Why Buying a Home is a Good Idea
There are thousands of articles on the web comparing renting to buying, almost entirely focused on the monthly or annual cost of rents, mortgages, repairs, etc.
The problem is that it’s not a fair comparison. No matter how cheap your rent is, after 30 years of renting, you still have nothing to show for it. Even if you had invested the money you saved by not buying, the long term tax benefits of owning a home, having a mortgage, and tax free capital gains, make owning a house a substantially better financial decision. It’s forced savings.
All you have to do is own it a long time.
If you rent for 5 years, at an average Buffalo rent of $1000/month, you have paid $60,000 in rent. And you have – nothing to show for it.
If you put just 3.5% down on a $200,000 house ($7,000) and you pay the $1036/month mortgage, after 5 years your mortgage balance is $177,000. You have nearly $23,000 of equity. After 10 years, you owe $156,500, which means you have $43,500 of equity.
And that assumes the price of the house has not appreciated at all. It’s more likely that your home value will rise at least a little over 10 years. As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Now people like to try and compare this to investing the difference between renting and buying – as if anyone actually does that. Do renters actually invest all the money they would have spent on buying a home? And even if they do, is there any profit? IF you had invest in the stock market 10 years ago, you would currently have LESS money than you did then, not even accounting for inflation.
People don’t invest well. They spend. Buying a home forces you to pay a payment, which means if you stay long enough, someday you will own that home free and clear.
Also, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you can make.