Should I own or rent a home? I get the own vs rent question a lot. Watch this video to get the answer to some SHOCKING “real-life” stats! The whole own or rent a home has been brought up to me many times over the years. This is the reason I wanted to do this video for you.
Hi everyone, this is Lance Mohr, your Tampa Bay Realtor. In this video, I want to talk about owning versus renting a home. I know I get a lot of questions from people on what's better. Is it better to own? Is it better to rent? I know this is a lot of forums. People are always asking this, generally first time home buyers so I'm going to go over that in this video. The question, should I own a home or should I rent a home? And then I'm going to give you some shocking information about earning versus renting that a lot of you probably really don't know, especially if you're a first time home buyer.
So, a lot of you may think, “Oh well Lance, you're a real estate agent. You're real bias on owning a home opposed to renting a home,” but let me tell you, when I bought my first home, I was living in Southern California. I was single, I was 23 years old and at the time I was in engineering. I was going to night school just to study up on real estate and I used to go to the library a lot. So, I really looked into real estate and one thing I noticed going all the way back to the 1930s, real estate has always been a phenomenal investment. It's always going up.
Now, it does go in cycles, so real estate will go up, up, up, then it'll down, down, down. Then it'll go up, up, up, up, then it'll go down, down. So, it will move up and down but it's always on a constant. Now, the two main reasons people buy real estate or I should say a home is not for shelter because you can get shelter in a rental, your parents, a home you own, doesn't really make any difference. But, it's really the nest egg for retirement. It's a great nest egg for retirement. And the second reason is a simple fact that you could get tax write-offs, which is great. And when you own rental property, there's even more.
Now, there is a reason why investors like Warren Buffet ended up buying Berkshire Hathaway. He bought hundreds of thousands of homes, and why over 80% of all the wealth in the United States is in real estate. So, why don't we go over this own versus rent analysis and give you a good idea?
Let me go over this own versus rent. We're going to go over rent first and we're going to figure it's $1,500 a month. The rent increase is going to average 3% per year and that's just inflationary cost. That's actually probably a little low. Renter's insurance of $300 a year. We'll go over to owning and we'll figure a $190,000 home. Now, that's probably on a little high end for $1,500 a month, but we'll use that for argument sake because that's the price range a lot of people are in, doing a loan of 30 years, 5% down payment, 4% interest rate.
The taxes are based on the Hillsborough County, which is about 2.1%, and it's taking in the deduction of a homestead, but it's adding … I added on top of this $1,000 a year for CDD fees. Just in case you're in a newer sub-division and have CDD fees. If you don't, subtract $1,000. Private mortgage insurance of $972 a year. And keep in mind, this will eventually drop off on a conventional loan. Home owner's insurance of $800 a year. We'll go over buy versus sell.
Now, I put in here appreciation rate 3%. Most of you who own a home know long term over years that's very low, but I wanted to use something very low opposed something that was higher. So, sell after 15 years again, most people will buy a home and never sell. I mean, they'll sell the home, but they'll buy a home, they'll sell then they'll buy another one, they'll sell. But we're just suing sell after 15 years. The buyer's expense not your down payment, but your expenses can be 3.5% toward closing cost.
Well, the figure of the selling expense 1.5%, plus a 6% commission. Well, figure your tax rate is about 25% federal. So, we have your bind if you took the money and invested it in a bond averaging 5% per year. That's what we use there. We go over to the results in this. This is where it gets a little depressing if you're renting.
You can see the benefits of buying a home and then selling it after 15 years, the difference is $335,819. This is everything, just the breakdown. 30 years, how much you paid for the mortgage and then this just goes over right here, more of a breakdown right here over the 15 years, how much you actually paid in the mortgage, the taxes, the private mortgage insurance, how much your tax write-off is, et cetera.
And I will say, I'm not a CPA so as far as tax write-offs if you have any questions contact an accountant or a CPA. But, it's just simply a program and it goes over everything; the appreciation, compounding for 3% per year, then it breaks down the rental. And it did make some assumptions right here. Taxes and insurance were consistent. Home value is compounded yearly, investment returns compounded yearly. Rental increases yearly, closing cost based on the home's value at the time of the transaction, and the mortgage interest compounding monthly.
So, those are all in here and as you could see, $334,000 over a 15 year time period. Now, I don't know about you. I don't know very many people that would buy a $190,000 home and in a 15 year time period be able to save up $334,000 cash. That's the difference, that's the power of buying a home. And this is again why over 80% of all the wealth in the United States is in home ownership.
Now, you can even double down on this, which I've down. Doubled, tripled, quadrupled down and it bought rental properties and it's even more dramatic to have your tenants pay the mortgage for you. That's always a great way to go as well.
Okay, I hope this proved valuable to you. I hope you could really see the power of buying a home versus renting a home. $334,000 over 15 years, and that's just we years. If you're in your 20s and 30s, you're going to own a home much longer than 15 years. So, keep that in mind. And if you start doubling down and buying a rental property of a few rental properties, it's going to be even better for you.
I hope this helps. If you have any questions at all, don't hesitate to reach out to me, let me know. Leave a comment below. I wish you the best of luck. Hopefully, you'll watch other of my YouTube videos. Have a wonderful day.
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