Ready to start the conversation about moving to Dallas-Fort Worth? Here's the link to schedule your Zoom video call to talk strategy and next steps: tidycal.com/crestedge/ytbuyerconsult
Really enjoyed watching you use real numbers for our local market. Specifically enjoyed the breakdown and comparison of rent vs own. You got a new sub. P.S. I bought my first home out here in Lavon back in Dec and looking at your breakdown feel really good about this purchase 😎🙌.
Nice analysis. You should use 94% of the gains in property gain value for the real estate commissions you’d have to pay to realize those gains at home sale time. Also, need a mechanism to capture the increase in property tax for your model which would go up annually.
Thanks for the comment. If the idea is that we would have to take out expenses paid at closing to determine a value, then that would mean you'd have to make all of those public because there's no standard amount paid at closing. There's no set commission rate, as a seller you also have to pay property taxes for the time you owned the home that year through the day of closing (which is another deduction paid at closing), maybe as a seller you also paid for the title policy and/or additional concessions for repairs to to help the buyer with their closing costs. Too many variables to create an accurate model for analysis. Also, it's not always a given property taxes will go up annually. In fact, with the tax rate compression that went into effect last year, many homeowners saw their taxes paid decrease.
Your analysis is missing home owners association cost & maintenance of home cost which you don’t pay as a renter. Plus there are assumptions, you generally don’t build equity or very low equity in initial years of purchase with 30 yr old mortgage. If the supply of rentals remain high that will further push the rents down which will further extend the gap between buying & renting - real estate markets went crazy due to easy money during covid - that easy money & rates are gone, this again puts pressure on the housing market
You are right about not including maintenance costs and HOA costs but that's because there's no standard calculation for either. In most HOAs, the monthly amount is $50-$75, but not every home is in an HOA. As far as home maintenance costs, estimating those varies widely and is dependent on the age of the home (new construction has almost zero in maintenance costs early on due to age and the builder warranty for any issues that may arise). If you go out to purchase a home today, hopefully you're getting an inspection which will give you a good indication as far as the useful life remaining on the expensive maintenance items and can negotiate your contract accordingly so your maintenance costs in the first few years of homeownership are mitigated. When you look at the annual compounding effect of the actual loss from getting your principal back and equity gained, it is far more likely that your maintenance costs as an owner would not exceed this amount. Could you have an expensive year, sure. But averaged out over time, the annual expense isn't typically that extreme to offset what's lost by renting. I based the equity calculation on a conservative 3.5% annual growth. If we look at historical data from the St Louis FED on the Average Sales Price of Houses Sold for the United States from Q1 of 1963 through Q4 of 2019 (before the latest housing price appreciation boom), the actual annual rate of return (based on a formula to find the compound annual growth rate) was 5.49% over that time. The idea that you could gain 3.5% in equity in the first years of ownership is very feasible. (fred.stlouisfed.org/series/ASPUS) If the supply gets high for rentals, landlords will get out of the rental business. Landlords exist to make money. So the cost to own the home with the annual increase in insurance, annual increase in property taxes, along with the profit margin they require to make the investment worth it to them will dictate the rental amount. There's only so much margin a landlord has to reduce the rent before the investment no longer makes business sense. If an oversupply of rentals gets to that landlords aren't making money on their investment or can make more money with different investments, they will sell. We currently have only 1.9 months of single-family rental inventory, so we a ways from the point where supply is outpacing demand. We can agree on the fact easy money and rates are gone. That's why it's important to look at the big picture so you can make an informed decision.
Ready to start the conversation about moving to Dallas-Fort Worth? Here's the link to schedule your Zoom video call to talk strategy and next steps: tidycal.com/crestedge/ytbuyerconsult
Really enjoyed watching you use real numbers for our local market. Specifically enjoyed the breakdown and comparison of rent vs own. You got a new sub.
P.S. I bought my first home out here in Lavon back in Dec and looking at your breakdown feel really good about this purchase 😎🙌.
Thank you!!
Nice analysis. You should use 94% of the gains in property gain value for the real estate commissions you’d have to pay to realize those gains at home sale time. Also, need a mechanism to capture the increase in property tax for your model which would go up annually.
Thanks for the comment. If the idea is that we would have to take out expenses paid at closing to determine a value, then that would mean you'd have to make all of those public because there's no standard amount paid at closing. There's no set commission rate, as a seller you also have to pay property taxes for the time you owned the home that year through the day of closing (which is another deduction paid at closing), maybe as a seller you also paid for the title policy and/or additional concessions for repairs to to help the buyer with their closing costs. Too many variables to create an accurate model for analysis. Also, it's not always a given property taxes will go up annually. In fact, with the tax rate compression that went into effect last year, many homeowners saw their taxes paid decrease.
Your analysis is missing home owners association cost & maintenance of home cost which you don’t pay as a renter. Plus there are assumptions, you generally don’t build equity or very low equity in initial years of purchase with 30 yr old mortgage. If the supply of rentals remain high that will further push the rents down which will further extend the gap between buying & renting - real estate markets went crazy due to easy money during covid - that easy money & rates are gone, this again puts pressure on the housing market
You are right about not including maintenance costs and HOA costs but that's because there's no standard calculation for either. In most HOAs, the monthly amount is $50-$75, but not every home is in an HOA. As far as home maintenance costs, estimating those varies widely and is dependent on the age of the home (new construction has almost zero in maintenance costs early on due to age and the builder warranty for any issues that may arise). If you go out to purchase a home today, hopefully you're getting an inspection which will give you a good indication as far as the useful life remaining on the expensive maintenance items and can negotiate your contract accordingly so your maintenance costs in the first few years of homeownership are mitigated.
When you look at the annual compounding effect of the actual loss from getting your principal back and equity gained, it is far more likely that your maintenance costs as an owner would not exceed this amount. Could you have an expensive year, sure. But averaged out over time, the annual expense isn't typically that extreme to offset what's lost by renting.
I based the equity calculation on a conservative 3.5% annual growth. If we look at historical data from the St Louis FED on the Average Sales Price of Houses Sold for the United States from Q1 of 1963 through Q4 of 2019 (before the latest housing price appreciation boom), the actual annual rate of return (based on a formula to find the compound annual growth rate) was 5.49% over that time. The idea that you could gain 3.5% in equity in the first years of ownership is very feasible. (fred.stlouisfed.org/series/ASPUS)
If the supply gets high for rentals, landlords will get out of the rental business. Landlords exist to make money. So the cost to own the home with the annual increase in insurance, annual increase in property taxes, along with the profit margin they require to make the investment worth it to them will dictate the rental amount. There's only so much margin a landlord has to reduce the rent before the investment no longer makes business sense. If an oversupply of rentals gets to that landlords aren't making money on their investment or can make more money with different investments, they will sell. We currently have only 1.9 months of single-family rental inventory, so we a ways from the point where supply is outpacing demand.
We can agree on the fact easy money and rates are gone. That's why it's important to look at the big picture so you can make an informed decision.