ReoSonoma Blog

Michael Stevenson

Renting vs. Buying: How Buying a Home Will Save you Some Serious Cash

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This morning at our weekly office meeting here at Century 21 Alliance in Santa Rosa, I learned about a great tool that makes it easy for home buyers to see if it’s a smarter financial decision to rent or buy. As a Real Estate Agent, I find myself often articulating either verbally or on paper just how smart it is to buy a house right now. This tool magically calculates the information to make my job that much easier! But seriously, folks. No sales tactic mumbo-jumbo, this shows plain as day how you will save some serious cash if you buy instead of continuing to rent. Besides, HELLO American Dream!

What does the Rent vs Buy tool do?

So what this tool does is allow you to put in your current rental information along with purchase price information and compare not only how much it will cost monthly, but how much you will save with your taxes. That’s a BIG one. Most people don’t even factor the gigantic tax deduction you get when you buy a home. Of course, you should speak to your tax advisor or accountant to verify this information, but this tool will ballpark it and I almost promise you will be surprised at the results.

Show me an example, Mike!

Let’s take a hypothetical family and see if they’re better of renting or buying (obviously buying will be the winner, but stick with me as to why!). The Anderson’s live in a 3 bedroom/2 bath home in Sonoma County and pay $2,000 per month rent. They decide to take the advice of this article and fill out the online worksheet (how meta!) to see how their renting stacks up with owning their very own piece of Sonoma County. To keep this simple, we’ll assume they have a great landlord who never raises their rent, a 5% savings rate per year (if yours is less, you’ll save MORE money in the long run), and a 33.8% tax rate. The Anderson’s are first time home buyers and don’t have a ton of cash in the bank, so they are going to take advantage of an FHA loan program, which offers super-low rates and a 3.5% down payment which is much less than a conventional loan. They want to buy a home for $300,000, which means the loan amount will be $289,500 with the $10,500 down payment (the 3.5%). There are some other standard charges which you can see on the graph below.

“Whoa now!”, you say. “How can buying a $300,000 house be cheaper than paying $2,000 a month rent and not worrying about it?”. Well, let’s click that little Get Results button and see what happens. BEFORE YOU READ ON, check this out. The monthly cost to rent for you is $2,015 (since you pay $15 a month for renters insurance, right? ;] ) but the monthly cost to rent is $1,972!! It’s less money per month! But wait, there’s more (I’ve always wanted to say that). Look up at the first line where it says “Total Tax Savings”. Over the course of 30 years you’ll end up saving that much in tax benefits, which equates to about $172 per month. So knock that off of the $1,972 and you get $1,800 per month with a total savings of $61,913 over 30 years. And this is a conservative number (with no appreciation factored and average savings)! I’d go as far as to say this one is a no brainer :)

How about that? There’s proof that it’s an awesome time to buy your first (or second, or third, or fourth) home in Sonoma County! The summer months are just around the corner, so if you’re thinking of starting your search you should probably do so now to get a leg up on your competition! Give me a call today and we can chat about your options and a great plan of action to get you in to the home of your dreams. By the way, the link to check out and play with these numbers can be found here: Freddie Mac: Rent vs Buy Tool


Michael Stevenson
707-303-3472 (office)
707-217-8916 (cell) 

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