LENDER’S VIEWPOINT
By Broker, Forest Tardibuono
I tout the big three reasons to buy a home: #1. Pride of ownership appreciation; #2. Tax benefits and #3. Appreciation. There is a 4th though that may well trump them all.
I have had the pleasure to work with many, many private money investors for more than 20 years. These are men and women who have made their fortunes in a variety of ways and lend those funds to borrowers who have equity in a property and an ability to repay the loan.
Many of them have told me that the day you can retire is the day you pay off your home. That is a very future minded goal. It’s difficult to see when you are 29 years old, have 2 kids in diapers, own your own boat which you never use because you have 2 kids in diapers, credit card debt, and a car payment of $329 per month. Plus you have to buy all those diapers! And handi-wipes. And little sets of clothing. And teeny-tiny shoes.
But if you had the good sense to buy the home you live in, then all of a sudden – and believe me as a Grandpa it’s all of a sudden – your kids are grown up and now in college and you’ve paid 20 years on that mortgage. Then a bit later on, you no longer have the kids at home, you have a bit of extra money and can start throwing it at the mortgage to get it gone. So say at age 55 you no longer have a house payment. Priceless!
My Dad bought a home in Chandler Arizona in 1968 for $16,900. He took out a 30 year mortgage with a monthly payment of $159. With 7 kids at home, the payment was difficult for him to afford at that time. But what strapped him in 1968 was almost a breeze in 1978 as his and Mom’s incomes had risen. It was even easier in 1988 for the same reason. After another 10 years Dad finally paid off their 30 year fixed rate loan. No house payment and a very low property tax basis on their home.
You cannot accomplish the above as a renter. Here is some astonishing math. Let’s say your rent is $1,300. In 30 years you will have paid $468,000 on some other guys mortgage. That’s if rent over 30 years stays at $1,300. I bet not. Let’s say it goes up $250 every 10 years. That’s $570,000.
Those numbers alone should compel you to figure out how to be a buyer, but there is more. Ever been told you have to move because the landlord is selling the home? Or the rent increases come quicker than $250 every 10 years?
Buy a home and let it work for you, quietly in the background, being paid down, increasing in value, until that glorious day arrives when the mortgage is no more! Then retire.
Priceless!
