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January 2006

Buy vs Rent House in the Bay Area

Here is a Excel spreadsheet I created to help me with the Buy vs Rent decision in the Bay Area. It takes care of inflation (for rent payments, property taxes, maint. costs, utilities, home insurance, etc.), tax savings from mortgage interest payment, and opportunity costs of the downpayment, closing costs and the monthly payments towards the mortgage. I cut and pasted the table only for the first 6 years but the rest of the figures are for 30 years. I was not able to fit all the 30 years data from Excel here. Let me know if anyone is interested in getting the Excel spreadsheet itself and I will mail it. Please let me know if my calculations are wrong or if any adjustments are necessary.

The calculations show that buying an house for $650000 is equiv. to paying $2100 in monthly rent. Various assumptions are 6.25 mortgage rate (30 term), inflation rate of 2.85%, 1.25% property tax rate, combined tax rate (state + federal) of 34.3%, after tax return on investment of 6.73% (based in current rates offered by the I-bonds) and a 20% downpayment.

                                               
Monthly   Rent25507.10178Inflation Rate2.850%Downpayment20%
Mortgage   rate6.200%After tax return on investment6.730%Purchase Price650000
Mortgage Term30Initial investment150020Mortgage Amount520000

           
Property   tax rate1.250%
Combined tax rate34.30%
Closing costs20020


                                                                                                                                                                                                                               
Year0123456
Rent25507.1017826234.0541826981.7247227750.7038828541.5989429355.0345130191.65299
Principal Payment($6,349.40)($6,743.06)($7,161.13)($7,605.12)($8,076.64)($8,577.39)
Interest Payment($32,240.00)($31,846.34)($31,428.27)($30,984.28)($30,512.76)($30,012.01)
Total Mortgage($38,589.40)($38,589.40)($38,589.40)($38,589.40)($38,589.40)($38,589.40)
Property Taxes8356.56258594.7245318839.674189091.6048959350.7156349617.21103
Insurance800822.8846.2498870.3679193895.173405920.685847946.9253937
Maintainence costs12001234.21269.37471305.5518791342.7601081381.0287711420.388091
Utilities12001234.21269.37471305.5518791342.7601081381.0287711420.388091
Tax Deductions($43,064.96)($42,979.81)($42,879.05)($42,761.40)($42,625.53)($42,470.00)
TaxSavings($14,771.28)($14,742.08)($14,707.51)($14,667.16)($14,620.56)($14,567.21)
After Tax Owner's exp($35,465.88)($35,827.05)($36,203.03)($36,594.53)($37,002.30)($37,427.10)
Renter's savings$9,231.82   $8,845.32   $8,452.33   $8,052.94   $7,647.26   $7,235.45  
Future value1058630.602$61,037.43 $54,794.36 $49,058.25 $43,792.88 $38,964.47 $34,541.54

                             
Total   Future Value$1,510,227.03 $451,596.42
Inflation adjed FV$650,000.00
Breakeven monthly rent2125.591815
Approximate breakeven rent -   $2100.00

What would we do without the government?

An article titled, India's killing fields, by Tavleen Singh in the Indian Express, contains this gem:

To expect farmers to produce crops without irrigation is like expecting Infosys to produce software without computers. Yet we spend less than half per cent of GDP on irrigation. What is wrong with our planners and policy makers?

So, InfoSys is not so great after all! They couldn't have produced software without free computers from our government, could they have? And I am sure the Tavleen Singh would not have been able to write her articles without getting free newsprint from our government. Now, which government department do I apply for free web hosting so that I can become a great blogger?

I am sure government will be able to find money to pay for all these free stuff. Right, Tavleen Singh? Oh! wait a second. She has a plan for this.

  ...  

Our farmers are so mired in desperate poverty that in supposedly rich states like Punjab and Maharashtra we hear of farmers routinely killing themselves as the only escape. Nothing will change until we see massive investment in agriculture. Governments need to find the money to do this and one way would be privatisation, ...

Isn't that the reason government plans to privatize the government owned PSUs, banks, insurance companies? Yes, that's right! Government is going to "privatize" the public sector business and use the proceed to, guess what, supply raw material, capital goods, land and lest I forget, education freely to everybody. I mean, how else, can one succeed in our chosen businesses?


What is selfishness?

Satya Prakash asks a very pertinent question, What exact is Selfishness?

Selfishness - a virtue

What exactly is Selfishness?

The popular usage of selfishness is for a sinful adjective where one person behaves in total disregard to consequences of his/her actions on others. Such selfish person will be ever ready to do anything just to satisfy whims. But is there any positive aspect of selfishness; is it justifiable to be selfish? The answer lies in how we define selfishness.


The word "selfish" word is used in two contexts. The popular day-to-day
usage refers to those acts that violate or disregards one's obligation
to others. For example, if a friend has helped me during my hour of
need and if I now refuse to help him when he needs me, that would be
truly "selfish" on my part.

In philosophical term, "selfish" word refers more to the tendency of oneself to act in such a way so as to ultimately benefit himself/herself (not necessarily at the cost of others). It is more like a ultimate strategic objective. There is nothing wrong with this behavior. This is what Ayn Rand was refering to. Thus, if my friend has helped me in the past with the sole purpose of receiving a return favor from me in the future when in need, that would be an selfish act on his part. Obviously, there is nothing wrong in that.

Two usages are not consistent with one another. Those who ask others to act selflessly (second usage) cannot be more selfish. Think of it for a while. If I ask my friend to help me without expecting any return help (thus selfless act on friend's behalf), my friend can accuse me of being seriously selfish. Thus, when one asks others to act selflessly (under usage two) he/she is indulging in selfishness of variety one (planning to renege on one's obligations).