Option 1 – Rent an Apartment
Shown here is a rental from Craigslist (9/1/16) showing a 2 bedroom 1,002 sqft apartment that is for rent at $2,306/mo.
If you stay in your home for the next 5 years you’ll be spending about $148,000 (or more if there is a rent increase). The $148,000 covers a roof over your head but once it is spent it is gone forever.
Option 2 – Buy a Condo for $259,500
The condo for sale in Benicia that is listed at $ 259,500 (9/1/16). This is a 2 bedroom 1 bath unit over 1,000 sqft with upgraded kitchen and bath. Complex has a swimming pool.
Let’s Compare a $2300/month Rent Payment vs Similar Mortgage Payment
Rent – Let’s say you rent for 5 years @ $2,330/mo (#3) = $148,332 (#4) in rent payments (calculating some minimum rent increases).
Buy – On a $259,500 condo, if you qualify for a FHA 3% down payment program (or $7,785) with a loan value of $251,715 at 3.75% 30 year interest rate your mortgage payment would be $1,167.98 (#1).
In addition to the mortgage payment, condo owner would also have additional monthly payments of $758.10 (#2) in pro-rated property tax, condo homeowners insurance, mortgage insurance and the HOA fee. Total mortgage payment estimated at $1,926.08 (#3).
Analytics for Renter vs Buyer are as follows in the tables below.
Assuming you are in the 25% tax bracket your a mortgage tax savings as shown below would be $15,956.36 (#7).
Let’s assume a modest appreciation in value of 3% per year and in 5 years your home is worth $301,411 (#8).
Gain on Renting
Instead of buying a condo (or home), let’s say you invested the down payment, points and closing cost you might have paid to buy a condoat 2.3% = estimate $11,822 investment (#11) your 5 year after tax on the return would be $12,889.64 (#14).
Gain on Buying
Sale Price end of year 5 might be $301,411.06 (#8) less the remaining loan balance of $227,174.83 (#9) less the costs to buy your home and less the costs to sell the home at end of year 5 – approximately $24,092.56 (#10).
So the gain on home sale would be $53,144 (#14).
Total cost analysis table below shows out of pocket payments to cover the rent payments less any gains or tax savings on the investment. You would have spent $148,332.15 (#15) on rent and have $12,889.64 (#17) in investments had you invested the downpayment and home buying costs. Your total cost over that 5 year period would be $135,442.51 (#18).
If you bought the property your total payments less your tax savings and gain on your home investment would be $46,464.57.62 (#18). Rent total cost = #135,442.51 minus Buy total cost$46,464.57.62 = a savings of $88,977.94
In the rent scenario, if you did not invest the down payment and buyers costs, your out of pocket would be all of the $148,332.15. Your savings would be $101,867.58.
Interest rates are at an all time low. It is a great time to buy a condo (or home) even if you have never purchased a home before. There are lending programs specifically tailored to first time home buyers.
The major benefit besides appreciation in owning a home is the ability to write off your interest, property taxes, and homeowners insurance. This will save you money on your taxes. Use our mortgage calculators and do your own analysis.
Note: The information provided by these calculators is intended for illustrative purposes only and is not intended to purport actual user-defined parameters. The default figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult a financial professional prior to relying on the results.