Excerpt from Joe Sabelhaus' Monday Morning Coffee:
So I was watching one of those shows last week where they have 2 people arguing each side about a subject. This particular show they were arguing about the Real Estate market, keep in mind this was a national show. One of course was negative, double dip market, flood of Foreclosures coming on… The positive one (my favorite of course) was arguing we have hit the bottom, interest rates… but the argument I liked the most was that the rent vs. buy ratio is at a 50 year low. As matter of fact he said, it is cheaper to buy then rent in most areas of the country. With the help of Mike Parsons (Apex Home Mortgage) I worked up an example for everyone.
For the property I chose:
MC7551616
12140 Brittania Circle, Germantown, MD. 20874
List price- $208,000
I pulled the comps in the area and you could probably get it for a bit less but I am very comfortable saying you could get it for $208,000 with a 3.5% seller subsidy. I also pulled the rental comps, the property would rent for about $1,700 a month. So I asked Mike to run the numbers for a 3.5% down FHA loan for the property, see below.
Sales Price: $208,000.
Base Loan Amount: $202,727.
UFMIP:
Adj. Loan Amount: $204,734.
FHA 30 year Fixed
Interest rate: 4.750% 0 Points
Principal & Interest: $ 1,057.52
Est. Hazard Ins.: $ 50.00
Real Estate Taxes: $ 273.58
Monthly MI: $ 150.54
HOA:
Total Payment: $ 1,596.64
As you can see before we take the tax deductions into consideration the client is $103.36 ahead per month ($1700-$1,596.64). The items that are tax deductable include the interest $950, taxes $273.58, Monthly MI $150.54 for a total of $1,374.12 of allowable tax deductions per month. It would take around a $60,000 a year income to qualify for the property, with that income they would be in a aggregate tax bracket of around 20%. If you take the $1,374.64 X 20% you get $274.92 which is your tax savings on a monthly basis. Take the $1,596.64(payment) minus $274.92(tax savings) and you get a real homeownership cost of $1,321.72. So if you were to rent it would cost you $1,700 and the real cost of owning is $1,321.72 per month, $378.28 savings. You may have the opportunity to let a client know that it is cheaper to buy then rent, if they would like to see how this is how you show them.
The Limejuicer is waiting to serve your real estate needs and always welcomes referrals! Thank you for your time.
Lawrence Evans
Real Estate Consultant
(301) 922-2156
