Renting vs. Buying Example 

Demo 
Rental situation 
Buy situation 
The small print 
Additional financial considerations 
Down payment 

We are going to demonstrate for you how, for the same amount of money you would pay in rent, you can not only own your own home, but most likely have a nicer place in which to live. This example compares a $500 per month rent payment to a $100,000 home purchase. The obvious fallacy in this comparison is that it is very unlikely that you would be able to rent a $100,000 house for $500 per month, but we are going to err on the side of the improbable to remove any bias that may be on our side. In actuality, in the Huntsville-Madison market, you may find that payments on a home can be LESS than rental of a comparable property. If this idea intrigues you, contact us at Northcutt Realty for a free, personalized rent vs. own comparison, specific to your situation. 

principal and interest:                     $734.00 a month 
* tax deduction (federal and state) - $220.00 a month 
                                                   ______________ 
                                                    $514.00 a month your cost after taxes 
** principal reduction 

rest of example 

see 5% inflation calculation 
see 3 % inflation calculation 

back  

---

** Monthly principal reduction is based upon average monthly principal reduction for an ownership period of only seven years (average time a home is owned according to the National Association of Realtors' statistics). If you own the property longer, your average monthly principal reduction would actually be much higher.

*** The monthly appreciation figures are calculated on an average annual rate of 5% and/or 3%. Northcutt Realty assumes from historic information in Madison County area that the 5% figure is the most valid with the 3% figure being very conservative. There are many factors that may affect appreciation rates including specific area, type of property, and market forces at the time of sale. Obviously, 30 years of past performance is no guarantee of future performance and Northcutt Realty cannot guarantee annual appreciation.

Although tax deductions (and tax credits) are immediate financial benefits of home ownership, principle reduction and appreciation are not. To access principle and appreciation, you must sell the property or obtain some type of secondary financing. Therefore, you should look at these figures as a type of "forced" savings account.

back 

You also have intrinsic values such as a neighborhood of owners who will not be as transient as renters. So you get the added benefit of more stable neighbors. You and your children do not have to make new friends as often and there are safety considerations. You and your neighbors are more likely to know who should and should not be in the neighborhood. It has been observed, too, that neighbors who are property owners have the ability, pride, and inclination to take better care of their homes and neighborhood. 

In addition, when you rent you are there solely at the discretion of your landlord. If he decides that he wants someone else there or that he wishes to cash in the property, you are moving on his schedule, not yours. 

If you wish to make changes to the property you are required to get your landlord's approval. Perhaps even for some, a thing as simple as changing the color of paint on the walls requires approval. Also, don't forget that your landlord can decide who can live and stay with you. Even to let your sister or mother stay with you could require his approval and permission. 

payment 

Many people consider down payment rather than monthly payment to be a limiting factor in their decision to purchase a home.  Today we have many specialty programs that allow you to acquire a home with very little or no down payment.  For further information on these and other methods that can be used in a home purchase, contact a Northcutt representative.  You may be surprised at what you can do. 

Related topics - coming soon:  Real Estate Investment  Fixed Rate vs. ARMs  The Fallacy of Investment Vehicle 

   rent paid, with 5% a year increases (average) 
-  house payment after adjusting for taxes (average) 
_____________________________________________ 

$7,900.00 more paid for rent (on average) (click to see graph)

back  

At 3% inflation (example): 
At the end of seven years of renting it may have cost you $39,452 in addition to your base rental amount of $500 a month 
How:  If you compare rent paid for 7 years (adjusting upward 3% per year) to the net effective cost of your loan payment after adjusting for taxes, you will find that the difference is over $4,000 more for rent. 

   rent paid, with 3% a year increases (average) 
-  house payment after adjusting for taxes (average) 
_____________________________________________ 

$4,000.00 more paid for rent (on average) (click to see graph)

Available Properties	About Northcutt Realty	You tell us...
Purchaser's Arena	This is Huntsville, Alabama!	Mortgage calculator

FastCounter by LinkExchange