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Where does your money go when you pay your rent…Will you ever see it again?

The answer is no. Every penny you pay in rent is money that will not return to your pocket. On the contrary, this money is going straight to the bank and/or to the property owner as equity and earnings.

Hence, I will always encourage everyone I know to buy as soon as possible.

Example:

Think about it this way… Let’s say every month you make a rental payment of $1500, your neighbor above/beside pays another $1500. If the monthly mortgage is $2500, there is a monthly excess of $500, which will be put into a savings account for a rainy day. After 5 years, the mortgage has been paid down by $150,000(2500*12*5). 

Just for fun, let’s say you have owned the home for those 5 years and that you bought the house for 450,000. Let’s also say that at the end of 5 years, you have landed a promotion and will have to relocate and will need to sell, and the market has not changed much, so you will be selling at the same price–note that this is very unlikely as markets fluctuate and mostly rise with inflation. At closing, you will receive a check for $100,00-125,000 after taxes and fees. Over the 5 years, you paid $90,000($1500*60) in rent. Technically speaking, you lost no money in rent over the 5 years!! On the contrary, you come out of this transaction with enough money to put down on your next home.

 

My question to you is… How much would you pay to not pay rent?

In essence, I believe that when you own, your monthly rent becomes savings!!

For many, the fear of owning comes from the maintenance and cost of fixing things you may not know how to fix. The solution to overcome this fear is …become an educated buyer OR put a number on it…how much would you pay someone else to handle it for you?

My suggestion is to work with transparent realtors who enjoy answering all of your real estate questions. Use google and become familiar with the cost of fixing essential things in a home. Lastly, look for signs of breakdown when you are purchasing in order to include possible capital and minor expenses in your budget. In the example above, it would be a great idea to take the $500 excess and put it aside into a saving account where you can dip in for home improvements and fixups. At the end of 5 years, you would have saved $30,000 dollars. This amount of savings can cover the cost of a roof replacement, new kitchen, new heating and cooling, or even solar panels, all of which would add a percentage of its cost of improvement into the value to your home.

For transparency’s sake, I must also tell you that these numbers don’t always work like this, and they may not work in every market. Prior to buying, it is your duty to ask the right questions and do the math. Below are some things to consider:

1. How much rent/mortgage can I afford?
2. How long will I be staying in the area?
3. What is the market rent?
4. How many fix-ups will the home need to be rented out?
5. Do I mind having immediate neighbors above, below, or beside?
6. Do I want the neighbors to know I own the house?
7. How will utilities be paid?

Food for thought herein, munch away, and follow me on social for more real estate messages.
(Disclaimer: Everything stated within is purely my opinion. Always consult with your accountant or attorney as the situation applies)