GMR 114: Buying vs Renting

Most people when asked would say that buying a home is better than renting. The truth is the answer is not that simple. There are many variables in making this decision, not the least being the cost. In this episode of GMR, we break down the perceptions and beliefs regarding homeownership and renting to help you make the best housing decision for you and your family.

SHOW NOTES

SHOULD I BUY OR SHOULD I RENT?

PERCEPTIONS THAT MOST PEOPLE HAVE OF HOMEOWNERSHIP

  • American Dream.

  • Safety and security.

  • Used to be a big advantage for tax-deductions (mortgage interest), but now that’s very rare.

  • A house is an investment, this will make you money.

    • Employers can leave town.

    • The area could go down in value - think Detroit a few years ago

  • Fixed costs, rent won’t go up, payment doesn’t go up.

    • Truth, insurance costs usually rise.

    • Taxes usually rise.

REAL BENEFITS OF HOMEOWNERSHIP.

  • Usually, you get a larger living space.

  • House value growth usually matches inflation.

  • Sense of stability.

  • Belonging to a community.

  • Pride of ownership.

  • Tax deductions and equity.

  • Every month you're a tiny step closer to full ownership.

  • Appreciation - $200,000 to $260,000 overtime.

  • You can renovate and be creative.

  • Privacy.

RENTING PERCEPTIONS

  • Throwing money away - not true because everyone has this cost.

  • Rent will rise year to year.

  • Missing out on building wealth through equity growth - not always true.

REASONS WHY RENTING IS BETTER THAN BUYING

Time and energy of maintenance 

Here are some expenses you’ll be spending money on as a homeowner that you don’t have to pay as a renter:

  • Property taxes.

  • Trash pickup.

  • Water and sewer service.

  • Repairs and maintenance (roof, a/c heating, plumbing, foundation).

  • Pest control.

  • Tree trimming.

  • Homeowners insurance.

  • Pool cleaning (if you have one).

  • Lender-required flood insurance, in some areas.

  • Earthquake insurance, in some areas.

  • No maintenance or repair costs.

  • Access to amenities.

  • No real estate taxes.

  • No down payment - loss of capital you can use toward investing.

  • Flexibility to live wherever you want.

  • Flexibility to downsize - from two to one-bedroom to save money.

  • Lower insurance costs.

  • Lower utility cost.

  • More free time - no upkeep or maintenance (lifestyle benefits).

  • Kids can’t move back in - not enough room!

HOW LONG ARE YOU PLANNING TO STAY WHERE YOU ARE?

The process of buying and selling a home involves many different costs, — including brokers' fees, appraisal fees, title insurance, and mortgage origination fee. 

Costs: $200,000 home

  • Closing Costs $4,000 - $5,000.

  • Real Estate Agent Commission $10,000 - $12,000.

If you don’t live in the home for at least 3 years, and in general 5yrs, then it normally doesn’t make sense to buy. If you’re planning to move soon, or aren’t in love with your city or state, don’t purchase. 

Is buying a house the grown-up thing to do?

Being a good steward of your money is the grown-up thing to do. Having a plan in place and being content with your life while working towards a better future is the grown-up thing to do. If you’re 25 and feel like you’re behind the curve because you haven’t bought a house yet, stop worrying. 

Financial Example from NY Times Calculator:

$250,000 Home

  • 3yr - $1,445

  • 5yr - $1,244

  • 10yr - $1,097

  • 30yr - $1,018

    • 4% mortgage rate

    • 5% down payment

    • 30yr mortgage

    • 2% tax rate

    • 5% Real Estate Sales Commission

RESOURCES

NY Times Calculator
Budget Forms and Tools
David’s New Book - Jesus on Money
David’s New Website - www.stewardshippastors.com

Personal FinanceLeo SaboHome Ownership, Housing Cost, Buying vs RentingComment