Is it time to buy?
Here’s a typical ‘buy versus rent’ conversation I have had many times over the last few months with friends, family, and clients. I share to help you decide if now is the time you want to jump into homeownership. If you do, I would be privileged to help you every step of the way.
Imagine you are a homeowner in the Denver Metro Area. How has your investment fared over the last couple of years? If you bought a home in 2015 for $160,000 that home would likely sell for $174,000 in today’s market, an 8.5% increase. Contrastingly,
if you were renting in 2015, you have seen your rent rates rise about 22% and none of the monthly rents paid would be tax-deductible, or redeemable when you move out, as in a monthly mortgage payment. This scenario clearly favors the homeowner or landlord.
Look at this simple graph on the real numbers: The intersection of the pink and green lines show the break-even point of renting versus buying. By year 2 you begin the wealth-building phase of your homeownership.
There is just no predictability for renters because you have little control over how much your rent payments will increase. Homeownership, on the other hand, offers the predictability of a steady monthly payment.
“I have to put money in a Money Market account right now to plan for my retirement.” You may not be thinking of how to pass on wealth to your future children or grandchildren, or even dream you can do so, but a home will be the launching pad do just that. A home increases in value way beyond your initial investment and allows you the leverage to borrow for college, invest in rental properties, or get capital to start your own business. It also protects your wealth by growing almost tax-free. (I am not a CPA, please talk to one about real estate tax advantages.)
“Great,” you say, “but I can’t afford to buy right now, I don’t have the down payment so I could never get a mortgage.“ Interest rates, the largest factor of home affordability, are at historically low rates and there are several federal and state programs that offer very low down payment options - even $0. Really.
“Even if I get pre-approved for a mortgage, shouldn’t I wait till home prices go down to get the best deal?” The Denver market is not likely to see any material short-term, negative impact to home values. We've had a strong, value-driven market for a number of years and we can weather some ups and downs before homeowners find their equity cushion (created by that 8.5% increase in values) negatively affected.
“The home I want is way out of our price range, I just can’t afford my DREAM Home.” If you are willing to make an 80/20 deal with yourself and buy the home that's within your budget now, you will be able to leverage that into your sometime DREAM Home.
Since this is a story about investments, I will end with this: The bottom line for buying versus renting is personal. And while I have seen many people grow personally and financially through homeownership, it is not for everyone at every time. I would love to help you figure it out!