The "Rent is Throwing Money Away" Myth
We have all heard it: "Why pay your landlord's mortgage when you could be building equity?"
It sounds logical. But it is mathematically flawed.
When you buy a home, you aren't just paying for the home. You are paying for:
1. Interest (Rent you pay to the bank).
2. Property Taxes (Rent you pay to the government).
3. Insurance (Rent you pay to the insurance company).
4. Maintenance (Rent you pay to the hardware store).
5. HOA Fees (Rent you pay to your neighbors).
These are Unrecoverable Costs. You never get this money back. It does not build equity. It is gone, just like rent.
The 5% Rule
A good rule of thumb is that unrecoverable costs total about 5% of the home's value per year.
• Interest: ~3-4% (mix of debt/equity cost).
• Property Tax: ~1-2%.
• Maintenance: ~1%.