4/20/2015

2015 Buyer Considerations – Always Buy, Never Rent

When times are tough, it’s difficult to look to the future. It seems to take every penny just to get by. This is one reason why Americans are notoriously bad savers. How many people have you met that seem to always be in the position to have “too much month at the end of their money”?

One of the safest ways to prepare future financial security without impacting personal spending, is to own a home, even if the monthly cost of owning a home seems to be higher now. Consider the example below which shows the difference between owning a home and renting a home over a 10-30 year period. Note four things.

1. Rent starts at $700/month and increases are based on the historical 3% annual increase nationwide.
2. Home appreciation is based on the historical 5% appreciation nationwide.
3. The home occupant is in the 20% tax bracket, which means they can write off the $400 average monthly interest payments and receive an IRS refund of 20% of the interest paid.
4. The home in the example below has a $100,000 mortgage at 4% fixed interest rate and monthly Principal, Interest, Taxes and Insurance (PITI) payments of $550.

 

YEAR	ANNUAL RENT PAID	ANNUAL PITI PAID	DIFFERENCE	TAX SAVINGS	OWNERSHIP SAVINGS
2012	$8,400.00	$6,600	$1,800	$960	$2,760
2013	$8,652.00	$6,600	$2,052	$960	$3,012
2014	$8,911.56	$6,600	$2,311.56	$960	$3,271.56
2015	$9,178.91	$6,600	$2,578.91	$960	$3,538.91
2016	$9,454.27	$6,600	$2,854.27	$960	$3,814.27
2017	$9,737.90	$6,600	$3,137.90	$960	$4,097.90
2018	$10,030.04	$6,600	$3,430.04	$960	$4,390.04
2019	$10,330.94	$6,600	$3,730.94	$960	$4,690.94
2020	$10,640.87	$6,600	$4,040.87	$960	$5,000.87
2021	$10,960.09	$6,600	$4,360.09	$960	$5,320.09
TOTALS	$96,296.58	$66,000	$30,269.58	$9,600	$39,869.58

Over a 10-year period, someone that is renting instead of buying will have paid their landlord and the IRS an extra $30,000.  Keep in mind that because rent rates continue to rise, the ownership savings would be substantially more.

Over a 30 year period, a tenant will have paid significantly more and have zero to show for it. Compare this situation to homeownership. If the $100,000 home in the above example appreciates 5% per year, home owner will have real estate equity built up of:

YEARS	HOUSE VALUE
AFTER 10 YEARS	$162,889.46
AFTER 20 YEARS	$265,329.77
AFTER 30 YEARS	$432,194.24

If someone rents for 30 years, it’s unlikely they’ve saved much for retirement. In this case, it’s very important to be nice to your children because you’re probably going to be living with them during your retirement!