What you need to know before deciding to rent or purchase a home.
Should you rent or buy? We’ve talked a little bit about all the multi-family apartments growing all over our county, which are luxury apartments. A luxury apartment is normally about 952 square feet and $2,200 a month, with two bedrooms, two baths, and no garage.
Over a three-year period, how much will this cost you? To get into the apartment, you’ll need your first month’s rent, your last month’s rent, and a deposit. At $2,200 for a normal deposit, you’re looking at $6,600 upfront. Then let’s say you want to stay there longer than a year. In this case, you’ll probably face a rent increase. Recently, rents have been increasing by 5% or 7% per year, but to stay conservative, I’ll say your rent increases by 3%. That means over three years you would’ve paid $81,600. That’s a lot of money! What could you have done with that money if you bought a house?
In this example, we’re using a $200,000 home with 3.5% down. That’s $7,000 for the down payment, which is pretty close to that $6,600 you needed to get into that luxury apartment. Now, let’s look at what your monthly payment at a 5.5% interest rate and a $193,000 loan would be. Your principal interest only is going to run you about $1,100.
Of course, there will be some extra things that you’ll have to pay, like insurance and taxes. However, your total out-of-pocket cost is going to be about $40,000 over three years. That’s a big difference from $81,600.
Now, let’s also look at what happens to the value of that house over three years. Over three years houses increase in value, which is known as appreciation. I’ll also use the same conservative 3% to not make anything too unbalanced. After three years, your house would be worth around $218,000. That means you’ll have gained thousands of dollars in equity and have your own address. That’s why it’s so valuable to own a home. The costs are similar, but you end up building long-term wealth with homeownership.
If you have questions about today’s topic or anything else, please call or email me. I am always willing to help!