Buying vs. Renting a Home, Home Equity (Maybe) vs. Cash - Page 2
Pros: You own an asset who’s value may increase.
Cons: Cash must be used for the $50,000 deposit and then the liabilities: mortgage, insurance and taxes have to be paid along with regular maintenance and repair costs of the home.
- Cherry Hill Brick Colonial 3 BR/3Bath
Pros: You can keep your $50,000 in a CD or conservative mutual fund earning 3-5% annually which is $1500-2500 (or in bonds or stocks which can be even a higher rate of return albeit with more risk). You also don’t have any other costs besides rent and utilities-the landlord is responsible for maintenance and repairs.
Cons: The house isn’t yours and if the value increases substantially then you won’t be able to monetize it. However, if the value stays the same or decreases, you have no liability and may be able to rent the same house more cheaply in the future or buy a house in a few years at a lower price.
Owning a home, particularly outright (with no debt attached), is a wonderful thing, but using the above examples, let’s look at the pros and cons of owning versus renting per month without having a mortgage payment:
Own $250,000 Cherry Hill Home:
R/e taxes & ins. $705/mo.
Maintenance & repairs ?
Sell Home for $250,000 & Rent:
$250,000 @ 4% annual return=
$10,000 or $833/mo.
Rent = $1800/mo
Net monthly cost = $1000 (approximately)
The net cost difference between keeping your house or selling it and renting would be approximately $300 per month, ($1000-$705=$295) not including the cost of maintenance and repairs involved in owning the home. Plus, if you sold your house, you would have $250,000 in the bank growing on a compounded basis. After 20 years of compounding at a 4% annual rate (not considering inflation), you would amass about $550,000.
Having a home of your own is good and bad; having half a million dollars in the bank is great.