Buy vs. Rent

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taught by Sarah Pichardo

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  • To more fully understand your options you may wish to sit down with your financial advisor and go into more detail than I am covering here
  • Buy vs. Rent

    1. 1. The Power of Purchase Renting vs. Buying
    2. 2. How do you know if it is better to rent or to purchase a home? <ul><li>Key considerations: </li></ul><ul><li>Location </li></ul><ul><li>How long do you think you will be in the area? </li></ul><ul><li>How long do you think you would be in the home? </li></ul><ul><li>Budget </li></ul>
    3. 3. People buy a home for some of the following reasons <ul><li>Anticipated Appreciation : ~5%/year (NoVA area) </li></ul><ul><li>Tax benefits : </li></ul><ul><ul><ul><li>Mortgage Interest deduction The government allows you to deduct a portion of the interest you pay on your mortgage from you income taxes </li></ul></ul></ul><ul><ul><ul><li>Property Tax Deductions – Real estate taxes are tax deductible on primary residence </li></ul></ul></ul><ul><ul><ul><li>Mortgage Insurance Deductions – If you pay mortgage insurance you can currently deduct the mortgage insurance from your taxes on borrowers earning $100,000 or less/year </li></ul></ul></ul><ul><ul><ul><li>Capital Gains Exclusion – The government allows you to exclude up to $250k (single person) or $500k (married couple) of profit from capital gains tax as long as you live in your home at least 2 out of the past 5 yrs. </li></ul></ul></ul><ul><li>Pride of Ownership : can customize home and make it yours </li></ul><ul><li>Sense of Security </li></ul><ul><li>Equity Lines : ability to tap into your equity (pay off credit card debt, college, renovations, anything) </li></ul>
    4. 4. People decide against renting for some of these reasons <ul><li>“ At the mercy of your landlord” </li></ul><ul><ul><li>Landlord can raise your rent </li></ul></ul><ul><ul><li>Landlord can kick you out </li></ul></ul><ul><ul><li>Landlord can take a long time to make necessary repairs </li></ul></ul><ul><li>Security Deposit </li></ul><ul><li>Rental Insurance </li></ul><ul><li>Breaking a lease penalties </li></ul><ul><li>Lost Opportunity </li></ul>
    5. 5. How much lost opportunity? Consider this scenario <ul><li>$280,000 valued house in Centreville </li></ul>By buying instead of renting, this individual saves: ~$16,680/yr Rent Buy Monthly payment: $1,800/mo Initial outlay: ~$3,600 (Security Deposit/1 mo rent & 1 mo security deposit ) <ul><ul><li>Monthly Payment: $1,950/mo* </li></ul></ul><ul><ul><li>Initial outlay: $9,800 </li></ul></ul><ul><ul><li>(eg. FHA 3.5% down payment on 280,000 house @ interest rate 4.75%) </li></ul></ul>
    6. 6. Proof Bottom Line: Consideration Impact Effective Monthly Payment Monthly payment <ul><ul><li>P&I: $1,423 </li></ul></ul><ul><ul><li>Taxes: $233 </li></ul></ul><ul><ul><li>MI: $204 </li></ul></ul><ul><ul><li>Insur: $40 </li></ul></ul><ul><ul><li>HOA: $50 </li></ul></ul>$1,950/mo Tax savings on interest paid $270/mo (25% tax bracket) $1,950 - $270 = $1,680 Monthly mortgage payments towards principal $345/mo $1,680 - $345 = $1,335 5% appreciation/year* $1,150/mo (280,000*5%)/12 $1,335 - $1,150 = $185 Feels like $185/mo Renting $1,800/mo Buying (after considerations): $185/mo
    7. 7. Historic Northern VA annual appreciation <ul><li>The price of existing homes increased by 5.4% annually from 1968 to 2009, on average. (Source: NVAR) </li></ul>
    8. 8. Resources <ul><li>Calculators are available online </li></ul><ul><li>New York Times website: </li></ul><ul><li>Realtor.com </li></ul><ul><li>Others </li></ul>Source: www.nytimes.com/interactive/business/buy-rent-calculator.html
    9. 9. Programs <ul><li>FHA - Loan program to assist homebuyers in acquiring property with small down payments from gov’t agency (Federal Housing Administration) [3.5% down payment] </li></ul><ul><li>VHDA FHA PLUS - designed to help low to moderate income families obtain affordable financing. [up to 101.5% financing] </li></ul><ul><li>VA - Feature designed to provide housing and assistance for veterans and their families as established by the GI Bill. [100% financing] </li></ul><ul><li>Conventional - Any mortgage that is not insured or guaranteed by the federal, state, or local gov’ts </li></ul>
    10. 10. Questions?

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