Buy Vs Rent
Building Wealth

Buy Vs Rent Building Wealth: I recently was privileged to work

with a buyer who until then was living for the 11th year in an apartment where he paid an average of $1,000.

He had started around $800 per month – but, at that point in time, he was already paying over $1,100.

My client decided to leave because rent was to go up yet again …by over $200 per month to an amount of $1,350.

And he thought that it was time to try a different approach: Ownership!

It Takes Only A Few Good Sense Steps

My buyer was pretty much 'converted' to give it a try on the buy Vs rent building wealth side. 

After looking at several options he was able to buy a 3 bedrooms / 2 baths home in a cul-de-sac in his preferred area of town and in the school district that he wanted his daughter to grow up in.

Homebuyer qualified for an FHA as a first time buyer with 3.5% down payment.

Although, with this small percentage of down payment, his loan requires MIP [Mortgage Insurance Premium… sometimes also referred as PMI: Private Mortgage Insurance] and after adding home insurance and property taxes; his monthly payment will be still below of what his now former landlord was set to charge.

Please keep in mind that property tax and home insurance can go up [and rarely, but sometime they can also come down] …however the principal and interest in a fix mortgage loan will never go up!
 
In this case when he pays an aggregate of equivalent over 20% of the home value, he can apply for the MIP to be removed …or he can refinance the loan and further reduce his monthly payment.

We made a rough estimate that since he started paying $800 per month and at the end he was paying $1,150, he must have paid an average of $1,000 a month …for 11 years for something around $132,000!!!

Not a small change, hum?

Please think about for a minute and make the math how much have you paid in rent in the last 5 years …then how much you have paid in the last 10 years…

It is a staggering amount of money, isn’t it?

My buyer left from the apartment that he rented over a decade without a single penny of that ‘small fortune’

Buy Vs Rent Building Wealth

Conversely the young couple from whom my buyer purchased the home walked away with a ‘nice’ check – over $60,000!

It seems that they read my mind or, at least, this buy Vs rent building wealth page ;-)

They certainly recovered some or most of the moneys they had initially put down into the house and ‘a little appreciation’ to go with it ;-)

For all I know this will be free of capital gains tax. Please visit my page Buy Vs Rent Tax Advantages for more details.

Okay, you may say that the seller had ‘lucky break…’

I could not disagree more:

1. Each dollar that you pay towards the ‘principal’ on your mortgage is a dollar saved to your name …NOT to your landlord’s name ;- )
2. The payments you make towards your mortgage accumulate basically tax free
3. ALL interest paid through the life of the loan is deducted 100% from your gross income tax through the mortgage interest deduction (MID) so you pay less tax – big saving here 
4. A fix mortgage never goes up – even in a 30 fix loan …rent goes up ways more than the rate of inflation …and you can count that the landlord will increase you rent even when there is no inflation at all!
5. Please see my page Buy Vs Rent Case Study Cash Outlay – I have made an example with a ‘modest’ 3% increase in 30 years a renter’s cash outlay would be over $xyz more than someone who would have bought a home with the same initial payment of $800 (principal and interest)
6. Property tax are tax deductible …more savings
7. Home value – almost invariably - appreciate through the years: You can believe that in 30 year time value of the home you buy today will appreciate by several folds
8. Whenever you were to sell your home down the road – you most certainly will walk away with some money that have accumulated – even after pay the costs of marketing the property ...that's where the buy Vs rent building wealth kicks in - you mostly likely will have some money on hand towards you new home
   

Easy Decision ...I think

I think I do not have to twist many arms to demonstrate the buy Vs rent building wealth highly favors the homebuyers.

If you were to combine the moneys a homebuyer can accumulated you indeed end up with a ‘small fortune.’

No wonder rich people ‘buy’ homes and do NOT rent – it is part of the strategy to accumulate wealth! :- )

Lastly, I would like to point out that we are living longer, much longer! Are you thinking of continuing to pay rent for another 20 or 30 year after you retire?

I would like to suggest that even that you approach the age of retirement – if you are still paying rent, “there has never been a better time to buy a home than ‘now’”

By the way there is age limit for you to acquire a home mortgage loan :- )

Knowledge Base - This series dedicated to explore the Buy Vs Rent quest is comprised by 8 intertwined articles. I recommend that you further your knowledge by reading all of them - enjoy …AND learn!

JC Fagundes, Head Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.
Ph: 404 801 4141

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