http://michaelbluejay.com/house/rentvsbuy.html

If you really want an in depth look at it go here

Rent vs Buy the hidden cost of buying

It’s a long post and the comments not surprisingly are even longer. It was also written before house prices went south in America.

the biggest problem is people underestmate the cost of home ownership.

It’s just madness, I’ve never spent so much money in my life.

Currently my fiance and I (we are 26 and 23 respectively) rent a 900 square foot 2 bed, 1 bath apartment in Ottawa for $1000 a month including parking. We make $135k in gross income combined. We are currently in closing on a $330k, 4 bed 3 bath house with property taxes of $4k a year and utility costs estimated at $250 a month (we’ve hopefully estimated high there – currently we only pay about $33 a month for hydro, and our building management takes care of water). The bank pre-approved us for $450k (and actually told us we could easily get more) and we decided to go with about 75% to 80% of that number as our “real” affordability.

We plan on putting in ultra high efficiency water heater, furnace, windows and buying high efficiency appliances, but the fact remains that we need to purchase about $10k worth of appliances (we have a toaster and a microwave, and that’s it!) right away, and then add these high efficiency upgrades over the next few years. Buying this home will be a huge dent to our savings. We will need to drain our savings & RRSPs (through the homebuyer’s program) and still will likely go about $5k to $10k into debt, maybe more.

The reason we went with such a large “starter” home is that we want to stay there the rest of our lives and never spend money on moving costs or real estate agent fees again.

I feel like in 40 years this will pay off, but it is quite daunting to go from $0 of debt and $20k in savings between the two of us to literally hundreds of thousands of dollars in debt and NO savings. Obviously we’ve already worked the numbers and we KNOW that we can do this without changing our lifestyle but it’s still a bit of a leap from seeing the numbers on paper to actually coming to grips with it in reality. Does anyone have any tips?

Michael – yes, 5% is definitely more reasonable than 9.5%.

Most of the funds he had would’ve given him decent returns if he had just sat on his hands from beginning to end (in any of them).

I find the 5% figure much more believable than 9.5%. Every attempt I’ve made at analyzing market timing indicates that you’d lose money trying to do it, but 9.5% is a little much, especially considering that the 9.5% applied to the average mutual fund investor rather than just the ones who attempted market timing.

Oddly enough, just like we (investors) do regularly in the stock market (buy high sell low), we tend to behave similarly with respect to real estate, despite the fact that we know, financially, it’s not the best move.