At 2nd Wind Properties we believe Real Estate is the best way for the average American to obtain financial security while seeing the greatest return on their monetary investments. This sentiment is backed up by 2018 data from the National Council of Real Estate Investment Fiduciaries (NCREIF), which states that private market commercial Real Estate returned an average of 9.85% over the past five years. This incredible performance was achieved, together with low volatility relative to equities and bonds, for highly competitive risk-adjusted returns.
Still, many Americans believe Real Estate is out of the question and a financial impossibility under their given circumstances, but we beg to differ.
Government and bank backed programs allow individuals with a range of credit scores and incomes the ability to purchase homes. These programs include FHA loans which allow you to put as little as 3% down, and local first time home buyer grants which may provide up to 10k towards your homes purchase price! In addition to these government backed programs there are also a variety of other ways to secure funding so that you can get into a piece of property that you own. But is owning property truly better than renting? The quick answer: In Louisville, Yes. Check out the math on how we came to that conclusion below.
Renting Versus Buying In Louisville, Ky. By The Numbers.
As of writing this article, Zillow’s data states that the average cost for an apartment in Louisville is $1125 for 1136 sq ft. with a 4% rate increase year over year.
Zillow data also states that the median home price in Louisville is $176,603 at 138$ per sq ft. with a 4.8% appreciation year over year.
If we want to run an apples to apples cost comparison between renting and buying we would need to purchase a home the size of your apartment which would put the average home equivalent to renting at (1136sq ft x$138) = $156768.
Now that we know the cost equivalent of buying our rental we can start our calculations:
Downpayment- If you are utilizing one of the aforementioned government programs and putting down the minimum 3% on your home that would be $4,703.04 plus closing fees.
If you were to pay $1125.00 per month for rent(the average in Louisville), and the average rental payment increase was 4.000%, you would pay $757,146.66 in a 30 year period toward rent. If you purchased a $156,768 home and borrowed $152064.00 with a 4.000% interest rate, and you paid $2000.00 every year toward its maintenance, you would pay $396,814.37 in a 30 year period toward mortgage payments if your Federal tax rate is 25.000%, you pay $1500.00 in taxes each year and your annual insurance rate is $800.00.
When you consider your tax benefits and the appreciation of your home, however, you will actually SAVE money by purchasing a home. If your home shows an annual appreciation of 4.800% and your selling cost is 6.000%, your house appreciation value will be $639,876.11. As a result, your total home purchase benefit will amount to $973,446.00.
“But what if I don’t plan to live in Louisville for the 30 year life of the mortgage? “
Lets say you only live here for 5 years…it is actually still a much better idea to purchase!
Using the same rental numbers and purchase price as before If you purchased a home and borrowed $152064.00 with a 4.000% interest rate, and you paid $2000.00 every year toward its maintenance, you would pay $68,860.21 in a 5 year period toward mortgage payments if your Federal tax rate is 25.000%, you pay $1500.00 in taxes each year and your annual insurance rate is $800.00.
When you consider your tax benefits and the appreciation of your home, however, you will actually SAVE money by purchasing a home. If your home shows an annual appreciation of 4.800% and your selling cost is 6.000%, your house appreciation value will be $198,181.83. As a result, your total home purchase benefit will amount to $55,268.12.
how about for 1 year… incredibly it is still a better idea to buy! (although the hassle might outweigh the monetary benefits in this case) your total home purchase benefit will amount to $5,532.31!
Don’t believe our math? See for yourself with this handy rent vs buy calculator: https://www.mortgagecalculator.org/calculators/buy-vs-rent-calculator.php
The Bottom Line
It is nearly impossible to not come out ahead when purchasing a home in Louisville, Ky versus renting.
Ultimately you as an individual must make the decision on whether or not you wish to purchase a property. The math, at least here in Louisville, overwhelmingly points to purchasing a home being the much wiser long-term decision over renting. Being a homeowner however requires a certain level of responsibility that not everyone is ready for. Our calculation includes $2000 a year towards maintenance and unknown repairs. When you rent, your landlord is responsible for making repairs & insuring the property. When you own a home, you have to make them, and they can occur at any time and without any warning. You could find yourself thousands of dollars in debt — or living in a cold, damp house.
Finally, the real estate market itself can be unpredictable. When you buy your home, it may be a boom year. However, by the time you are ready to sell, home prices may have dropped dramatically, making it difficult, if not impossible, for you to sell or to sell at a profit.
Now that you know our advice. here is our take on why your first home should be an investment
Ready to start your party towards home ownership? View our available properties! Be sure to check out our previous blog so that you can make sure you are making the best purchase possible!