Tag Archives: rent vs. buy

An Investment Perspective On A Home

Looking for an investment that will turn $10,000 into $80,000 in seven years?  Sound too good to be true?  What if I told you that you could live in it every day during that seven years?  Would that sound even better?

A $300,000 home purchased today on an FHA loan would have a $10,500 down payment.  If it appreciated at 2% annually, which is less than  the U.S. average, the future value of the home would be $344,606 in seven years.  The unpaid balance on the loan would be $256,350 based on normal amortization which would make the equity in the home $88,256.

The annual compound rate of return on the down payment would be 35%.  This number sounds so large, that you might start doubting the credibility of this example.

Looking at some alternative investments, a ten-year Treasury note is currently paying 1.73%.  You can earn 2.1% on a ten-year certificate of deposit.  If you could handle the volatility of the stock market and pick the right stock, you might earn 7-10%.

There really is no alternative investment that can earn the return that an owner-occupied home can offer while giving you the ability to live and enjoy the home during the holding period.

Even if you could find an investment that paid a good return, when you realize the gain, you’ll be required to pay income tax, either at long-term capital gains rates or ordinary income.  However, a person who has lived in a home for at least two of the last five years can exclude up to $250,000 of gain from their income if they are single and up to $500,000 of gain if the owners are married, filing jointly.

A home can certainly be a place of your own to feel safe and secure, to raise your family, share with friends and build memories.  A home could be considered an emotional investment and one that pays big dividends.  A home is also a financial investment not just for the reasons mentioned above but also because the equity can be accessed by doing a cash-out refinance or a home equity line of credit.

See what your investment might look like by using the Rent vs. Own and giving us a call at (757) 563-3110.

All my best,
Myra Spano, REALTOR®

About the Author:
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra has over 10 years of experience and is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
For information about purchasing a home in Coastal Virginia, visit her website.  This site is focused on homes available for sale in coastal Hampton Roads, Virginia.  Email, call or text to make an appointment and begin your home search.
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to learn what your property is worth.
Myra Spano & Berkshire Hathaway HomeServices Towne Realty is awaiting to provide the real estate guidance you need. Contact us now to make your home dreams come true!

Every Renter Should Know

Questions.jpgThe first home purchase can be the culmination of years of planning and consideration. Buyers typically look for 12 weeks and use a variety of information sources for research before purchasing. However, many renters are not near as thorough in their study.

Like any other commitment a person makes, careful consideration and understanding is required. There are things that every renter should know before they rent a home or apartment.

  1. A lease is a binding, legal document.
  2. Understand the lease before signing and ask questions.
  3. Get the complete agreement in writing instead of verbal statements.
  4. Tenants have rights too and they vary depending on the state and city.
  5. Tenants need renter’s insurance for their personal belongings and liability.
  6. The landlord is responsible for a habitable and safe environment and should typically pay for repairs due to normal wear and tear.
  7. Do a walk-through of the property before signing a lease.
  8. Don’t withhold the rent to settle a disagreement with landlord.
  9. The landlord must return your deposit or tell you why it is being held in a reasonable time.
  10. It may cost you considerably less to own the home than to rent.

With the exceptionally low mortgage rates available, the house payment including taxes and insurance can easily be less than the market rent of a home. By the time you factor in appreciation, forced savings due to amortization, leverage and tax savings, the actual cost of housing could be close to half of the rent even if a reasonable repair allowance is factored. Check out your net cost of housing.

net cost of housing.png

All my best,
Myra Spano, REALTOR®
 

About the Author:
 
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
 
For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.
 
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
 
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!

Consideration could be the key to your new home

Keys in Hand Small.jpgConsideration associated with a contract is generally thought to be the price and terms but being sympathetic and courteous towards the seller could make a difference in getting the home you want.

Business people, like store owners, expect to deal with customers and even come to expect behavior that might not be accepted in a purely social atmosphere. Homeowners, on the other hand, may not be aware of what to expect. They are opening the sanctity of their home to the public for review and criticism. Buyers may be detached from emotional feelings while the sellers might react unfavorably to comments that are taken personally.

  1. Be on time for appointments; cancel if necessary. The sellers may be rearranging their schedules and making an additional effort to make it convenient for you to see the property.
  2. Be a good guest and respect the seller’s privacy. Look at the home and avoid looking at the seller’s personal items; there is no reason to look in refrigerators or furniture drawers.
  3. Don’t sweat the small stuff. Try to focus on critical items of a home like location, floor plan, layout, size and not dwell on cosmetic items that are easily and inexpensively changed.
  4. It’s not a good negotiating technique to list the defects. Most people become defensive when presented with a list which could have the opposite effect of helping you get a better deal.
  5. Limit your visits until you actually own the home. It’s natural to be excited and making plans to move into your new home but it is still the seller’s until closing and they’re making plans to move too.
  6. Negotiations are generally finished when a contract is completed. It can be frustrating to continually be asked for “one more thing.” Make a deal with the seller and live with it. If there’s something you’re not sure about, specify it in writing in the contract.

Some things are obvious: the seller wants the most for their home and the buyer wants to pay the least possible. Showing consideration to the seller about things that don’t have anything directly to do with price can actually benefit the buyer.

All my best,
Myra Spano, REALTOR®
 

About the Author:
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!

Is the Window Closing?

iStock_000011016597Small 250.jpgWith interest rates lower than they’ve been in over 40 years, it may be difficult to think of a “window of opportunity” closing. However, it isn’t difficult to understand that it may very probably cost more to live in a home in the near future due to rising interest rates and prices.

Zillow recently reported results from a nationwide study that home values are expected to appreciate by 4.5% through the end of the year. Coupled with Freddie Mac’s projection that rates are going up, the cost of housing for buyers by the end of the year will be higher than it is now.

While uncertainty of the future can stagnate some people, the fear of loss can be much more devastating when a person realizes that the amount they pay to live and enjoy a home could have been considerably lower had they acted when prices and mortgage rates were lower.

The following example considers a $250,000 purchase today with a FHA mortgage compared to what it might be at the end of the year with a higher price and interest rate as discussed earlier. The net effect is that it will cost $191.87 more each month to live in the very same home based on the cost of waiting to buy.

To see what the cost might be for your price range, use this Cost of Waiting to Buy spreadsheet.

cost of waiting.png

All my best,
Myra Spano, REALTOR®
 

About the Author:
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!

Rent or Buy – the cost is going up

Buy or rent small.jpgWhether you continue to rent or decide to buy a home, according to recent Zillow 2014 housing projections, the cost is going up. Zillow projects home prices to increase nationally by 3%, mortgages to rise to 5% interest rate by the end of the year and rents to go up by 2.5% on average.

If it will cost a person more whether they rent or buy, the conclusion can be made that one way or the other, they will pay for the house they occupy. The question will be whether they buy it for themselves or their landlord? Will they benefit from the equity build-up and the appreciation?

The following analysis looks at a $200,000 home that can be purchased with a 30 year FHA mortgage at 4.3%. The assumption uses 3% appreciation and tenant currently paying $1,750 a month in rent.

The house payment, principal, interest, taxes and insurance would be about $1,609 a month. However, once you consider the benefits of the principal reduction each month, the appreciation and the tax savings and the increased cost of maintenance, the net cost of housing is closer to $630 per month.

Even if you ignored the tax savings, the net cost of housing would only be $919.06 per month. The tenant would pay considerably more to rent than to own the home. Over time, the decision to buy a home could result in a considerable financial asset that the tenant will not benefit from.

To estimate your cost of housing, use the Rent vs. Own.

All my best,
Myra Spano, REALTOR®
 

About the Author:
 
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
 
For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.
 
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
 
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!

Why Borrowers Pay Different Rates

interest.pngLenders, like any business, have to make a profit. The cost of acquiring the funds, the operating costs to service and the expected profit margin are easily identified. The variable in pricing is the type of mortgage and the credit worthiness of the borrower.

A loan with a 3.5% down payment is riskier than a loan with 20% down payment. If the lender has to take the property back to recover their expense, the margin is greater between what is owed and what the property is worth on an 80% mortgage.

Credit scoring is a risk-based pricing method that allows a lender to be competitive in the market for the best loans from different borrower groups. Individual lenders set their own levels for what they consider “A” credit which is reserved for the best rates. If good credit is approximately 710 to 740, scores below that are considered higher risk and will have higher rates.

Risk must be assessed for both the borrower and the property that collateralizes the loan. The borrower’s credit history and income stability are strongly evaluated by the lender but if a default should occur, the property must secure the loan to avoid a loss to the lender.

Mortgage pricing.png

The challenge for some buyers is they are unaware of what their credit score is and how it will affect the interest rate offered by the lender. It is to the buyer’s advantage to be pre-approved by a reputable lender prior to starting the process of looking for a home. In some cases, the lender can actually improve the borrower’s credit score to help them qualify for a lower interest rate.

Contact me for a recommendation of a trusted mortgage professional!

All my best, 
Myra Spano, REALTOR® 
 

About the Author:
 
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
 

For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.

If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
 
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!

A Home is More Than an Address

iStock_000006174018XSmall.jpgA home is a place to call your own, raise your family, share with your friends and feel safe and secure. It is also one of the largest investments most people have.

Leverage is the ability to control a larger asset with a smaller amount of cash through the use of borrowed funds. It has been described as using other people’s money to increase your yield and it applies to homeowners and investors alike. Positive leverage causes the yield to increase as the loan-to-value increases.

Even a modest amount of appreciation combined with the amortization of a loan can cause a substantial rate of return on the down payment and closing costs.

Homes build equity as the price goes up due to appreciation and the unpaid balance goes down due to amortization.

Leveraged Investment.png

The example above indicates the yield on a home considering 3% acquisition costs on the home with a 4.5% mortgage rate and the resulting equity at the end of five years. The different down payments will affect the yield based on the leverage effect.

Whether you rent or buy the home you live in, you pay for what you occupy. The question a person is faced with is whether they are going to buy it for themselves or their landlord. Take a look at the cost of Renting vs. Owning.

All my best,
Myra Spano, REALTOR®
 

About the Author:
 
Myra Spano is a service and results oriented real estate agent with her client’s goals as top priority.  Myra is recognized as a top producing agent in her office in Virginia Beach and enjoys working with both buyers and those selling their homes.
 
For information about purchasing a home in Virginia Beach, visit her website.  This site is focused on homes available for sale in Hampton Roads, Virginia.  Email, call or text to make an appointment begin your home search.
 
If you are considering selling your home in Virginia Beach or one of the surrounding areas, visit the seller’s website to request a Free Market Analysis of your property.
 
Myra Spano & Prudential Towne Realty is awaiting to provide the real estate guidance you need.  Contact us now to make your home dreams come true!