Real estate professionals often get bashed when they suggest that “now” is a good time to buy property. While critics can have many subjective opinions based on their unique experiences, math always tells the truth.
What do the numbers say about buying property today versus renting?
Let’s take a look at a typical property for sale, located right at the center of the nation in Kansas City, Missouri. It’s a 3 bedroom, 2 bathroom home in the upscale suburb on NE Howard Street in Lees Summit. It is fully renovated with a new kitchen, new bathrooms, updated plumbing, electrical and HVAC.
This home would cost $1100 per month to rent.
It would cost only $780 per month to own with a 30 year fixed rate mortgage at 5%, including taxes and insurance.
Why Is it Cheaper to Own Than to Rent?
The market has overcorrected in some areas. This house is now $80,000 when it sold for $120,000 at the peak in 2006. The low price combined with historically low interest rates make the monthly mortgage payment more affordable than ever.
The down payment is not a stretch either. An FHA loan would require 3.5% down, which would be $2800 on this house. The renter’s deposit would be $1100.
From the extra $320 the home owner gets by not renting, he should put aside $100 for future repairs.
That leaves an extra $220 cash flow that could be used to pay off the mortgage in 15 years instead of 30.
Who’s Better off in 15 Years - the Owner or the Renter?
Most rents increase 4% each year, so the renter would likely be paying over $1800/mo for this house in 15 years.
The home owner, on the other hand, would have no house payment if he did indeed choose to pay off the mortgage in that 15 year span.