Recently, Apartmentlist.com reported that rents in San Diego have increased by 4.8% over the past year. Are you feeling the pinch? Without a doubt we live in one of the most beautiful places in the country and pay a high 'sunshine tax'. With the average rent for a 2 bedroom running at $2050 as of June 2016 (see complete article here), it can start to feel like you are throwing money down the drain. In fact, the article states that San Diego has the fourth highest rental costs in all of California. 

Where is your rent going each month?

Have you every thought about where those rental dollars go? Your landlord very likely has a mortgage on the property you are renting. Your rent each month pays for that mortgage. Essentially, when you pay rent each month, you are paying a mortgage, it's just not yours!

Wouldn't you like to find out if it is smarter for you to rent vs buy?

Let's figure this out, shall we? Check out the rent vs. buy calculator below. Follow along with my example and then try it with your numbers.

Let's say your rent is $2050 per month and the annual rent increase is 4.8% for Step 1. In Step 2 let's put in a house price of $420,000 which is a decent entry level home price in East County currently. Leave all of the other factors in step 2 as is, they are pretty accurate for our area. 

Going on to Step 3, We can type in a loan amount of $405,300 based on an FHA loan with a down payment of $14,700, which is the minimum possible down payment of 3.5%. (You could also use a zero down payment VA loan if you are a veteran, or a zero down payment USDA loan in certain parts of San Diego County. Contact me to find out more) Then we can put in an interest rate of 3.5% for the mortgage, and 30 years for the mortgage term and leave the points at 1. 

In Step 4 you will need to put in your current tax rate, as it will vary with each person. For this example, we can leave it at 26%. According to an article by Nerd Wallet, the average San Diegan pays 25.91% in taxes, so it's a pretty safe estimate.  For the annual property taxes we can put in 1.1 and toggle to % vs the $.  Leave the insurance and PMI as is, they are good estimates. 

When we click 'show results' and then 'switch to plain English', the calculator tells us that we will save money buying vs renting! Here is how it reads: 

"If you were to pay $2,050.00 per month, for example, and the average rental payment increase was 4.800%,you would pay $135,388.52 in a 5 year period toward rent. If you purchased a home and borrowed $405,300.00 with a 3.500% interest rate, and you paid $900.00 every year toward its maintenance, you would pay $154,431.19 in a 5 year period toward mortgage payments if your Federal tax rate is 26.000%, you pay $1.10 in taxes each year and your annual insurance rate is $1,500.000.

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 5.000% and your selling cost is 7.000%, your house appreciation value will be $536,038.26. As a result,your total home purchase benefit will amount to $122,990.45."

Now you try it with your numbers:

 

Did you discover that buying is better than renting for your family? I'd love to help you find a great first home. Give me a call and I will connect you with a terrific lender to help you get pre approved today. Then we can get out there and look for your perfect home and real estate investment! Start browsing the newest listings for affordable homes in East County now on this site.