3.9 million more renters.

Posted by Leonard Steinberg on October 25th, 2015

Every morning I write a contemplation to everyone at COMPASS sharing thoughts and insights: Here is an edited highlight of this morning’s COMPASS CONTEMPLATION related to the advantages of buying property:

DID YOU KNOW?┬áThe number of single-family renter households increased by 3.9 million more renters, or 34%, from 2006 to 2014 (the time period during and after the GREAT RECESSION), according to the U.S. Census Bureau. Recessions send potential home buyers to rentals…..hence the mammoth rental pricing escalations in the last 5 years.

Here are some factors to ponder in the rent versus buy scenario:

  • Rentals are expensive over the long term and do not allow you to take one of the last large tax deductions for mortgage interest. $5,000 per month in rent is roughly $1,8 million spent over a 30 year period (assuming there are no rent increases!).
  • $5,000/month in combined mortgage, common charges and taxes pays off a $900,000 property over 30 years…..with almost $500k in tax savings from the mortgage interest deduction. Even if the property halves in value over 30 years (highly improbable!) the advantages of buying are glaringly obvious.
  • Assuming the property increases in value at a rate of 2% per year (the rate of inflation), its value would be over $1,6 million in 30 years after paying down the mortgage. That’s a forced retirement savings account.
  • On a $1 million property, a 5% purchase price discount combined with a low mortgage rate of 4% saves you $136,000.00 over the life of a 30 year mortgage.
  • A 0.5% rate increase costs about $100k more over the life of a $950k purchase price. Getting a small discount now with low interest rates is a WIN-WIN of the best kind.
  • Construction, labor and material costs keep escalating over time: just 1% per year escalates costs by 35% over a 30 year period.
  • Downpayment funding, poor credit scores and harsh financing requirements remain the key deterrents to buyers.