So, I've been getting into real estate investing these last few years and I've been blessed to have some incredibly wise men and women surround me in the process. One thing I've learned is the value of owning property of any sort. It's seriously a stewarship decision for me. I'd hate to be given a gift and not make the most of it. This is how I think of it.
$800/month for rent = $9,600/yr
If you buy a $110,000 home at 6.5% interest, your monthly payment is $795/month (assuming you're escrowing $100/month for property tax). Of that $795, about $650 is interest, which is tax deductible. So, you're likely to get about $200 of each month's mortgage payment back at the end of the year. That refund, then, will be $2,400. And, if you're in an averege American city, you're likely to make about 6% appreciation on your home each year, more if you're in a larger city. That 6% of $110,000 is $6,600. Now that we know where we get the numbers, let's add 'em up.
Rent Costs - $800/mo with nothing to show for your money.
Buying Costs -
$795/mo
- $200 (tax deduction)
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= $595
- $550 (Appreciation)($6,600 divided by 12)
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= $ 45 (net cost, monthly, to own) (x12 = $540/yr, and you have a home to show for it)
$9,600 (rental cost/yr)
- $ 540
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= $9,060 (thrown away for every year of renting)
Here in Chicago, these numbers are conservative because rent is closer to $1200/mo and property values increase by closer to 12% a year. That leaves us with more than just a $9,000 difference. Here, we have about a $20,000-$30,000 annual difference between renting and buying. Knowing that, how on earth could I not buy? How could anyone have this knowledge and still rent (knowing of course that some people are very transient and cannot put down the roots that home buying requires)?
The book "Rich Dad Poor Dad" addresses the issue of financial education in America. Too few people are aware of how to take care of their money. I would love to be a part of the solution to that problem.
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