Doing the Math: A Little Help for Today’s RE Market
I have noticed a recent increase in advertisements for real estate classes and seminars. How to Buy Foreclosures, How to Buy Your First Home, How to Get Rich Quick…you get the picture. For a price, you can hear “experts” tell you what you need to know. Most of these feel dishonest in some way, an attempt to lure the masses with false data. If you find a good course, panel, or seminar that worked for you, let us know. We’d love to report on the reputable presentations.But while we bide our time, trying to figure out when to buy or when to sell, or whether to buy or rent, you can get some simple online help. Here are three sources of analysis and comparison for you to play with:
(1) MSN Money Home Affordability Calculator (HAC)
This is a very simplistic way of calculating the maximum house you can afford. You enter your income, monthly minimum payment on your debts, and your down payment amount. Fill in the interest rate (no, not the rate you’d LIKE to have, but the going rate), and estimate your credit rating. The HAC will tell you what you can afford, the size of your loan and an estimated payment, along with info like whether you might need to pay PMI.
(2) The New York Times Rent-to-Own Graph
This calculator will allow you to do a quick comparison of renting and buying equivalent homes. I put in the monthly rent for a 3 bedroom home in our neighborhood, along with an average sale price for the same home. Assuming a 10% down payment, 6.1% mortgage rate, the program will provide a graph with two sliding indicators. WARNING: DO not be alarmed if the initial setting says “Buying is never better than renting over 30 years if…” You do have to input (on the sliding scale) the annual home appreciation and annual rent increase. I tried the graph at -7% appreciation (Based on the last two years on our home) and rent increases of +9% (which is what my daughter has experienced the last two years). The result: Buying is better than renting, if I own for 21 years. I also tried the graph at +20% (given the annual increases in the first 11 years of owning our home, and factoring in the last two negative years) and +9%. The result: Buying is better than renting after 1 year. Of course, in this case, buying is only better than renting if you can afford to do it!
(3) Housemath: Stock versus Real Estate
This is another analysis program, which digs a little deeper and requires more information. You provide a location and home price, enter mortgage details and approximate appreciation, then tax advantages, closing costs, and amount of time you expect to own the home. It may take a few more minutes, but what you get is whether it is prudent to buy a home over the long haul. It also provides a true monthly cost. I was slightly confused by this last factor, but found tabs at the top of the analysis that give details of everything. In my analysis, using a retirement home I would purchase in Las Vegas, I found that it would be more advantageous to invest the money elsewhere (stocks, bonds, mutual funds, etc), not that this isn’t abundantly apparent given the Las Vegas housing market!
