Sitting on the fence, waiting for the perfect time, paralysis by analysis. Many homebuyers get caught in the grips of these three actions. Homebuyers cannot move forward because few of them understand the real cost of waiting to move forward. Let’s look at some of the real costs of delaying a home purchase and why moving soon is almost always the right decision. As you will see, the delay of even a year in home purchase can easily cost a homebuyer $15,000 to $55,000 per year.
Historically, home prices rise between 3% and 6% per year. However, in hot neighborhoods prices can rise even faster. So, if you are looking at a $400,000 home right now and the market goes up 6% per year that home will cost you $424,000 in one year, $449,000 in two years, $476,000 in three years and over $500,000 in four years. If the home you are interested in is in a more popular community or a community with great schools your delay could cost you much more.
Homeownership is Cheaper than Renting
Per a recent MSN Financial report, it is cheaper to own a home than to rent a home in 42 of the 50 states. Also, home values typically appreciate and the homeowner gets the advantage of increasing equity. Rents can be increased on a regular basis and the tenant can get stuck facing paying higher rents each year or having to relocate on a regular basis. A fixed rate mortgage makes a home payment predictable. Rent increases are not always predictable.
The first buyers in most communities get the most upgrades or lowest prices for the same home that will cost more in the later stages of a community. If a community is successful, home prices will increase and often increase substantially. Additionally, as the prices of raw goods such as cement, rebar, lumber and other important home building items increase over time, the cost of building the home will increase and as such, the sales price of the home will increase. The first buyers in most communities will also oftentimes get the first choice of lot selection. Culdesac lots, corner lots, water front lots all go very fast and if you’re one of the last to purchase in a community, you often will have minimal choices of lots.
The U.S. and State Governments Reward Home Ownership
The U.S. government offers several tax deductions to homeowners. For instance, in many cases homeowners can often deduct the cost of mortgage interest and loan origination points. In the state of Texas, homeowners also receive a homestead tax exemption on the value of their primary residence. The homestead exemption alone can be worth more than the cost of one or two month’s rent a year. Additionally, homeowners can receive tax credits for major home improvement projects whereas the same project performed by those who are leasing would not provide a credit. The government likes homeownership.
Many times, a homebuyer’s first home later becomes their first rental home as they move up to a larger home or nicer neighborhood. There are huge advantages to owning rental homes. Available deductions are significant for people who buy investment real estate (rental homes) as the government allows you to depreciate the cost of the structure over a period of time (while the value of the property usually goes up if well maintained). For instance, this author and his wife (and business partner) purchased a home for $220,000 that is now worth well over $350,000. However, while the home price was increasing my accountant could deduct well over $5,000 per year from my taxes for property depreciation. Also, when you own a rental property, trips to the property (think Hawaiian condo) and equipment for the rental are all tax deductible. So, buying your first home can be the first step to your real estate millions.
The Cost of Waiting
So, let’s do some quick conservative math on the cost of waiting to buy.
|1.||$10,000 to $20,000 per year for rent that you will never recover|
|2.||$2,000 to $10,000 conservatively in tax breaks you will lose|
|3.||$3,000 to $25,000 per year in home price increases|
|Equals $15,000 to $55,000 per year conservatively in lost opportunity cost (without considering the investment opportunities)|
To get started with a team that really understands Real Estate or to meet the author of this article, simply contact See TIM Sell at Keller Williams Realty via this website today or call 877-313-SELL. No team understands the real estate market here better.