I know what I’m about to say may sound funny, considering I manage one of South Florida’s most prominent home-buying corporations, but home-buying is NOT for everyone. In a world with some many varying forms of financial security, literacy, and ability, we don’t exist in the same economy that our home-owning grandparents do. While our culture has always indicated that home-buying is a rite of passage into adulthood and maturity, this is not a modern take. We don’t have such cheap homes, or such low-interest rates anymore. The game has changed: for better, or for worse. With all of this in mind, it’s important you make this decision before applying for pre-approval or browsing any homes along the coast. There’re a couple of things you need to reckon before even considering buying a home.
- The Buy vs. Rent Ratio
Let’s say you’ve found a beautiful condo, that requires $2,000/month in rent. Take that $2,000, multiply it by 12, that’s about $24,000 a year. Now multiply that $24,000 by 15 and you’ll have $360,000, over the course of 15 years. Taking this information and plugging it into hundreds of buy/rent ratios on the Internet, can help you calculate whether this home is more valuable as a purchase or as a temporary rent. Trulia’s price-to-rent ratio, for example, advises even rations of 1-15 as favorable purchases, while ratios of 1-16 or more are better considered for rent. Take your pick of a ratio and find for yourself whether the cost of your preferred home is more worthwhile as rented real estate or an acquisition.\
- Is That Property a Worthy Buy?
There’s a rule that most real estate investors use to calculate worthiness, and it’s called the 1% rule. The rule says to purchase the property, only if the rent is equal to 1% of the home’s total value. So, if you’re home is worth $300,000, then the ideal rent would be $3,000. If so, you should look into purchasing it. A stricter rule is the 2% rule, where the monthly rent should be 2% of the home value, which ensures that you can not only pay off the mortgage but can do it in an affordable, consistent manner.
So, we covered the two important factors to cover, when deciding if home-buying is for you? And what if it is, what if it isn’t? What’s your next step? What should you be aware of, as a renter or a buyer? You find out in the next articles, where we will cover both the pros & cons of renting and buying. Have no fear, Choice Mortgage Bank, Inc. is here. Don’t be afraid to call any one of our officers, if you want to answer some more of your questions in person.