Over the past 10 months as Santa Barbara Association of Realtors (SBAOR) president, I have covered a lot of topics surrounding homeownership. They have included what to consider when buying or selling; how to plan for a purchase; the importance of strategy; how to empathize with the opposing party in a negotiation; and how to strive for a win-win scenario.
I’ve even discussed what I beleive are the reasons for ownership. What I’d like to do today is some simple math to help illustrate the long-term value of ownership.
Let’s start with a two realistic scenarios to compare:
Scenario 1: You rent a Goleta three-bedroom, two-bath home worth aabout $850,000 for roughly $3,800/month.
Scenario 2: With 20 percent down, you purchase that property and it costs you about $4,000/mo to cover the mortgage, taxes and insurance.
Let’s assume that in both scenarios you live in the property for 30 years.
In Scenario 1, you will have paid $1,386,000 in rent (assuming your landlord doesn’t increase your rent every year). This payment surely paid off your landlord’s mortgage or went into his/her pocket. You deducted none of this expense and have nothing more than what you had when you started renting 30 years ago.
In Scenario 2, you will have paid off your entire mortgage of $680,000. You likely would have deducted $734,000 off your income over that period, and you’d be left with a home owned free-and-clear that is likely worth much more than you paid for it. Your payment hasn’t changed in 30 years, and you never had to worry that it would unless you wanted it to.
Is this alone not enough evidence to persuade you to strive for homeownership?
Let’s not forget that while it’s usually under one’s control to own a property for 30 years, it’s a rare occurrence to rent a property for 30 years. The instability of payment amount and length of occupancy further make a case for homeownership.
Granted, it’s not always as simple as what I have illustrated. For some, there are valid reasons to rent and there are some downsides to homeownership. However, it is important to recognize there are huge advantages to homeownership that can change your life and help you plan for retirement.
It’s also worth noting that some people reading this may have the potential and desire to buy but cannot afford a property at the price of the example I’ve given. The good news is, there are currently properties available in Santa Barbara and in surrounding areas for less than $850,000.
Getting your foot in the ownership door is possible with proper planning. Interest rates are at historic lows, and remember that every dollar you pay in rent is paying off someone else’s mortgage or expenses. Why not change that and make that payment pay off your own mortgage?
The Santa Barbara Association of Realtors recommends you call your Realtor to discuss whether homeownership is a good and possible choice for you. Realtors will help you even if you determine renting is in your best interest. We are here to help.
— Thomas Schultheis is with Berkshire Hathaway HomeServices California Properties, and can be reached at 805.729.2802 or SbRealtorTom@gmail.com.