Collapse of Lehman Brothers
Post on: 20 Апрель, 2015 No Comment
Salman Khan calls this next video, probably the single most important video that anyone can watch.
Khan is paraphrasing the cliché about how buying a home is the single largest, important investment youll ever make. But notice that cliché doesnt say whether buying a home is a good investment.
As you can imagine, we can use cash flow diagrams to compare whether renting or buying is more cost effective. But well need to make some assumptions about interest rates, taxes, maintenance, the rate of appreciation or depreciation in real estate over time. (Youll notice several points where Khan makes the necessary assumptions when he uses phrases like, Lets say or Oh, I dont know. Lets just say).
Khan doesnt complete the whole cash flow diagram in the video. He simply compares the interest and property taxes paid on a mortgage with the amount of rent he could pay on an equivalent home. Khan uses the video to undermine another cliché, which goes something like, Buying is always better than renting, because paying down a mortgage is like paying yourself!
After all, owning your own home is the foundation of The American Dream. But Khans video is challenging what economist John Kenneth Galbraith calls the conventional wisdom . To get people to think about the possibility of renting as being financially advantageous, Khan first needs to convince them to give up their unchallenged prejudices.
In this next video, Khan goes into a little bit more of the details necessary to complete a cash flow diagram, especially the fact that rental rates can go up, whereas a fixed rate mortgage stays constant for the duration of the loan (although property taxes and maintenance are likely to rise). Also, should home prices rise over time, the homeowner may eventually sell the house for considerably more than they purchased it for! These two changes to the cash flow diagrams (increasing rents, and the sale of the home at the end of occupancy) favor homeownership considerably. But Khan also asks, What if housing prices actually go down?
Clearly, the rent vs. buy decision is complicated. In this video, Khan examines more of the details and explores the sensitivity of the analysis to his major assumptions. For example, he uses a ten-year time horizon. Again, he doesnt exactly draw the cash flow diagrams but he does tabulate them. Notice that he calculates the net present values of both alternatives using a discount rate that his Excel calculator allows the user to change.
Khan says that the assumed annual appreciation of the house is a huge assumption, by which he means that the model is very, very, sensitive to that assumption. In the next post, well look at some tools available on-line that we can use to understand how to make the best guess we can about home price appreciation.
Collapse of Lehman Brothers
Post on: 20 Апрель, 2015 No Comment
Salman Khan calls this next video, probably the single most important video that anyone can watch.
Khan is paraphrasing the cliché about how buying a home is the single largest, important investment youll ever make. But notice that cliché doesnt say whether buying a home is a good investment.
As you can imagine, we can use cash flow diagrams to compare whether renting or buying is more cost effective. But well need to make some assumptions about interest rates, taxes, maintenance, the rate of appreciation or depreciation in real estate over time. (Youll notice several points where Khan makes the necessary assumptions when he uses phrases like, Lets say or Oh, I dont know. Lets just say).
Khan doesnt complete the whole cash flow diagram in the video. He simply compares the interest and property taxes paid on a mortgage with the amount of rent he could pay on an equivalent home. Khan uses the video to undermine another cliché, which goes something like, Buying is always better than renting, because paying down a mortgage is like paying yourself!
After all, owning your own home is the foundation of The American Dream. But Khans video is challenging what economist John Kenneth Galbraith calls the conventional wisdom . To get people to think about the possibility of renting as being financially advantageous, Khan first needs to convince them to give up their unchallenged prejudices.
In this next video, Khan goes into a little bit more of the details necessary to complete a cash flow diagram, especially the fact that rental rates can go up, whereas a fixed rate mortgage stays constant for the duration of the loan (although property taxes and maintenance are likely to rise). Also, should home prices rise over time, the homeowner may eventually sell the house for considerably more than they purchased it for! These two changes to the cash flow diagrams (increasing rents, and the sale of the home at the end of occupancy) favor homeownership considerably. But Khan also asks, What if housing prices actually go down?
Clearly, the rent vs. buy decision is complicated. In this video, Khan examines more of the details and explores the sensitivity of the analysis to his major assumptions. For example, he uses a ten-year time horizon. Again, he doesnt exactly draw the cash flow diagrams but he does tabulate them. Notice that he calculates the net present values of both alternatives using a discount rate that his Excel calculator allows the user to change.
Khan says that the assumed annual appreciation of the house is a huge assumption, by which he means that the model is very, very, sensitive to that assumption. In the next post, well look at some tools available on-line that we can use to understand how to make the best guess we can about home price appreciation.
