Buy versus Rent? There are many factors involved in this equation and like all things when considering real estate, location is key.
If you are talking about areas where affordable housing begins at $350,000 and up, renting may be cheaper than buying. In Kingwood, Texas, I believe the advantage is to buy versus rent.
Apartments in Kingwood for a 3 bedroom/2baths average $1375 with a luxury apartment renting for $1575. A monthly payment of $1575 will purchase a home in Kingwood with a sales price of $212,000 (Principal, Interest, Taxes and Insurance).
Renters don't pay property taxes. False: The landlord must pay property taxes on his rental unit. Where does that money come from? Your rent. You are paying the taxes for the landlord, who at the same time is gaining equity and growing his investment dollar while you pay down his debt.
Renters don't pay interest. True: Although a large portion of a house payment is allocated to interest in the beginning of the loan, this amount decreases each month while the amount that will pay down your debt increases. Also, a homeowner has the option of making a larger payment than required. By paying just an extra $100 a month, the homeowner will save thousands of dollars in interest and the home will be paid off in 20 years instead of 30 years.
Renters don't pay Homeowners Insurance. False: Just as property taxes are factored into your rent, so is the insurance the landlord has to protect his investment. In addition, smart renters do pay renters insurance to protect their contents. Remember that in the house payment figures of $1,575, homeowner's insurance was included.
Renters don't need an initial investment. False: A renter has a smaller initial investment (security deposit, etc) but that investment never earns a cent of interest for the renter although the landlord is using those funds to his advantage. A home will, over time. give the homeowner his initial investment back in equity.
Renter or homeowner you are paying for shelter. One will give you a return on every dollar spent and the other will have the landlord thanking you for the return on his dollar.
A point to remember is that you will see many rent increases throughout the next 30 years. Based on an inflation rate of 4% per year, over the next 10 years, your rent will increase from $1,375 to $1,957 per month. The return on your investment is "zero". If you would invest $10,000 today, in thirty years the expected return is $116,000.
The homeowner will still be paying $1,575 and based on a 1% increase in property value per year, the home purchased for $212,000 will be valued at $234,000. If you used the same $10,000 for a down payment on a home, the value in 30 years is expected to be $620,000.
There are over a 100 homes in the Kingwood area for under $212,000. You may be able to purchase a home with more square footage, more amenities and your own piece of the world for less than what you are paying for rent.
Need help determining your buying power? Want to know what homes are available that equal your rent or less? Contact me and I will help you with both.
Please note that the figures used in this blog are accurate but may not be exact.
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