The Cost of Renting vs Owning - What Should I Do?

The Cost of Renting vs Owning - What Should I Do?

Many times I meet a new client who is just not sure if the benefits of owning a home outweigh the cost of homeownership. Renting is usually all these clients know, and yes, on the surface, renting a home comes with less financial liability.. . Or does it? I mean, if the air conditioning goes out, the landlord has to pay to fix that. That is to be said about most repairs that may be needed on a home that one is renting. And what about the taxes? Doesn’t the landlord pay those too? How bad could that be?

Let’s dive into the actual cost analysis of renting a home versus buying a home. Let’s compare a rental home at the monthly cost of $1100 per month for 5 years (very conservative) vs purchasing a home at $175,000 and selling 5 years later.

The benefit of purchasing in this scenario over renting is $38,362! Read below to see how I came up with that figure:

This is how we calculated the cost of homeownership: Total homeownership expenses over 5 year holding period (Mortgage $49,846, taxes $6,000, insurance $1,260, buyer closing cost $3,500, seller closing cost & commission $14,903, PMI $9,960, maintenance expenses $10,020) MINUS tax benefits (Both interest expense and taxes are fully deductible saving $11,254 at 28.0% tax bracket.) total cost is $84,189.

By purchasing a home, you will pay down the principal balance by $15,524 in 5 years plus the home appreciation of 4% per year, which is another $37,914! (4%/year –source: http://www.investopedia.com/ask/answers/060415/what-average-annual-return-typical-long-term-investment-real-estate-sector.asp -)  The total between appreciation and principal reduction is $53,437 thus making the NET cost owning a home for five years: $30,752.

This is how we calculated the cost of renting: For renting, monthly payments would be $1,120 (starting rent $1,100 increasing at 2.5%/year –source: http://time.com/money/4166580/rent-going-up-in-2016/ -, insurance $20). After 5 years, total rental expenses would be $71,808.

If instead of purchasing a home, savings were invested (down payment $6,125, buyer closing cost, & lower monthly expense) in something of comparable safety, such as bonds, gains would be $2,694. Thus the net cost of renting: $69,114.

Keep in mind that these figures even include $10,000 of maintenance costs on the home you own!

If you are in a position to be able to purchase, then it truly does make sense. It may seem like a scary thing at first, but that is where I come into the equation. An experienced real estate professional will navigate any prospective homeowner through the sometimes choppy waters of purchasing a home.

If you are not in a position to buy a home, we still need to talk! In most cases, I can help get you on the course to purchase a home within the next 2 years. I know because at one time I also had to fix my own life and find that course once again.  It can be done and I’m here to help!

Stop throwing your money at your landlord’s net worth! Let’s either start building your own home equity or get you on the path to buy a home today!

Bryan Adams