Afraid of buying a house in this economy? Think you will get stuck in a downward spiral?
Let's run some numbers.
Let's say you are buying a house for $200K with a 20%($40K ) down-payment.Your annual real estate tax may be around 1.5%($3000) and lets keep another $300/month for HOA fee.
Let us look at your monthly expenses now
If you are presently renting, you can easily expect to pay $1200-$1500/month for a similar house/condo/apartment depending on the location and amenities.
Now let us go one step further and say you are going to live in same city for 5 years.
Can you even imagine how much rent you would have paid in those five years?
Let's do the numbers again.
Monthly rent(Avg rent from 1200-1500)*no. of months*no. of years
$1350*12*5=$81000 (whopping 81 thousand dollars going down the drain)
Had you owned your place for 5 years, you would have spent
$1425*12*5=$85,500 (Wow! this is more than renting)
NOT AT ALL. LET US SEE HOW!
Out of the $85,500 you spent, $51,600 went to your lender for your mortgage.
Further, out of $51,600, your interest payment was $38460.85 that is subject Federal Tax credit on Mortgage Interest. So, you are sure to get something back from $38460.85
This is the PROUD PART, In those 5 years, you build yourself a NICE EQUITY of $13074.03
Out of remaining $33,900(85,500-51,600), You paid $15,000 in your property taxes that is again subject to Federal Tax credit.
So, all in all you paid a lot less to OWN than to RENT
With the economy recovering, you will certainly do fine. With all the EQUITY you would have built by then, your down-payment on your next house would be ready.
This was the WORST-CASE scenario. On the brighter side, the REAL ESTATE is bound to recover sooner or later. You can't rent forever or can't live in your parents house forever simply because you will outgrow the space and would need some space of your own.
Who knows if you let this opportunity go by and wait for a few more years, what would be interest rate or real estate prices.
One piece of advise is that your total housing expense(whether owning or renting) should not be more than 30%-35% of own take home pay. Look for rental property and something to buy in that range and you will do just fine.
If you want to discuss or have a specific question, please leave a comment and I would glad to answer to the best of my ability.
- Historically low Interest rates
- Abundant of properties to choose from
- Affordable prices
- Ever increasing rents
So, Think Again.
Let's run some numbers.
Let's say you are buying a house for $200K with a 20%($40K ) down-payment.Your annual real estate tax may be around 1.5%($3000) and lets keep another $300/month for HOA fee.
Let us look at your monthly expenses now
- Mortgage expense: 160000@5%(current rate) = $860/month
- Monthly Property tax payment: 3000/12 = $265/moth
- HOA fees = $300/month
If you are presently renting, you can easily expect to pay $1200-$1500/month for a similar house/condo/apartment depending on the location and amenities.
Now let us go one step further and say you are going to live in same city for 5 years.
Can you even imagine how much rent you would have paid in those five years?
Let's do the numbers again.
Monthly rent(Avg rent from 1200-1500)*no. of months*no. of years
$1350*12*5=$81000 (whopping 81 thousand dollars going down the drain)
Had you owned your place for 5 years, you would have spent
$1425*12*5=$85,500 (Wow! this is more than renting)
NOT AT ALL. LET US SEE HOW!
Out of the $85,500 you spent, $51,600 went to your lender for your mortgage.
Further, out of $51,600, your interest payment was $38460.85 that is subject Federal Tax credit on Mortgage Interest. So, you are sure to get something back from $38460.85
This is the PROUD PART, In those 5 years, you build yourself a NICE EQUITY of $13074.03
Out of remaining $33,900(85,500-51,600), You paid $15,000 in your property taxes that is again subject to Federal Tax credit.
So, all in all you paid a lot less to OWN than to RENT
With the economy recovering, you will certainly do fine. With all the EQUITY you would have built by then, your down-payment on your next house would be ready.
This was the WORST-CASE scenario. On the brighter side, the REAL ESTATE is bound to recover sooner or later. You can't rent forever or can't live in your parents house forever simply because you will outgrow the space and would need some space of your own.
Who knows if you let this opportunity go by and wait for a few more years, what would be interest rate or real estate prices.
One piece of advise is that your total housing expense(whether owning or renting) should not be more than 30%-35% of own take home pay. Look for rental property and something to buy in that range and you will do just fine.
If you want to discuss or have a specific question, please leave a comment and I would glad to answer to the best of my ability.
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