Should you rent or buy a home? This question can be answered by determining what happens to your wealth when you buy a home. To calculate the impact on your wealth you need to take into consideration your monthly rent versus a mortgage payment, the costs associated with buying a home, the income tax deductions of mortgage interest and real estate taxes, and the rate of home appreciation.

To illustrate this consider these factors: Home Value = $90,000 Rent = $800 Insurance = $480

Real Estate Taxes = $1,600 Annual Appreciation = 4% Interest Rate = 7.03%

House Payment = $804 (P&I=$594, Taxes=$133, Ins.=$40, PMI=$37)

Wealth Factor

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Home Value

Appreciation

$90,000

$3,600

$93,600

$3,744

$97,344

$3,894

$101,238

$4,050

$105,287

$4,211

$19,499 gain due to Appreciation

Annual Rent

Annual Mortgage

Difference

$9,600

$9,652

($52)

$9,600

$9,652

($52)

$9,600

$9,652

($52)

$9,600

$9,652

($52)

$9,600

$9,652

($52)

$260 loss due to higher payments

Closing Costs

$700

        

$700 loss

(expense to buy)

Annual Principle Payments

$899

$964

$1,034

$1,109

$1,190

$5,196 gain

(Ammortization)

Interest Tax Deduction

Federal (15% bracket)

State (5% bracket)

Total Deduction

$934

$312

$1,246

$924

$309

$1,233

$914

$305

$1,219

$903

$301

$1204

$891

$297

$1,188

$6,091 gain

Tax Benefit

R E Tax Deduction

Federal (15% bracket)

State (5% bracket)

Total Deduction

$240

$80

$320

$240

$80

$320

$240

$80

$320

$240

$80

$320

$240

$80

$320

$1,601 gain

Tax Benefit

Total Wealth Increase = $31,427

If you buy a home your wealth would increase by $31,427.

This is a very modest estimate. Interest rates are much lower, rents are always increasing, and generally appreciation is 5%. Therefore the wealth increase would be a lot higher but it gives you an idea. The more home you buy the more you would increase your wealth also. This is why Real Estate is such a great investment.

For Professional Real Estate Services contact Tari Lynn Briggs.
                                                                                   (623) 444-4994.       tlcrealestate@cox.net


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