The new tax law doubles the standard deduction and it is estimated that 90+% of taxpayers will elect to use it! Even with the recent tax change, home ownership is still the better path. Suspend your disbelief for just a moment and read on.
The personal and social reasons for owning a home are big factors but the compelling reason is that it’s cheaper! Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.
Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced.
The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed, it is easy to research the history of an area and make predictions based on supply and demand.
Interest rates are still low and can be locked-in for 30 years. Without considering the tax benefits at all, the appreciation and the amortization dramatically affect the “real” cost of owning a home.
Consider a $250,000 home that appreciates at 2% a year for the next seven years instead of paying $2,000 a month in rent. In the example, the payment is less than the rent being paid even after including the property tax and insurance.
Rent vs. Own
Owning a $250,000 home the net cost of housing will be $1,187.64 monthly:
Mortgage@ 4.50% for 30 years $245,472.00
Monthly Payment (P&I) $ 1,243.77
Monthly Tax & Insurance Escrow $ 416.67
Total Monthly Payment (PITI+MIP) $ 1,834.31
Less Monthly Principal Reduction $ 330.00
Less Monthly Appreciation in home value $ 416.67
Plus estimated monthly maintenance $ 100.00
Plus HOA fee $ 25.00
Net Cost of Housing $ 1,187.64
Monthly Rent for Comparison $ 2,000.00
Monthly Cost of Renting vs. Owning $ 812.36
Annual Cost of Renting vs. Owning $ 9,748.27
The average homeowner resides in a home seven years before selling. An annual savings of $9,748 translates to a seven-year savings of $68,236. The danger in any calculation is in the assumptions. Our assumption in this calculation is 2% annual appreciation on the value of the home. A quick study of data will show that 2% annual appreciation is an extremely conservative data point. If you are considering rent vs. own, the best answer is usually to own.
Thank you for reading our post, Las Vegas Real Estate: Rent vs. Own under the new 2018 tax law. For more Las Vegas real estate market news, information on homes for sale, or general Las Vegas real estate information please visit our website www.jackwoodcock.com or visit our Facebook page https:www.facebook.com/TheJackWoodcockGroup/
The Jack Woodcock Group, selling Las Vegas Real Estate since 1974!