Rent vs. Buy: The Cost of Waiting to Buy a Home in Northern Virginia
Opportunity Cost is defined as the loss of potential gain when one alternative, or path, is chosen over another. As a Trusted Real Estate Advisor with deep roots in finance and economics, the term opportunity cost really sums up the question many would be buyers face. Should I rent a home, or should I buy a home?
Over time, I’ve seen home prices rise an average of 4% per year. As well as rental prices rising on an average 4% per year. So, let’s consider a typical first time home buyer in Northern Virginia looking to purchase a home at $350,000 versus renting a home of $2,000 per month. At a quick glance, purchasing at $350,000 with very little or no money down will cost (estimated April 2019) $2,100/month. Assuming no tax benefits for purchasing, the gap in payment initially is small, $100/month; however, over time the benefits of home ownership, in my opinion, outweighs the gap. The missed opportunity cost is huge for those who continue to rent.
Here’s why…
The tenant has spent $129,998 in rent! This money has been enjoyed by the landlord/real estate investor and provides no return to the tenant.
The home buyer has spent $126,000 in mortgage and has reduced their principle balance by approximately $33,000.
The gains recognized by the home buyer over the 5 year time period are huge! From property appreciation to debt reduction, and rental savings. The opportunity cost of renting instead of buying is $111,708 over 5 years in this scenario.
In my opinion, if you are able to buy a home in Northern Virginia and willing to live in the home for 2 + years, it makes tremendous sense to purchase a home. Feel free to call me to discuss the benefits of buying a home today.
Post a Comment