I am frequently asked by people who are currently renting, "What are the advantages of home ownership." Instead of a long explanation I will provide a simplified financial example that I hope will illustrate the financial advantage home ownership.
| Assumptions | |||
| Rent: | $1,000 | ||
| Purchase Price of Home: | $200,000 | ||
| Down Payment: | 3.5% or $7,000 | ||
| Financed Amount: | $193,000 | ||
| Interest Rate: | 6.50% | ||
| Years You Stay In Home: | Years You Stay In Home: Years You Stay in Home:5 | ||
| Property Tax Rate: | 1% | ||
| Annual Home Appreciation Rate: | 3% | ||
| Annual Rent Increase Rate: | 1% | ||
| Personal Tax Rate: | 28% | ||
| Calculations | Rent | Own | |
| Average Monthly Payment Over 5 Years: | $1,040 | $1,213 | |
| Tax Savings Per Month (28% Tax Rate): | $0 | $271 | |
| Monthly Payment After Tax Advantages: | $1,040 | $942 | |
| Total Paid Out in 5 Years: | $62,400 | $56,520 | |
| Monthly Payment at End Of 5 Years | $1082 | $1,213 | |
| Price of Home After Appreciation: | $225,000 | ||
| Loan Balance After 5 Years: | $180,000 | ||
| Net Equity After 5 Years: | $0.00 | $45,000 | |
At the end of 5 years, with almost no difference in the amount spent monthly for payments vs. rent, you will have a fixed payment that will be lower than the then current rent price and almost $45,000 in equity. If you would like to experiment with a rent vs. own calculator, check out this web page. Want to know how much home you can afford?
(Q): I would like more details on the tax savings.
(A): See this IRS publication form the tax advantages of home ownership
(Q): So I pay the mortgage all year and get the "tax benefit" back as a refund?
(A): You could do that; I don't. I adjusted my tax withholding (W4) so I owe the IRS nothing and the IRS owes me nothing at the end of the year. To do the same:
Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.
...Eric
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Email: EricFernwood@gmail.com
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