10 sats \ 3 replies \ @SpaceHodler 22 Jun 2023 \ parent \ on: What’s your best investment (besides BTC)? bitcoin
Don't forget it's only the interest component of it that you should be comparing to rent. The principal repayments is just moving money from one pocket of yours (your bank account) to another (equity). It's a commitment to invest.
Which makes the purchase an even better investment than most people think.
That's a really interesting way of looking at it.
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If you pay $1000 rent and stay put for 25 years, your rent only goes up; at the end of the term you end up paying maybe 3x that and owning nothing.
But if you pay a $1000 mortgage with a 25 year term:
- Your payments don't change (or only change slightly) in fiat terms; they go down in real terms.
- At the end you end up with outright ownership of the property (wealth!), which has appreciated greatly in fiat terms over that period.
- Let's say $300 of it is interest, $700 is principal. Your housing cost is $300, less than a third of what the renter pays at the beginning and less than 1/10 of what the renter pays at the end. The $700 is a commitment to invest in real estate on a monthly basis, BUT - and this is a very important "but" - at a price locked in at the beginning of the term. Towards the end of the term, those $700 monthly investments buy you ~$2100 worth of real estate.
As a renter, the lower the interest rates, the more the system steals from you. By taking out a mortgage you become a beneficiary of the system; you get closer to the money printer and claw some of those 'stealings' back.
This shows how the system benefits the richer - those who can afford a down payment - and makes the poor poorer.
It's not fair, but that's the way it is.
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Excellently explained. I actually tried explaining this to my parents after buying an investment property. Even though I knew in my mind what I was trying to say you've really solidified some of the finer points in your explanation. Thanks.
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