I have $50,000 saved and I'm paying $760 on rent right now. All my relatives are telling me to get a mortgage so I don't "throw money away on rent", but I just don't like the idea of getting in debt and not being able to move any time soon. I'm 28 and I don't have kids or a girlfriend, so I can do whatever I want.
So which one is better, in terms of building wealth:
Buy a small property (retail or industrial) for $50,000 in cash, that I can rent out for $300/mo, or around $275/mo net. That's 6.6% ROI, not counting the asset appreciation (which is around 3% per year on average for the past 50 years or so?). Also debt free. As additional benefits here - can I use that property to get a loan for another real estate? Or is that not how loans work?
- $275/mo - rent from new property
- $125/mo - property appreciation (am I calculating this correctly? seems way too much - 50000*0.03/12=125)
- -$760/mo - my rent
Get a mortgage so I don't "throw my money away on rent":
- I go in debt for 20 years
- $50,000 down payment
- Property costs $150,000, I borrow $110,000 and end up paying $175,000. $225,000 including the down payment.
- $663/mo mortgage
- -$663/mo - mortgage
- -$100/mo - property taxes, maintenance
- $414/mo - equity (663*(110000/175000)=414 is that correct?)
From those rough calculations it seems that my cash flow will be surprisingly similar, but I'm not sure how both options will affect my net worth in 10/20/30 years?
Also which option will put me in a better position RIGHT NOW to get into real estate investing?