down the toilet?

over 30 years, that's $252,000, every cent of it straight down the toilet. here it is$252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation.

Moonbear
Staff Emeritus
Gold Member
Monique said:
So that is $120,000 that he can get back and$252,153.60 down the toilet?...

here it is $252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation. No, the actual amount paid for rent would be$360,000 (assuming the rental price never went up) over 30 years. The $252,000 was the figure after subtracting out the$108,000 for services that are paid either way and included in the rent.

russ_watters
Mentor
Monique said:
So that is $120,000 that he can get back and$252,153.60 down the toilet?

here it is $252,000 down the toilet.. so renting or buying is the same amount of money down the toilet according to your calculation. No, if you include the money paid for services, thats$252,000 if you buy and $1,000*12*30=$360,000 if you rent. I pulled out the money you pay for services, because it is separate from the value of the property. Whether you live or rent, properties cost money to maintain.

And again, my assumptions are heavily biased toward renting. In real life, inflation causes rent to rise by a couple of percent a year, while pushing up the value of your house a couple of percent a year. At the same time, appreciation pushes up the rent/value by an additional couple of percent a year. All the while, your purchase price remains constant. At 3% a year combined inflation and appreciation, your $120,000 (you paid$264,000 including interest) condo is now worth $291,000, and you've got a net profit of$27,000. (this does not include the services)

Calculating the damage from renting, at 3% increase in rent a year, you've paid a whopping total of $350,000 to live in a house you don't own. (this does not include the services) edit: Also, re: that$27,000, since I consider housing a fixed cost of living (like food), profit starts at every penny you save: ie, a $.50 coupon at the supermarket is$.50 of profit because that money was lost otherwise. So since that $350,000 rent is a fixed cost of life, I consider any savings from that to be profit. So that$27,000 profit really is...

Last edited:
On a related note, has anyone ever had any personal experience with rental/income property? Is it a worthwhile investment, or not worth the added grief?

Monique
Staff Emeritus
Gold Member
Ok, ic.
russ_watters said:
At 3% a year combined inflation and appreciation, your $120,000 (you paid$264,000 including interest) condo is now worth $291,000, and you've got a net profit of$27,000. (this does not include the services)
If you have stable market. The way things are managed here in the Netherlands.. it's like a big inflated balloon. House prices are kept artificially high by by several factors. Actions of the EU and the government could have a big negative effect on house value here.

A factors is that agricultural land can not be used for building houses, which is 89% of the country. Neighbour countries like Germany and Belgium don't have this restriction and their house prices are low. Another factor is that the government currently subsidizes people that buy a house, I think the EU will put a bar to this, when these subsidies are gone most people won't be able to afford to buy a house and the prizes must thus drop.

It's rediculous what the cost of ground is here, you can buy land from an uninformed farmer for €6.5/m2 and sell it again for €300/m2. Ground speculation is big bussiness here, not houses I'm told. There was this guy on television, who bought a farm for 10 million and sold it the same day for 20 million to ground developers.

But I'm not an expert in these fields, I will watch the media and see how things develop.
For the interested dutch-speakers, you can watch a documentary here http://cgi.omroep.nl/cgi-bin/streams?/tv/vara/zembla/bb.20050224.asf

Last edited:
russ_watters
Mentor
I know nothing of real estate market conditions in the Netherlands, of course, so obviously anything I say can't really be applied there without taking that into account.