Renting vs Buying a House

wpadmin | Posted on May 20, 2019 |

When it comes to buying a house, many people never realize how much they can save by investing in a home. For some, the fear of buying a house comes down to myths about the complexities of the process. The truth is that it’s super simple, and there are many benefits to owning your home, such as building equity.

For those who are currently renting, there are some additional benefits, but the biggest win of all is that you don’t pay someone else’s mortgage with your rent check every month. You get to invest in your own property!

So why do people wait forever to jump on real estate investment? I’ll show you how easy it is for anyone to get out of renting and invest in a home.

People get stuck in renting for too many years because there are a lot of positives in certain cases. However, owning a home is better for your future and wallet.

Take a look at the pros and cons to see just what you’re missing by staying in a rental property.

Pros of Renting

You can still rent a home with bad credit
No mortgage tying you down
Landlord takes care of all maintenance and repairs
If neighborhood depreciates, it’s not your problem and may even lead to lower rent

Cons of Renting

You pay more to rent than a mortgage would cost
Renting pays the landlord’s mortgage and helps build someone else’s equity
Must share your walls with noisy neighbors if in an apartment
Restrictions on pets and decorating
Rent goes up every year based on landlord’s discretion
Landlord can sell and ask you to move out at any time

When homeowners look back at renting, many feel a huge stab of regret that they did not buy sooner. Instead, they spent thousands of dollars every month paying someone else’s mortgage and never building equity that could be used to pay themselves.

Pros of Buying a Home

You build equity
You earn money each year as your neighborhood appreciates
Renovate and remodel your home as needed
Your property, your rules

Cons of Buying a Home

Some secondary costs tied to taxes, maintenance, and insurance
Earn less equity if market depreciates
Must quality based on income and credit
Tied down to a mortgage

There are programs for low income and first home buyers that make it easier. In fact, buying a home isn’t as scary as you think.

Why Buying a Home is Easy: Debunking Myths

Most of the reasons that people have for not investing in a home comes down to hearsay and myths that cause fear.

Here’s one:

You should only buy a home if you plan to live there for 3 years

However, people buy and sell houses every year, and they even make a profit doing it. Buying a home and deciding to sell it in under 3 years does not mean that you will lose money. In addition, you still lose more money paying double to rent instead of paying a mortgage.

Where Does This Home Buying Myth Come From?

IF you buy a house, people think they are stuck in an investment, but that’s not true. Here’s a typical scenario:

Most houses appreciate at 3% per year
You purchase a home at market value for $100,000
To purchase the home, you put down a payment of $5,000
Your mortgage is now $95,000
At a typical 3% appreciation rate, your house is only worth $101,500 in 6 months
If you decide to sell at 6 months, you still have to pay your realtor (-3%), the home buyer’s realtor (-3%), and closing costs (-2%)
This means on a house valued at $101,500, you’ll lose 8% or $8,100
If you sold the house at that price, you’d be left with $93,400
However, your mortgage is still at $95,000 and you likely were paying interest, bringing the amount down to $94,000
Based on the $93,4000 profit of selling your home, you lost about $600 to sell early

However, this is only for a 6 months purchase, which is actually an incorrect way to buy a home. The three-year rule actually makes a lot of sense because in that amount of time, your home appreciates up to $109,000. Instead of losing money, you actually earn $10,000 to sell at this point.

Basically, the longer you hold on to a home the better chance you have of not losing money.

What I want to share with you is a strategic way that ignores both of these scenarios. You don’t have to be stuck in a house, unable to travel or move for a long period of time.

My Stress-Free Strategy for Buying a Home

There are ways to buy a home where you don’t lose any money, particularly if you sell within 3 months. In addition, your house can actually make money you money every month by renting after you move.

The step-by-step strategy to making money and buying a house:

Start Thinking Like an Investor

You may want to buy a house because it has a pool or a bathtub you’ve always wanted. These are emotional responses to a house that may not be worth the investment. Instead, if you look at a house as an investor, you can see it’s potential to make you money whether it has a pool or not. Most of the time this means buying a house that will attract a lot of buyers if you decide to move.

Buy at a Discount

Houses are discounted because they may need renovations or the homeowner is in foreclosure, which prompts them to sell quickly. You never want to purchase a home that is out of your budget and doesn’t make sense.

Purchase Low in the Best Neighborhoods

You never want to buy the most expensive house in the neighborhood. Instead, you want to find a top-notch neighborhood with a lot of high market value homes and purchase the least expensive home. This guarantees that you’ll make some money back because you already have more equity by buying lower in a high value neighborhood.

What Monthly Payment Do You Want?

It’s best to go into a home investment knowing what you can afford to pay every month for a mortgage. Once you know this number, you can use a mortgage calculator to figure out how much house you can afford or max purchase price that you can afford.

Find Homes in Your Price Range and Negotiate Down

If you find that you can afford $180,000, you should look for homes around $190,000. You can negotiate these homes down especially if they are in need of repairs.

However, you want to make sure that you don’t buy a home that will cost more to remodel.

Instead look for homes that can be renovated and sold for a profit, such as buying a fixer-upper at $175,000 and remodeling the home so that it’s worth $230,000 in just a few months. That’s even more equity that you’ve built off of your purchase.

Look at Rental Prices in the Area

Lastly, you want to make sure that you have a way out if you need to get out of your house. Rental prices should be 25% more than the monthly mortgage in the area where you buy, so you know that if you need to, you can rent out the home and still make your money back.

Benefits of Renting Out Your Home

Use the equity and profit margin to pay a property manager
You can live anywhere while still earning income and equity
Save for maintenance and vacancy costs by renting out at a 25% increase

Sell Your House at Any Time and Not Lose Money

The goal of this strategy is to help you purchase a home like an investor and earn money when you buy any property. However, there is an even better strategy called house hacking, which allows you to live for free in your own home.

I’ll share a video soon on how to house hack and let you in on the secret to having your mortgage paid while you live for free.

What do you think about buying a house now? Does it seem as scary as before?