Tired of renting but on the fence about buying a home?
Today, we’re breaking down specific examples of the payment difference and diving into the pros and cons of renting versus buying.
While everyone’s situation is different, in most cases, owning your own home proves to be a better financial investment in the long run.
The annual rent increase is usually around 3.5%. For a home with a $3,000/month first year’s rent, the rate would have increased to $3,563.06/month after 5 years. By year five, you would have paid a total of $193,048.77 to your landlord.
On the other hand, let’s say you purchased a home for $500,000 at 5% down and a 6% interest rate with a 30-year fixed loan. Your monthly mortgage payment would be around $3,712.45. Historically, we have seen that home values will almost always continue to appreciate. If we calculate at a 3.5% appreciation rate, by year five, your home would now be worth around $593,843.15, adding $93,843.15 to your equity. In total, you would have $151,834.60 in equity: $32,991.45 (5-yr principal paid) + $93,843.15 (appreciation after 5 years) + $25,000 (initial down payment).
Within the same 5 years, renting would have resulted in nearly $200,000 of your hard-earned money going towards rent that you’ll never see back, while buying would have put more than $150,000 in your own pocket.
However, keep in mind that there is more to both renting and buying than meets the eye. Here are a few pros and cons to consider.
Pros of Renting:
• the only housing expenses you have to worry about is the rent and utilities
• landlord typically is responsible for major home repairs and maintenance
• short-term rentals make it easier to make a move with less commitment
• generally cheaper monthly payments
Cons of Renting:
• you’re putting money in your landlord’s pocket, not yours
• landlord can raise the rent or sell the property as they wish
• less freedom (repairs are done on landlord’s timeline, need to get permission before making home upgrades, etc.)
• no tax incentives
Pros of Buying:
• home values generally always appreciate
• good financial investment to build your own wealth
• can pull money out of your equity and refinance for lower monthly payments
• it’s your own home, you can do any upgrades and changes you want!
• pride in homeownership and sense of community
• tax incentives
Cons of Buying:
• housing expenses include the mortgage, property taxes, insurance, utilities, HOA fees (if applicable)
• full responsibility over repairs and maintenance
• more money needed up-front for down payment and closing costs
Ultimately, the most important thing is to find the solution that works for YOU.
We want to understand your situation and hear what your needs and wants are. Then together, we’ll create a custom game plan that will help you reach your goals. Schedule a 30-minute consultation with our team below!