Renting vs. Buying: 5 and 10 Year Case Studies

Many people today shy away from buying because they can't fathom spending so much money on one thing. But rarely do they think of how much they have to spend on rent (you have to live somewhere!).

The following case studies are 5 and 10 year case studies of the money you would spend renting, and the money you would spend buying:

Buying after 5 and 10 years:
Say you buy a $200,000 home with 3.5% down. Your monthly payment will be about $1100.

• After 5 years your loan is down from $193,000 to $169,000.
• After 10 years your loan is down to $145,000. 

Renting after 5 and 10 years:
Renting the same type of house that is worth $200,000 would cost you more as a renter, at least $1200 or $1300, not counting rent increases each year:

• After 5 years, you will have spent $72,000 in rent.
• After 10 years you will have spent $144,000
• You also will have spent $1200 on the initial deposit, which you may or may not get back.

Your situation after renting: 

• You still do not own the house.
• You will never be able to recoup the rent money you spent: it paid someone else's loan, and you can't sell the house because it's not yours. 
• Rent most likely went up over the years, which cost you even more money.
• Your credit score will not have been improved whatsoever by all your on-time rental payments.

Your situation after buying:

• You have $30,000 of equity in your home after 5 years.
• You have $55,000 of equity in your home after 10 years.
• You can rent it out, make about $200-$300/month on your renters after you pay the mortgage, and buy a bigger home.
• You can sell the home, and even in the worst case scenario if you don't make any money, you will have lived for free for 5-10 years. 
• If you do make a profit...you just made a profit!
• If you stay in the house and keep paying your mortgage, you will keep paying your loan down.
• If you make an extra $100 payment per month, your loan will drastically go down faster. 
• If you rent it out, someone else will pay your loan for you, and after the loan is paid off, you can keep it as an investment property and make $1250/month, which is $15,000 per year. 

The moral of the story is that a buyer has PLENTY of great financial options when owning, but a renter has no options or benefit after renting for several years. Don't forget, renting costs you MORE MONEY!

Best Visual Guide for Buying a Home - WITH AUDIO

The Best Visual Guide for Buying a Home

The Best Visual Guide for Buying a Home on Prezi

To Rent or to Buy? 7 out of 10 renters say owning a home is a top priority

Check out the Interactive Rent vs. Buy Map http://trulia.movity.com/rentvsbuy/

Most Americans still believe that owning a home is a solid financial decision, and a majority of renters aspire to home ownership as a long-term goal. According to the 2011 National Housing Pulse Survey released today by the National Association of REALTORS^®, 72 percent of renters surveyed said owning a home is a top priority for their future, up from 63 percent in 2010.

Seven in 10 Americans also agreed that buying a home is a good financial decision while almost two-thirds said now is a good time to purchase a home. The annual survey, which measures how affordable housing issues affect consumers, also found that more than three quarters of renters (77 percent) said they would be less likely to buy a home if they were required to put down a 20 percent down payment on the home, and a strong majority (71 percent) believe a 20 percent down payment requirement could have a negative impact on the housing market.

“Despite the economic setbacks Americans have experienced in today’s current climate, it is clear that a strong majority still believe in home ownership and aspire to own a home,” said NAR President Ron Phipps. “However, achieving the dream of home ownership will become increasingly difficult for buyers if they are required to make a 20 percent down payment, which may be a reality for many of tomorrow’s buyers if a proposed Qualified Residential Mortgage rule is adopted. That is why REALTORS^® are strongly urging regulators to go back to the drawing board on the proposed rule.”

Defining the QRM rule is important because it will determine the types of mortgages that will generally be available to borrowers in the future. As currently proposed, borrowers with less than 20 percent down will have to choose between higher fees and rates today - up to 3 percentage points more - or a delay of between nine and 14 years while they save up the necessary down payment.

More than half - 51 percent - of self-described “working class” home owners as well as younger non-college graduates (51 percent), African Americans (57 percent), and Hispanic Americans (50 percent) who currently own their homes reported that a 20 percent down payment would have prevented them from becoming home owners.

Pulse surveys for the past eight years have consistently reported that having enough money for a down payment and closing costs are top obstacles that make housing unaffordable for Americans. Eighty-two percent of respondents cited these as the top obstacle, followed by having confidence in one’s job security.

The survey also found respondents were adamantly against eliminating the mortgage interest deduction (MID). Two-thirds of Americans oppose eliminating the tax benefit, while 73 percent believe eliminating the MID will have a negative impact on the housing market as well as the overall economy.

“The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hard-working American families,” Phipps said. “Home ownership offers not only social benefits, but also long-term value for families, communities and the nation’s economy. We need to make sure that any changes to current programs or incentives don’t jeopardize our collective futures.”

When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind. On a local level, respondents said neighbors falling behind on their mortgages and the drop in home values were top concerns. Foreclosures also continue to remain a large concern, with almost half of those surveyed citing the issue as a problem in their area.

Source: NAR

Trulia Map: Where is it Cheaper to Buy than Rent in U.S.?

 

Where is it better to rent than buy in the U.S.? And where it is better to buy vs. rent? Trulia has a really cool interactive map that gives you the details. Once again, Denver came out cheaper to buy than to rent. Rents average $1000-$1500 in Denver, which are monthly payments well over $200,000 mortgages. It is a great time to buy in Denver.

Check out the map here!