Why you should buy a house and not pay rent!
Rent is a complete waste of your money and here is why. You can save money in the long run by buying a house.
I decided to write this article after hearing many excuses from people over the years to why they haven’t bought a house yet and they are still renting. I am hoping this article will show others all the reasons why they should buy a house and all the reasons why they should not be paying for rent.
Biggest mistake that most people make is thinking about their current financial situation when deciding to buy a house. The reality is your financial situation will change for the better in time. You should consider about five to ten years ahead when you are thinking about buying a house, not just today.
After this initial advice, here are some of the reasons why you should own a house and not pay rent.
People who own a house can deduct the entire interest amount they pay for the mortgage along with the property tax from their yearly income. What does this mean to an average Joe? When you get a mortgage to buy a house a lot of your initial payment amounts go towards paying the interest. This amount reduces as the years go by but it is still a considerable amount per year.
For instance, for every $100,000 mortgage (30 years fixed rate with %5.00 interest) your total interest payments for the first year will be about $5,000. This means for every $100,000 mortgage you have you can deduct $5,000 from your taxable income.
Next thing you deduct is the property tax you pay for your home. This amount is dependent on where you buy your house and can average anywhere from $500 to $8,000 per year.
For instance, for a $200,000 house with $2,000 yearly property taxes you will be deducting roughly about $12,000 ($10,000 mortgage interest + $2,000 taxes) from your taxable income. This means a person with $62,000 yearly taxable income would pay $2,500 less in taxes by reducing their income to $50,000. Don’t you agree that saving $2,500 a year is not a bad thing as opposed to renting.
Your payments will never go up:
You probably know that your rent is most likely to increase almost every year. Usually people don’t pay the same rent that they were paying 10 years ago. Let’s assume your rent is $700 a month and it goes up %4.00 a year (about $30). Your rent will be $1043 a month after 10 years. So, you will be paying $343/month or $4,125/year more compare to a fixed monthly mortgage.
If you bought a home 10 years ago your monthly payment would be exactly the same as when you initially purchased it. Now, isn’t it an excellent news to be a home owner!
Your payments go back into your pocket instead of your landlords:
When you rent every payment you make goes from your wallet into your landlord’s pocket. You are not gaining anything by living in a rental. Let’s see how much money a typical tenant would waste when paying rent in 10 years. If you take the above example of $700/month rent with %4.00 yearly increase (about $30), this renter will end up paying total of $105,000 in 10 years. In the end, this tenant would be throwing away one hundred thousand dollars in ten years.
If you were to buy a house, each of your monthly payments would go towards paying down the mortgage. After ten years some of your mortgage would be paid off. If you were to sell the house, you would get some or all of your money back. That means you are paying for something that you can sell anytime and get your money back. It is pretty much living there for free.
House values go up:
Yes they do! Home values will go up in time even in a bad housing market. Chances are very likely that your house will be worth much more than its initial value in ten years, unless you bought your house in the middle of the housing bubble. Your home value could go up an average of %40 to %60 percent in ten years.
For example, if you buy a house for $100,000 today it will be worth about $150,000 in ten years. When you sell this house in ten years for $150,000:
- You will be able to pay off all your mortgage.
- You will also make a $70,000 profit after paying the mortgage.
When you rent, however, you spent $100,000 and end up with nothing at the end of ten years.
Mortgage Payments are too high: I can’t afford to buy a house:
Don’t think about today when you are buying a house. Think five to ten years ahead. Mortgage payments are too high only if you buy a house that you can’t afford. Typical buyer will pay about $900 a month for every $100,000 of mortgaged amount including property taxes. That means you might have to pay more than your current rent today. However, that would not be the case in five to ten years.
- Remember the tax savings: Tax savings from buying a house will negate some of the difference you pay per month compared to rent.
- Rent will go up but not your mortgage payments: You will be paying a lot more for rent in ten years. That is not the case with a fixed rate mortgage.
- You will be making more money: How much were you making 10 years ago? Chances are you will be making more money in 10 years. As I mentioned above, your mortgage payment amount will never go up. Therefore, each year making mortgage payments will be easier, since your income will gradually increase. Don’t be afraid to buy a house thinking about how much money you are making today. Always think ahead!
Do you still want to keep on paying rent? You will be in much better financial situation in the future if you buy a house that costs a little more than your current rent. If your budget is tight buy something comparable to what you are renting now. It might not be your dream house but you can always sell it and move in to a better one when you are ready. When you do sell it, you could get your money back plus most likely some profit. Why waste your money renting anymore? Find a professional real estate agent, make known how much you can afford and let the agent find the best home for you.
To all renters, happy house hunting!
Nadia Huliai – AgentNadia.com
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