Over the course of the next few weeks, I will be covering various home buying myths to assist you in the process of understanding the market and the benefits from owning real estate. Of course, we all know the market is undergoing a historic (and VERY necessary) correction. It is precisely at times like these that fortunes have been made. Conrad Hilton started his empire of hotel chains by buying up the competition for pennies on the dollar during the 1930's. Although I can't guarantee you will become a millionaire by owning real estate, I can promise you that owning a home is still the #1 way Americans build wealth in this country.
Over time, you will pay far more to rent that to own. Plus homeowners gain the wealth-building power of home equity (yes, homes will gain equity again!)
Let's say your house payment (principal, interest, taxes and insurance will run $1000 a month. Chances are after considering the tax benefits of owning, that $1,000 may only cost you about $700 . An $1800 a month mortgage payment may cost you around $1,200 a month. Or looked at in terms of rent, for example, if you are paying your landlord $600 a month, you may be able to afford $750 to $800 a month for your own home.
We have all heard dozens of times, how America's corporate management focuses on the short term instead of the long term. Renters often make a similar mistake. In some high cost areas of the country, even after allowing for higher tax benefits, the monthly cost of owning still may look higher than renting. If that's your situation, think long term. In fact, no matter where you live, the most important reason to buy a home is not to save money today. It's to save hundreds of thousands of dollars over the rest of your life.
For example: Lets say you are paying $1,000 month rent and buying, even after tax deductions will cost you $1500 a month (many parts of the Bay Area face this type of situation). Sure, renting looks cheaper. But this is a trap you do not want to fall into. Think: if you've got a fixed rate mortgage, your monthly payment will never go up. On the other hand, rents will always go up. Over time your rent will match your mortgage payment. Even with modest rates of inflation, your rent will eventually surpass your mortgage payments for years to come.
Next week we will go more in depth on the wealth building power of owning a home.
Thanks to Gary W. Eldred, PhD for these extracts from his book The 106 Common Mistakes Home Buyers Make (&How To Avoid Them)
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