Buy Vs Rent Cash Outlay Chart: Renters pay landlord’s mortgage
and then some.
This page analyses of how rent costs much more than buying a home.
The chart below shows how you should keep more of your money …much more of it!
Ideally the cash outlay chart below
should have been based on an initial month payment of $ 1,000 because it is easier to visual and compare with any different amounts – higher or lower.
However I designed it with the starting figure of $800 because that was where a real my client of mine started. So I can make some comparison that I think will ring true to you.
For this study I used a ‘fix’ increase of 3% every year over the year before. Pennies have been dropped from the results.
Year 1: $800 x 12= $9,600
Year 2: $824 x 12= $9,888
(*) If you were to add up payments of this buy Vs rent cash outlay chart the accumulated 3% yearly increase, by the year #20 and 9 months, a renter would have paid $ 288,723 in rent…
It will take 30 years payments of a fix mortgage with the same assumed payment of $800 per month the total payment would be $288,000! I think that it is easy to calculate the savings a homebuyer will realize here.
I have a ‘joke:’ If the mortgage payment is ‘fix’ – how much it goes up in 30 years? …You got it right- zero! The most important word here is “fix” – once that you sign on that loan, it never goes up, it is that simple!
Here is another eye popping observation about this chart: In this study I have maintained a ‘steady’ 3% annual increase. Even so a renter would have paid a total of $456,802 in 30 years!
Or a whopping $168,802 over a person who would sign on a 30 years fix mortgage!
If you are still on the fence I hope this buy Vs rent cash outlay chart will provide you enough ammunition to jump into the ownership arena.
However here is perhaps the most important observation: Rents do NOT go up in ‘a predictable 3% year increments” – they go up in leaps and bound at the will of the landlord, not the market.
So much so that my client had been served with notice that his 12th year rent was going to go up by $250 per month …or approximately 22.72% from one year to the next!
It does not matter which point in time you are in your life right now – 30 years from now you are bound to be thinking of retirement. If not retired all completely and, therefore on ‘fix income.’
Let’s pick up of the modest $ 800 month beginning of this study – first year it is only $9,600 …in 30 years down the road it will be $ 1,885 x 12 = $ 22,622 per year.
If you had start paying a mortgage at same time and with the same assumed $800 per month (Principal and Interest), 30 years down the road it will be still the same $9,600 – as much as the 1st year and any year in between!
Sorry to repeat myself: A 30 year fix mortgage does NOT change a dime! Yes, that is right! It does not change all through the 30 years of the mortgage!
However – and extremely more important: At the end of year #30 – in a 30 year fix mortgage loan you would have no more payments to make! The home will be completely paid!
At that point, let’s say that you will be in your 60’s – you could live another 20 to 30 years!
Are you going continue to pay rent then? Just multiply the year #30 above by 1.03 [or 103] and continue to multiply the result by the same 1.03 factor that you will start to feel the pinch.
To create your own buy Vs rent cash outlay chart just start with your current rent base and follow instructions above – it will be an eye opener how much money will go down the drain :- (
I happen to think that your home should be paid off by the time you reach your mid 60’s!
The early the better!
After studying this buy Vs rent cash outlay chart - even if you are well to do – and especially if you are well to do, I think that you could use that money for other ‘nice things to reward yourself – like a nice cruises or golf trips instead of paying your landlord? …which will be laughing all the way to the bank and having the property paid ‘free and clear’ …and doing him/herself the same nice things I pointed out …Or just park that money in a savings account for a rainy day!
I think that you will agree with me!
If you do – you owe to yourself to start your move toward ownership and call a qualified real estate agent as soon as possible.
Keep in mind that if you are able to pay your rent …[more] chances are that you indeed can pay a mortgage!
And if you would like to buy a home in the Atlanta area, I am here to help and I will be honored to serve as you agent!
Knowledge Base - This series dedicated to explore the Buy Vs Rent quest is comprised by 8 intertwined articles. I recommend that you further your knowledge by reading all of them - enjoy …AND learn!
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JC Fagundes, Associate Broker
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