Advantages to Owning Your Own Home
- Marty Prince
- 02 Apr 2014
Are there really any advantages to being a home owner?
Let’s compare 2 young couples. And, let’s look at 20 years of their financial life.
Couple A: They decide that it just ‘costs too much’ to buy a home, so they will continue to rent.
Over the next 20 years they spend $2200 per month, which goes to their landlord. That is a total of $528,000.
I know that is hard to believe, but put it in your calculator and you’ll see I am right.
Couple B: They decide to buy a home. They pay $400,000. They scrounge up the down payment, get help from their parents, and they buy the home. Their monthly payment is a bit higher than renting. They are spending $2600 per month for their payment toward their mortgage, taxes, and insurance on their new home.
Their payments over the next 20 years total $624,000.
Seems like they are spending more than couple A, right?
Well, let’s look at a few of the benefits of home ownership vs renting.
- Couple B makes about $80,000 per year in combined income, and this will increase and probably average about $100,000 over the next 20 years.
As a homeowner, they can claim a deduction for their mortgage interest and property taxes. For our couple that would be a savings of about $5000 (or more) when they have to pay their income taxes.
So, the $2600 they pay for their housing, really ends up at about $2200 after their tax savings, and so is about the same as the $2200 couple A pays for rent.
- Also, part of the payment couple B is making is going to pay back the loan they borrowed to buy the home. So, after 20 years, they will have paid back almost $200,000 of their loan. That means they now have $200,000 of equity in their home if they ever decide to sell it. That is a $200,000 asset our renters do not have.
- Appreciation: This is a fancy word that means the value of something goes up. The history of real estate in Southern California is a steady increase in value going back as far as you can find the data.
Ask yourself this question: Do you wish you could have bought a 4 bedroom, 2400 square foot home in Orange 20 years ago for $300,000? What if I told you that same home is selling for $725,000? And, that is with all the ups and downs of property values over the last 20 years.
The fact is: real estate values in Southern California go up over time.
So, let’s compare our renters to our buyers.
Couple A/Renters: Paid $2200 in rent for a property they like. But, it doesn’t belong to them.
Couple B/Buyers: 1. Paid $2600 per month in housing payments.
2. Received tax benefits of about $5000 per year.
3. Paid down their loan by $200,000, and their home is now worth $200,000 more than they paid for it.
4. Received the benefit of their home appreciating over 20 years’ time from $400,000 to???
Which one do you think is more beneficial?
I would be happy to take the time to answer any questions you, any of your family or friends may have about buying a home and home ownership. Just email or call and I’ll give you a free consultation.
Becoming a home owner is not as difficult as you may have been led to believe.