Maths was never my strong point, but with vague recollections of net present value calculations, maybe you can help.
I realise you'll have to make certain assumptions and maybe adjust things for inflation, withholding tax on interest and so on, but is it possible to make a valid comparison?
I suppose capital gain on the house comes into it too, but if Joe put some of his money into shares they will probably go up, too, in 15 years.
This is about when my brain becomes a foggy haze that Mary Holm can hopefully burn through.
A: Here I am, all ablaze with info that might not get us very far.
There certainly is a way of comparing renting and investing with home ownership.
The trouble is there are hundreds of variations.
The key, as you realise, is assumptions. If you change any of: the house deposit, mortgage interest rate, change in interest over the years, rent, change in rent over the years, house appreciation, return on the renter's investments, house maintenance and insurance - I could go on and on - you get a different outcome.
Sometimes home ownership looks better; sometimes renting and investing.
If you want to plug in your own numbers, here's how I would go about it: Josephine Homeowner's accommodation costs are mortgage interest, rates, insurance and maintenance.
Exclude mortgage principal payments and home improvements, as they raise Josephine's equity in her house and so are a type of saving.
Joe Renter invests not only his inheritance from Aunty Betty, but also the same amount that his sister puts into mortgage principal and improvements.
If his rent is lower than Josephine's accommodation costs, he also invests that difference.
If his rent is higher, his savings are reduced by that difference.
Joe shouldn't really invest in government bonds. As long as he can cope with short-term fluctuations, he has a much better chance over the long term of beating house inflation in an index fund of shares.
The next complication is that Josephine has a mortgage, so she gets the benefit of gearing.
If house prices rise, which we can assume over the long term, the return on her deposit rises more.
Will Josephine's lower-growth but geared investment in a house outdo Joe's higher-growth but ungeared index fund?
Who knows? You can at least tell your friends there is no clear-cut answer. In the end, people usually choose for non-financial reasons.
Tenants can move easily and have no worries about maintenance.
As somebody said, "Did you have a good weekend or do you own your own home?"
Then again, homeowners can decorate, garden and make improvements as they please, and move only when it suits them.
Most older people like the security of home ownership. But some retired people are selling their homes to free up equity and moving into rental accommodation.
If renting suits you, and you are disciplined about saving, that's a perfectly legitimate choice.
Q: I recently sold my house privately, got the price I wanted and saved about $25,000 in commissions.
My reason was previous dissatisfaction with real estate agents. And having been in sales all my working life, I felt capable of handling the sales process. I also felt I knew my house and property better than anyone else and could tell a better story than someone who had little knowledge of them.
First, I worked on presenting the property in its best light and, in fact, at time of sale, it had never looked better.
My plan was to advertise in local papers, the Herald and on the internet.
I budgeted $5000 on promotion and, in the end, spent $2000. I wrote my own copy and included colour photos in the advertisements.
I found the newspapers helpful in their dealings with a private sale customer.
At road frontage, I placed a billboard with minimal copy and several colour photos of the property, house and interior. And, as we were 400m from the road, I had fliers in a plastic folder stating features of the property, attached to the billboard.
My advertisements included details of open homes on the first Saturday and Sunday of the sales promotion.
The weather was dreadful but I had 18 groups come through over the two days.
Those showing interest were given a folder which included: a rates bill, title and land plan, floor plans, LIM report and a flier with colour photos.
By the way, I included my price in all advertisements, billboard and fliers, as it annoys me intensely when an agent trots out these stupid answers to a price enquiry as "the market will tell us the price".
I had set my price based on real estate agent indicators, a registered valuation and local knowledge of property sales.
By 6pm on the first Sunday, I had three parties wanting to put in offers and, the next morning, had an unconditional cash offer $5000 less than my asking price.
The face-to-face negotiation with the buyer and contract completion was a simple process, no agent running backwards and forwards trying to justify their exorbitant fees.
Also, when buyer and seller are face-to-face with , it takes some cheek to make a silly offer.
A: I hasten to say I am not re-opening the house sale debate. But this letter seems to be full of good ideas for others. You put the effort in and got the results. Good on you.
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