Should I buy a home or keep renting?

Unfortunately, it is impossible to give an affirmative answer, either way, about buying or renting. Conventional wisdom assumes that property values always go up. In reality, home value is determined relative to many ‘x’ factors, which are susceptible to fluctuation. In addition, to turn a profit on a home those x-factors have to be consistently in the positive over the duration of your mortgage.

Some people erroneously associate renting with wasting money. Again, depending on your circumstances, renting may save you money over a lifetime. There are a few time-tested, predictive factors to weigh when deciding whether to buy or rent.

A few assumptions first…

Since we cannot predict the future, let’s assume a few things about the place we intend to live for the next thirty years. For renters, this is harder, but we cannot begin to do a cost-benefit analysis unless we level the playing field. Here, we must assume you continue to pay the same rent, or more, over thirty years. This figure is adjusted for assumed annual increases to your monthly rent payment.

Are homes still an investment?

You live in an apartment that is $1000 a month. You can reasonably expect, based on your exhaustive research, that your rent will rise annually 3%. You are considering buying a home that is $180,000 dollars. Your mortgage is at 4.8% and the value of your home is expected to appreciate steadily at 2% a year. Your down payment is $36,000. That means the principal on your loan is $144,000 dollars. You can expect to pay 102,000 dollars in interest on that principal across the lifetime of 30-year mortgage. The grand total of your fixed-rate, thirty-year mortgage is $246,000.

Very easily, we can presume at least another 500k in related costs, fees and taxes for $180,000k home. Over a lifetime, owning a home at this price point, we can assume a few other things that add up:  

  • Property taxes vary widely. If you were so lucky as to have property taxes steady at 1.35%, over thirty years, tack on additional $85,000
  • Again, utilities can vary widely, but based on the national average, you should expect to pay about 2,200 a year in utility. This is an additional 48,600
  • Renovations put value into a home, but they are expensive. Supposing you decide they are worthwhile, let’s calculate another 37,000.
  • Likewise, maintenance costs, frozen pipes, a flooded basement, a gas leak, on average will be another 37,000
  • Steer clear of the flood plain, and assume homeowner’s insurance costs you 34,000, over a thirty-year mortgage

All told, you can reasonably expect to pay $720,000+ (rounded here) dollars for your mortgage and homeowner related loans and fees. This is an astounding number at first glance. Owning a home is making life and life costs money. (We might reasonably overlook these “cost of living” expenses; you get a clearer picture this way.)

Assuming the value of your home rises steadily at 2% annually, you should expect to make about $80,000 dollars on your mortgage, for a property worth roughly $325,000. Once you decide to sell, deduct this price from your net mortgage and homeowner related costs and you have spent $395,000.   

For a thirty-year renter, paying $1000 a month and adjusting that for 3% annual raise in rent over thirty years, they can expect to pay about $570,000.

The homeowner has saved money in this cost-benefit assessment—nearly $175,000 in thirty years. That’s new cars, college, and vacations.

Renters save money in the short-term

The renter actually saves in the first six years in this thirty-year scenario at these percentage points. After six years, the homeowner will always save more than the renter. This is because the homeowner, having gradually reduced the principal of the loan is paying less per year in interest payments.

In other words, the yearly cost of ‘rent’ for the homeowner gradually reduces as they pay off the principal on their loan, and pay less in interest. As their investment appreciates in value, it effectively pays for part itself over the thirty-year term. The renter receives neither of these benefits.

Quality of life a factor not to be underestimated

A residence of any shape or size is an investment in your lifestyle. If you are a gay or lesbian prospect buyer or renter, there may be requirements that take precedence over the simple numbers of a rudimentary cost-benefit analysis. Gayrealestate.com is connected to thousands of gay-friendly real estate leaders that can do the math. More importantly, they make it their priority to calculate in the all-important intangibles of a neighborhood.

If you are looking for your first apartment in an established gay neighborhood or buying a dream home with your partner, Gayrealestate.com knows the communities they sell in and are adept financial experts.