How Much Money Am I Losing If I Wait 6 Months To Buy A House
How Much Money Am I Losing If I Wait 6 Months To Buy A House
Many first time home buyers I've spoken with this year are tired of paying someone else's mortgage but their lease doesn't expire until July. Or perhaps it expires in 3 weeks and trying to find a home on such short notice seems impossible so they decide to rent for another 3 or 6 months. Sometimes it's unavoidable, but if you are able to buy now, and you don't, how much will waiting 6 months cost you? What is the true cost of 6 months rent?
I'm glad you asked :) We'll see that renting a place for 6 months is VERY expensive in this seller's market. If you're not sure you're going to be in Charlotte for the next 3- 5 years then renting is probably the way to go. If you've got a decent down payment however, and plan on being in Charlotte the next few years, renting is expensive! Let's take a look at an example below.
The Cost of Renting
There are 3 main costs of renting for another 6 months. Two are the ones most forget to calculate, the Opportunity costs of not buying. They are:
Home Appreciation - Homes in Charlotte have been appreciating at 5+% on average over the past two years but we'll use 3% to be conservative. (an opportunity cost)
Lost Tax Deductions - Another opportunity cost. We'll see that being able to deduct taxes and interest saves you thousands of dollars in the first year (it also lowers your effective mortgage payment)
Rent - You're paying someone else's mortgage and taxes.
So now that we know the 3 main costs of renting let's look at an example in which you're considering buying a home for around $300,000. What's the cost of renting 6 months?
6 months of appreciation at 1.5% on a $300k homes is a whopping $4,500
In your first year at a sales price of $300k you'd expect about $4,500in tax deductions (interest and mortgage insurance are tax deductible). So cut that in half for 6 months and you've got $2,250
6 months of rent at $1,000 plus misc renting fees add up to about $6,500
The bottom line: In this example, by waiting to buy for only 6 months on a $300,000 home you've lost $4,500 + $2,250 + $6,500 = $13,250
When considering renting for another 6 months or a year most people only think about their monthly rent payment. While this is one cost of renting, you'll note from the example above that it's not even the most expensive factor in continuing to rent! I've often heard people say that they aren't very (Very) happy with the selection of homes they're seeing so they're going to wait until there are better options available, sounds reasonable except they don't know the true cost of rent. They don't understand appreciation, so when they come back in 6 months or a year, more typically they will be spending more money for less home.
Let's extrapolate a bit to see what your cost would be for renting another year at several different price points (using same appreciation numbers):
($1,000/month x 12) + $1,000 in misc costs = $13,000
$300k x 1.03 = $9,000
($2,000/month x 12) + $1,500 in misc costs = $25,500
$500k x 1.03 = $15,000
$5,800 (28% tax bracket)
($2,500/month x 12) + $1,500 in misc costs = $31,500
$800k x 1.03 = $24,000
$12,900 (39% tax bracket)
(Note: Average appreciation in Charlotte is 5+% but this obviously varies so we are using 3%)
So it costs a lot of money to put off purchasing your first piece of property but money isn't everything! Buying a home is also a life goal for most millennials (something like 75% but I can't seem to find the reference). That goal has simply been put on hold for a while due to the recession. If you're able to buy, and it's either a life goal or you're starting a family, continuing to rent is putting off achieving that goal or starting that new chapter.
Long story short, you'll pay more for less home 6 months from now. Very few people get the "home of their dreams" the first time they buy and iff they do, there's a good chance mommy and daddy are paying for it ;) Here are some links about the home buying process in NC:
The McDonald Group at Wilkinson ERA is a group of professionals, dedicated to helping our Clients win in real estate. Expert and honest advice, local area knowledge, and seriousness of purpose but with folks who don't take themselves too seriously. The founder Terry McDonald, was a builder for 20 years, and has been a broker for the last 13 years. Buying a home or selling, first home buyer or relocating to Charlotte,the McDonald Group is here to serve. Our client list includes first home buyers to luxury homes, professional athletes, business owners and physicians. From in town to South Charlotte, Lake Norman too, we know Charlotte.
The Group's core values are all about integrity and market expertise. We look out for their clients interest above all others. We are a learning organization, and big believers in training and lifetime learning. Sellers know us for our technological savvy, our aggressive marketing, and the ability to consistently beat the averages in Days on Market. Buyers love us, we never pressure anyone, yet were able to save our Buyer clients 44% off the market average in 2013- and now that the market has changed we win more than our fair share of multiple offer situations.
Reviews on Zillow
"It was a great pleasure to work with Terry McDonald. English is not my first language so forgive any mistakes. The first time we met Terry was 5 ... more "
by polina katz
"I worked with Bobby on both buying and selling my home in Charlotte. He is so personal and cares about finding the perfect home for his clients! I ... more "
"Terry was exactly the agent we needed for our relocation from the New York area to Charlotte. We first explored a move to Charlotte a couple years ... more "
A Classic Contemporary Craftsman by RAM Construction - UNDER CONTRACT4
"I was living in Florida and looking to move to Charlotte area. I found Terry through the internet and explained my plans of moving to the area with my wife and kids. He was very diligent and honest in market values, location, schools, etc.. even offered advice for relocating. While I was in FL. he would send me listing meeting my criteria, he also advised for things I should be aware of that I hadn't even thought of. I eventually made my way to Charlotte and met up with him for a weekend. We nocked it out in a weekend, he had found the perfect home for me and my family. We made an offer and I went back to Fl. I thought it was going to be difficult to close while being away, but he made it happen..
I only needed to come back to sign the closing.
In 201, I was relocated to Virginia, I asked for Terry to help me rent the home while I was stationed in Virginia. He recommended an agent, It was rented out within a month and with an Incredible Tenant.
In 2014, It became apparent that I would no longer be moving back to Charlotte, I then contacted Terry to put the home up on the market in a time when it was a very difficult time to sell property, but again he made it happen. This time around, I was in Virginia the whole time.. It was difficult for me to make in back to Charlotte for any type of transaction. I trust Terry so much and am very thankful for having met him. he completed all transactions without me having to be there. Once the property closed. I received a check within weeks..
In a time when you need for things to happen and you need to trust someone unconditionally. Terry will be there.