Putting in an offer, is this the right investment?

Question

Hi all, so I am looking to put in an offer today... But I want to be certain about the numbers. Any advice on this?

Goal: Buying a condo in CA, this is a 2-1. I would like to hold this property and sell it for equity to trade up. I don't think I can cashflow in CA for a very long time, so I'm only focused on equity.

The unit: In the area I am buying, I’m seeing house prices increase on average at 8-9% YoY since 2015. This unit alone, I am seeing approx 10% avg YoY increase (but only based on estimate and sales price on years available).

Math/Question: If I used 10% increase (this is hopeful in my opinion) and let’s say I held and sold in 5 years, we would be getting an approx of $224k after agency fee (assuming it grew to $600k price). However, over the span of 5 years I would be spending $222k on my mortgage (which only ~25k goes toward principal so more like $197k which is really more like $27k gain after agent compensation on the house equity). Whereas, if I continued to rent where I am in, which is rent locked. I would be spending $125k (instead of $222k over 5 years) which is a savings of $96k that we could be investing elsewhere.

Any advice on this, is my thinking right? Is it still right to build equity or is it better to consider OOS or other investment?

Caleb Brown · Answer

If you are going to live there for awhile it wouldn't hurt to buy a place. I would not bank on the appreciation though. You will most likely have equity after 5 years that you can reinvest into something else. OOS does work. I would just weigh the Pro's and Con's for you. A mortgage payment would be locked in while rent would most likely increase YOY for you. There are a variety of house hacking strategies but CA is very expensive so it's harder there.