An analysis of 21pro's scenario
Assuming you took out a mortgage of $750,000 @ 5% over 25 years, your monthly payments would be $4362. You mentioned that you are currently paying $1800/month rent and investing the difference (which would be approximately $2500/mo) in the stock market.
For arguments sake, let's assume you are actually setting aside $3500/mo (which would be the difference between rent and that same mortgage @ 7%.
Assuming you invested $3500/mo for 7 years (84 months), this would result in total capital invested of $294,000. Therefore, to be able to purchase a $750,000 house, you would need $456,000 in growth. This means you would need to average a 24% rate of return for 7 years!
BUT, don't forgot, it is unlikely $750,000 will buy the same property in 7 years! Even assuming the property value increased by only 5% per year, in 7 years that same property would now cost you $1,055,325!
Also, you brought up capital gains taxes; at some point you are going to have to sell your stock in order to have the cash to purchase your property, so you will have to pay taxes on your gains.
All told, you would need to average somewhere in the neighbourhood of a 50% rate of return, every year, for 7 years to have the cash to purchase the same house you currently rent outright!
Now, is this possible? Of course it is...anything is possible
However, consider that from 1963 to 1993, a 30 year period, the Dow Jones Industrial had an average annual return of 11.83%! Clearly, your strategy involves a huge amount of risk in the investments you choose, and the significant possibility of losing your entire investment, capital included!
By the way, you would also have thrown away $151,000 in rent over the same 7 year period! ($1800/mo x 84 months)
I really don't think this is a strategy that should be recommended to a first time home buyer, or in fact to anyone!
Assuming you took out a mortgage of $750,000 @ 5% over 25 years, your monthly payments would be $4362. You mentioned that you are currently paying $1800/month rent and investing the difference (which would be approximately $2500/mo) in the stock market.
For arguments sake, let's assume you are actually setting aside $3500/mo (which would be the difference between rent and that same mortgage @ 7%.
Assuming you invested $3500/mo for 7 years (84 months), this would result in total capital invested of $294,000. Therefore, to be able to purchase a $750,000 house, you would need $456,000 in growth. This means you would need to average a 24% rate of return for 7 years!
BUT, don't forgot, it is unlikely $750,000 will buy the same property in 7 years! Even assuming the property value increased by only 5% per year, in 7 years that same property would now cost you $1,055,325!
Also, you brought up capital gains taxes; at some point you are going to have to sell your stock in order to have the cash to purchase your property, so you will have to pay taxes on your gains.
All told, you would need to average somewhere in the neighbourhood of a 50% rate of return, every year, for 7 years to have the cash to purchase the same house you currently rent outright!
Now, is this possible? Of course it is...anything is possible
However, consider that from 1963 to 1993, a 30 year period, the Dow Jones Industrial had an average annual return of 11.83%! Clearly, your strategy involves a huge amount of risk in the investments you choose, and the significant possibility of losing your entire investment, capital included!
By the way, you would also have thrown away $151,000 in rent over the same 7 year period! ($1800/mo x 84 months)
I really don't think this is a strategy that should be recommended to a first time home buyer, or in fact to anyone!
