I have been an entrepreneur and self employed person my entire life. Was buying precious metals in my teens, purchasing homes in my twenties and by the third decade was doing on-line trading, acquiring land etc. To present times... i own/operate an Incorporated Company for the past 20+ years and I will pass on my experiences to you so you can achieve financial independence for you and your family. Terry Keys
Saturday, February 5, 2011
Renting as an Investment
Now with the money saved from the previous blogs/lessons i am going to say that renting is an investment and no i am not trying to be funny, hear me out. There are various factors that come into play here for buying a place to reside and maybe some of these will work out for you like the timing of the housing market, location, sweat equity and maybe its just family needs. But in my humble opinion renting has the most upswing for investment purposes, i will explain!! For comparison, lets take an average mortgage of $300,000 ( 20yrs @ 5% = $1971.38 per month and that's if the mortgage rates stay at its historical lows???) add property taxes, heating, power, water, insurance etc, so approx $2,700 per month and your rent say is for $1,300 everything included. With that extra fourteen hundred dollars per month, that is $16,800 per year..... that doubles in 12yrs ( the 72 rule, i will explain in a future blog) so have after 12yrs its $403,200 (12yrs x $16,800 = $201,600 and double that to get our total ) and that's worry free. Meanwhile your home is now 12years old if bought new or even worse if an older dwelling, sure the equity has gone up on average 5% per year but factor in these additional costs A) at the beginning you would have spent 5% for closing costs ( deed transfer tax, lawyers fees etc) = $10,000+ B) getting ready for a new roof, as a life span is 15-20 years for most new shingles = $10,000 C) need new furnace/oil tank =$5,000 D) septic field maybe?=$10,000 E) upgrade kitchen/bathrooms =$15,000 F) replace the appliances = $10,000+ G) new backdeck/front doorway = $10,000 H) windows = $15,000 I) siding/paint outside =$10,000 and so on. So really what a mortgage does is forces you to save, but if you have the discipline to put that extra money in an investment that would pay out between 5-6%, you are much farther ahead after you take in account all the additional expenses of owing a home which would offset any equity gained over time of ownership.