Homeownership provides financial benefit in four areas:
- Monthly cost difference between renting and owning
- Appreciation in home value
- Equity growth over time as loan balance is paid down
- Tax benefit from deductibility of mortgage interest
The information below is based on historical data for the Portland Metro Area and assumes a 4% appreciation rate, even though, historically, Portland has averaged 5.37%.
You can view the data from a rent-versus-buy viewpoint or the perspective of a current homeowner. In both cases, consider all four factors because if you don’t own, you will be renting.
Scenario for Portland home worth $500k
- Cash flow difference:
Historically, rent increases three percent per year, and a $500k home costs about $2567 to rent in Portland. Renting is $10,408 less expensive over nine years (the average time a US homeowner lives in a house). So, deduct $10,408 from the net benefit of owning a home.
- Gain through appreciation:
At a conservative 4% appreciation rate, home value increases by $211,656.
- Equity through amortization:
Amortization is the amount the mortgage would be paid down with no extra payments over a nine years period., and it’s a built-in savings plan for every homeowner.
- Tax benefit:
The tax benefit associated with the mortgage interest deduction above the standard deduction.
When these four factors are combined, the net benefit of owning a home based on 4% appreciation is $2350 per month.
At the historical appreciation rate of 5.37%, the net benefit rises to $3495 per month!
If you are interested in further discussing this information, please give me a call at 503-546-0460.