About this episode
The American dream has always been to own a house; but is it the wisest investment? The way most people buy a home is like a Savings Account, and you pay very large fees. Some financial gurus will tell you it’s a bad investment, and you would be better off renting a house. Consider this though, when you buy a house, let’s say for $200,000, you will most likely get a loan for that entire amount, with a 3.94% interest rate. You will pay $1,419 each month (Principle + Interest $687, Homeowner’s Insurance $104, PMI $140, Property Tax & Fees $225, HOA $0). Read more at www.debt-freemillionaire.com/ homeownership/. Over the entire 30 years of the loan, you will pay over $510,840 for the mortgage, and all fees attached. When you sell the house, you will most likely sell it for $384,115 given normal inflation. During that time, you will have replaced all the normal pieces of the house, including siding, windows, furnace, AC, hot water heater, and any other damages, and also will have insured it. In the end, you will pay more for the house than you would have saved. Let’s make this easier to read:
Renting vs. Buying a House ($200,000 house)
Own a Home
Rent
Closing Costs:
$2000 Closing Costs
$1,000 Deposit
Mortgage vs Rent
$1,315/month
$1,315/month
Homeowners/Renter’s Insurance
$104/month
$75/month
Replace parts of the house
Min. $50,000 over 30 years
$0, Owner pays
Total Spent over 30 years
$562,840
$501,400
Selling the House
After Inflation, house is worth
$384, 115
$0
Lost Owning vs Renting (Spent-Worth)
$-178,000
$-501,400
Difference in Owning vs Renting
$+323,400
Now this assumes what the average American would do when buying a house. Later, I will go through ways you can save money on your home purchases, so you lose $0 when you sell your house. Before we do that, let me explain renting vs. buying a home.
Here are things to consider when buying or renting:
Number of Rooms – How many rooms do you need? Are you single? Do you need more than a studio apartment? Are you married, with no kids? Do you need more than two bedrooms? Are you married with kids? Do your kids need their own room? There are some occasions, but nearly no child needs a bedroom of their own, unless they are the odd number child. When being intentional, you do not need a very large house, unless you find the perfect deal. It is nice, though, to have a spare bedroom for guests, or to use as an office.
Square Footage – Everyone wants the biggest house, but do you need it? Will it hurt you financially? One way to look at it is the price per square foot. Take the price of the house and divide it by the square footage of the house. Most houses in Missouri are $142 per square foot, while California is much higher, at about $286 a square foot for a 1400 sq. ft.
