Opportunity Cost of Buying House

Readers Question: What would be opportunity cost of buying a house for £250,000 for a year? Thanks

I’m not sure why you would buy a house for a year. Do you mean buy it for one year and then sell it?

The opportunity cost is next best alternative foregone. So the next best alternative to buying would be renting. If you rent, you will save yourself £250,000 and a likely depreciation in house value, and you will pay rent rather than a mortgage

The opportunity cost of buying a house would be the cost of renting rather than paying a mortgage. If house prices rise, you will lose out on capital appreciation. If house prices fall, you benefit from not losing capital value.

With house prices falling rapidly in the UK, 2009 would not be a good time to buy!

By on November 11th, 2008