I was talking to a client on the phone this morning about whether to rent or purchase a Denver home. He has been renting in the Denver area for about two years. We have been talking during those two years about renting or buying a Denver home. He and his wife are happy where they are renting. Everything is very comfortable. They have been pre-qualified for a mortgage. So, this morning my customer James called me and asked why should he purchase a home now and not wait?
So, in order to answer James’s questions, I thought back to two customers I had in 2012. They had very different stories.
The Wilsons Bought a Home in Castle Rock
Let’s call the first family who we helped decide to rent or purchase Denver home the Wilson’s. They were relocated in February 2012 to Denver by his employer. We relocate many families due to employment. After considering whether to rent or purchase a Denver home, that family decided to invest in the future and buy a home. They found a home that meets their needs in Castle Rock and purchased it for $291,500 in February of 2012. They were very happy in their Castle Rock home. It was a nice home with a good neighborhood and good schools. It was another successful relocation. The Wilson family has really enjoyed the Colorado lifestyle over the last four years in that Castle Rock home.
Then, in July of this year, the Wilson’s call me and they want to make a move to a larger home. Of course, Dawn and I went to visit with them to discuss what options might be available. Yes, they could move up and have a nice profit from owning their existing home just 4 years. As a result, we sold their existing home in Castle Rock for $480,000 within a few days and found them a larger home to purchase.
During the four years, that home increased in the market value from $291,500 to $480,000. That’s a gross profit of $188, 500. And, yes there were costs for selling the home. Remember also, that $188,500 was 100% tax-free under federal and state tax code.
The Davidsons Rented a Home
Now, let’s consider family number two, the Davidsons.
At about the same time, The Davidsons received a $60,000 settlement for an insurance claim. I talked to them in 2012 after they received their settlement. They were related to one of my past clients. Their father and I then met with them to discuss with them possibly purchasing a home for their family with their settlement proceeds. Well, after showing them houses for a few days the kids decided they wanted to purchase two new cars instead of purchasing a home. That was their decision even their father and I strongly urged buying a home. But, of course, it was their choice. They bought two beautiful new cars paid cash. They were happy.
Today, they are still renting a home for $2200 a month without any tax deduction from renting. The cars are in good shape. I actually saw them this summer and they are happy. To simplify, let’s say 4 years rent at $2200 per month is $105,000. By now, that’s how much they have paid toward someone else’s mortgage. And, they have no equity of their own and they didn’t even get a tax deduction for home ownership along the way. When comparing rent to house payments, remember that the government pays part of your mortgage payment because interest and property tax is tax deductible.
Each of these two families made a different decision with different consequences.
Rent VS Purchase a Denver Home
So, this was my question to James, the customer I talked to this morning. What results do you want for your family in four yours? All headlines for the Denver area say home prices will continue to increase. Rental rates will be increasing. Homeownership is the “ American Dream” for a reason. Mortgage rates are at an all-time low which could be changing soon. On average, buying a home is less expensive the renting by 38%.
So, what is the obvious answer to rent or buy a home? Yes! This is the time to purchase a home.
Bottom line many renters is that they really do want to own their own home. Renters may not move forward based on misunderstanding the mortgage process or the numbers involved. If you are currently a renter who desires the benefits of home ownership but wondering how and when to make it all work out, just contact us on the form below. We will slowly walk you through and explain the whole process. It’s simple and it’s free. And, of course, there is absolutely no obligation to do anything except talk.
Here’s a postscript to the story. James has been pre-qualified again with our lender. And we will be looking for houses next week with him and his wife. They would have saved quite a bit of money if they made that decision two years ago. But, better late than never. That’s usually the morale of owning real estate over time.