Rent vs. Buying a Home Scenario for Fort Collins, Colorado

I have put together a realistic analysis comparing a typical rental of a nice 2 bedroom, 2 bathroom condo vs. purchasing the same 2 bedroom, 2 bathroom condo.  For this example, I am using a real life example of one of my investment properties at the Saddle Ridge Condominiums that I rent for $900 and the market value for them is $150,000.

I will assume a 3% down payment using an FHA loan product with the interest rate of 6.5% amortized over 30 years.  Let’s assume 1% property taxes and appreciation of only 2% (which is low relative to our Fort Collins average) and let’s compare this initially for only a 2 year period.  Also factored into this calculation include: private mortgage insurance, homeowner’s insurance cost, loan closing cost, cost of selling a home, property tax, homeowner’s tax saving and rent increases.  These results are estimates only.  

So for a 2 year period, it would still net the buyer more money to buy this home than to rent it.

Current Rent:		$900
	Purchase Price of Home:		$150,000
	Percentage of Down Payment:		3%
	Length of Loan Term (years):		30
	Interest Rate:		6.5%
	Years You Plan to Stay in This Home:		2
	Yearly Property Tax Rate:		1%
	Yearly Home Value Increase Rate:		2%
	Result Returned: Rent Buy Price of Home After Appreciation:   $156,060 Remaining Balance After Years:2   $142,155 Equity Earned:   $13,905 Tax Savings (at 28%):   $6,136 Avg. Monthly Payment Over Time: $910 $898 Total Payment: $21,840 $21,568 Total Savings On: Buying=$272 savings

 

Now, I’ll show the total savings to the buyer as the number of years of occupancy increase.

3 years = total savings of $5,923 for the buyers.

4 years = total savings of $12,019 for the buyer.

5 years = total savings of $18,572 for the buyer.

7 years = total savings of $33,085 for the buyer.

10 years = total savings of $58,902 for the buyer.

As the numbers show, a renter thinking about buying a home has a chance of earning money even if living in a house for only 2 years compared to renting for that time period.  These numbers could increase for the buyer if the home values increase greater than the assumed 2%.  If the renter knows they will be in the area for 3 or more years then it could be in their best interest to purchase a home as their total savings increases significantly…again based on a low appreciation rate of only 2%.

If you are interested in evaluating other scenarios then email me: Mike@MikeMalvey.com.  If you would like to see available homes in the Fort Collins, Loveland, Windsor and surrounding areas then visit: www.SearchFortCollinsMLS.com. 

Please feel free to leave your comments about this post or if you have any suggestions for another blog post.

And let me add a great big THANK YOU to all my readers as I just went over the 6,000 views mark!!