Renting vs Owning
Here are some things to consider in the Pros and Cons to home ownership. Visit our Mortgage Center to find a calculator that will help you decide if it makes financial sense to own your home, as opposed to renting. This calculation is just one piece of the puzzle when it comes to what will most likely be the biggest financial decision of your life! Mortgage Center Tax advantages: Mortgage interest is tax deductible and should be considered when you are comparing rent payments vs. mortgage payments. You should always talk to a tax professional to see how you will be affected, but here is a general example of how it works. (example) Potential for equity increase: There is a chance your home will increase in value. There is a chance your home will decrease in value. Let’s assume you get a 30 year fixed rate principal and interest loan (which is the most common loan type these days). After 30 years (if you do not refinance), you will owe nothing. Whatever your house is worth at that time represents the nest egg you have built for you and your family. After 30 years of renting, you will own zero. Which is better….owing nothing or owning nothing? Interest Rates are Low right now! A lot of buyers are on the fence right now because they believe real estate prices may go down over the next year. O.K., I’m not going to argue with that. How much do you think they are going to go down? 3%, 5%? The next question you have to ask is, what do you think may happen with interest rates? Most people would say they are most likely to rise, but how much? 1%, 2%? Who knows what is going to happen, but here are a few examples of how your monthly payment may be affected and the potential savings over the long run. (examples) Rent Control: If you get a 30-year-fixed loan, your monthly payment will be the same for the next 30 years. The same cannot be said for your rent payment. Does your landlord usually raise the rent or lower the rent?
How About A Leg Up?
If you are thinking about selling and moving into a bigger house, better neighborhood or looking to get into a better school district, now is the perfect time to buy! Whatever your reason, the current real estate market presents a unique opportunity to capitalize by trading up!
- Make money NOW on the trade: Here’s an example of how this works. You currently own a condo that was worth $1 million three years ago, but now it’s worth $700,000 (that’s right, it’s gone down 30%!). You may be thinking, I’ve lost $300,000, right? Wrong! What you do is go out and sell your condo and purchase a new home for $1,400,000. That house, three years ago, was worth $2,000,000 and you probably couldn’t have afforded it. By buying it now, you can get your new home at a $600,000 discount. Just like that, on the trade, you’ve made $300,000. This doesn’t even take into account the money you could potentially save on property taxes!
- Make money LATER when you sell your new home: Fast forward five years and the real estate market goes up 20%. Let’s take a look at what has happened. Your old condo is now worth $840,000, for a $140,000 gain over today’s value. Your new home is worth $1,680,000, or $280,000 more than when you bought it today. Just like that, you’ve made an extra $140,000 on the trade!
- You can likely buy a house you otherwise could not have afforded, and may not be able to afford again: Going back to my example above, you probably couldn’t have afforded that $2 million house three years ago when you bought your condo. You also may not be able to afford it again in 3-5 years when the market rebounds. If you’ve been dreaming about a bigger home or one in a nicer area, now really is the time to capitalize.
- It is much easier to trade up in a down market than in an escalating market: We’ve had clients say that they will trade up when the market “goes back up.” Let’s take a close look at that. Let’s say that 5 years from now, the market is back up 20% from today’s values. You then sell your condo for $840,000 and your dream home is now worth $1,680,000. You’ve gained $140,000 on your condo (from today’s values) BUT your dream home is now worth $280,000 more! That means that, by waiting, you’ve now spent an extra $140,000 to buy that house!
- You’ll probably get a better house by trading up in a down market: The current market presents some very unique opportunities. In most areas, inventory is pretty high and buyers have a lot of great choices. By shopping in this market, you can buy a larger home and take your pick of the entire inventory available. In most cases, you can get a good deal on a great property in a terrific area. The bottom line is that if you can afford it, now is a terrific time to upgrade! Interest rates remain at historic lows and there I can work with you to determine the loan program and terms that work best for you. Contact me today to learn how you can leverage these great reasons to buy now!
These are generalizations of market trends and how they could benefit you. However, results will vary depending upon your personal circumstances.