The Benefits Of Buying A Home Over Renting
As active-duty military, one of the biggest real estate questions that you will likely face several times throughout your career is whether to rent a place to live or to purchase a home. For most of the past couple decades, I’ve been on the fence as far as this question is concerned.
However, several things have happened in the last decade that have led me to be a little more bullish toward buying.
Low Mortgage Rates
First and foremost, mortgage rates are extremely low. Simply put, today your buying power is much higher than it was ten or fifteen years ago. My first home, purchased in 1996, was a little, $94,000, new construction home in Abilene, Texas.
At the time, I got an 8 percent mortgage (and I was fortunate to get it that low), and my total monthly payment, including taxes and insurance, was about $860 per month. That same $860 monthly payment today at a 3.5 percent mortgage rate can buy you a $160,000 home. Same $860 a month, but you’re able to purchase so much more.
Another reason I tend to lean toward buying today is that nationwide, rents have increased substantially over the last ten years. When the real estate bubble crashed back in 2007, a large number of people who previously owned a home were forced to rent. As with all supply and demand, as demand increases, so do the associated prices.
With the increase in people wanting—or having—to rent, rental rates increased. Additionally, military towns and communities have always been high rental areas; property owners in those communities know that many military members do not make large salaries, will only be there for about three years, and will most likely just want to rent. Once again, the large demand for rental properties drives the rent prices higher.
A Real-Life Example
With these higher rental rates, you will want to do a cost comparison between renting and buying. Let’s look at an example in Enid, Oklahoma.
One of the typical rental properties (three bed, two bath, 1,700 sq. ft., nicely appointed) rents at $1,500 per month. That same home would sell for about $180,000, which would approximate a monthly mortgage payment of about $1,000 (obviously dependent on credit score, interest rate, and so on). That’s a $500 monthly savings by owning the home versus renting. That’s $6,000 a year, $18,000 over the three-year assignment period, and if you add in the approximate $2,000 a year in tax benefits, that’s a $24,000 difference in your financial position by owning rather than renting.
Now not all markets will have that high of a disparity between rental rates and mortgage payments, but even a $200 per month difference results in an approximate $13,000 difference in your financial position over a three-year period.
That’s substantial. Even if the rental rates and mortgage payments were equal, you would still be realizing the $2,000/year tax benefit and be building equity in the property.