Owning a home has always been the American Dream. Unfortunately the recession and bursting of the housing bubble has caused concern among home buyers. Now we have too many of them sitting on the fence thinking renting is a better alternative to owning a home. As first time buyers make up almost 50% of available buyers in the market these days, converting renters to buyers is a great opportunity to get more business. I wanted to share with you a "Rent vs Own" financial analysis report that I have been sharing with my clients recently. In this report, I will show you what you can buy for $2k a month, along with all the great financial benefits of why owning a home is a much better financial decision than renting.
Renting versus owning
In San Diego, I would say $2k a month is the average rent that a lot of young families or young professionals are paying these days. So let's take that $2k a month payment and see what you can buy with that monthly budget. We will assume the buyer only has a small down payment of 5% available. Now most people will assume that this buyer will have to go with FHA financing because of the small down payment funds available, that is not true anymore.
For example, a buyer can now get conventional financing and pay NO mortgage insurance "MI" with only a 5% down payment, all they have to do is take the loan option whereby they "buyout" the MI. This is a much cheaper alternative to a 3.5% down FHA loan, where they would have to pay really high mortgage insurance payments each month. For example on a $350k purchase, a FHA buyer will pay an extra $323 a month in FHA MI versus the 5% down conventional No MI loan option. The conventional buyer can now use these additional savings of $323 a month to purchase an extra $50k in home compared to the FHA buyer. Here is more more information on this Conventional No MI program.
How Much Home Can I Purchase with $2k a month?
Here is the example of a "Rent vs Own" report comparing renting versus owning for $2k a month. For a total monthly payment of $2k a month, a buyer will be able to purchase a property for $350k, using only a down payment of 5%, get an interest rate of 4.375% on a conventional loan with NO PMI, and have a total PITI payment of $2k a month.
As you can see above, the buyer will get to take advantage of a tax benefit of $451 a month and also pay $448 a month towards principle, versus the renter who will receive no benefits from writing a check for $2k in rent every month.
Rent vs Principle paid over 10 years
In this section of the report it shows the rent versus principle paid over 10 years. You can see the buyer will have paid down the principle on his loan $67k over the next 10 years, whereas the renter has paid no principle, and in fact will pay over $274k in rent over the next 10 years.
Net Worth in 10 years
In this section of the report it shows the buyers net worth after just 10 years. By deciding to purchase a home, the buyer has accumulated a net worth of $205k over 10 years from the financial benefits of home ownership. These 3 main benefits are, paying down the principle on the loan, substantial tax deductions at tax time, and accumulated equity gains due to appreciation on the property. Whereas the renter has a zero net worth due to no financial benefits of paying rent to the landlord over 10 years.
Here is also a link to view this report in full http://mcedge.tv/16a9w8 .FYI these reports can be emailed directly to clients, or you can post the links to be viewed on facebook too.
Why its time to buy and not rent!
If a buyer is one of those who is worried about prices declining further, then they should consider the following: Prices are low and rates are low. If you talk to your accountant and find out what the mortgage interest deduction and deduction for real estate taxes will do for you, you will probably find it is now cheaper to own than to rent in many areas.
When prices decline investors rush to buy properties. They hold on to these properties because they expect the values to increase. In the meantime they rent them out. Demand for rentals goes up when fewer owner occupant properties are sold. As demand for rentals goes up so do the rents.
But if you own your own home, and get a low fixed rate mortgage, your principle and interest payments are constant and will never change. The taxes and insurance usually go up, but guess what? Landlords also add this to the rental increase if you are renting.
The clients I work with love these "Rent vs Own" reports, because it shows them all the benefits and figures they need to see when when making the decision to buy versus rent. As the accumulation of these benefits will outweigh the worry a buyer will have about about price declines when making the decision to buy. If you would like to share one of these "Rent vs Own" scenarios like the example above with any buyers you are working with, please feel free to contact me directly at 858-200-9602 and I would be happy to put together some figures for you. I look forward to chatting soon.
Also, if you want to get updated more regularly on any new rule changes coming from the lenders and what is going on with interest rates too, make sure to join my Facebook page at www.facebook.com/FreeResourcesForRealEstateAgents
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