Читать книгу Home Buying Kit For Dummies - Eric Tyson - Страница 14

You probably didn’t appreciate it growing up, but in addition to the diaper changes, patience during potty training, help with homework, bandaging of bruised knees, and countless meals, your folks made sure that you had a roof over your head. Most of us take shelter for granted, unless we don’t have it or are confronted for the first time with paying for it ourselves.

Remember your first apartment when you graduated from college or when your folks finally booted you out? That place probably made you appreciate the good deal you had before — even those cramped college dormitories may have seemed more attractive!

But even if you pay several hundred to a thousand dollars or more per month in rent, that expense may not seem so steep if you happen to peek at a home for sale. In most parts of the United States, we’re talking about a big number — $150,000, $225,000, $350,000, or more for the sticker price. (Of course, if you’re a higher-income earner, you may think that you can’t find a habitable place to live for less than a half-million dollars, especially if you live in costly places such as New York City, Boston, Chicago, Los Angeles, or San Francisco.)

Here’s a guideline that may change the way you view your seemingly cheap monthly rent. To figure out the price of a home you can buy for approximately the same monthly cost as your current rent, simply do the following calculation:

Take your monthly rent and multiply by 200, and you come up with the purchase price of a home.

 $ _________ per month × 200 = $ _________

 Example: $ 1,000 × 200 = $200,000

So, in the preceding example, if you were paying rent of $1,000 per month, you would pay approximately the same amount per month to own a $200,000 home (factoring in modest tax savings). Now your monthly rent doesn’t sound quite so cheap compared with the cost of buying a home, does it? (Note that in Chapter 3 we show you how to accurately calculate the total costs of owning a home.)

Even more important than the cost today of buying versus renting is the cost in the future. As a renter, your rent is fully exposed to increases in the cost of living, also known as inflation. A reasonable expectation for annual increases in your rent is 4 percent per year. Figure 1-1 shows what happens to a $1,000 monthly rent at just 4 percent annual rental inflation.

© John Wiley & Sons, Inc.

FIGURE 1-1: The skyrocketing cost of renting.

When you’re in your 20s or 30s, you may not be thinking or caring about your golden years, but look what happens to your rent over the decades ahead with just modest inflation! Then remember that paying $1,000 rent per month now is the equivalent of buying a home for $200,000. Well, in 40 years, with 4 percent inflation per year, your $1,000-per-month rent will balloon to $4,800 per month. That’s like buying a house for $960,000!

In our example, we picked $1,000 for rent to show you what happens to that rent with a modest 4 percent annual rate of inflation. To see what may happen to your current rent at that rate of inflation (as well as at a slightly higher one), simply complete Table 1-1. (You can also access Table 1-1 online at www.dummies.com/go/homebuyingkit7e.)

If you’re middle-aged or retired, you may not plan on having 40 to 60 years ahead of you. On the other hand, don’t underestimate how many more years of housing you’ll need. U.S. health statistics indicate that at age 50, you have a life expectancy of 30+ more years, and at age 65, 20+ more years (women on average tend to live a few years longer).

TABLE 1-1 Figuring Future Rent

Your Current Monthly Rent	Multiplication Factor to Determine Rent in Future Years at 4 Percent Annual Inflation Rate	Projected Future Rent
$__________	× 1.48	= $___________ in 10 years
$__________	× 2.19	= $___________ in 20 years
$__________	× 3.24	= $___________ in 30 years
$__________	× 4.80	= $___________ in 40 years
$__________	× 7.11	= $___________ in 50 years
$__________	× 10.52	= $___________ in 60 years
Your Current Monthly Rent	Multiplication Factor to Determine Rent in Future Years at 6 Percent Annual Inflation Rate	Projected Future Rent
$__________	× 1.79	= $___________ in 10 years
$__________	× 3.21	= $___________ in 20 years
$__________	× 5.74	= $___________ in 30 years
$__________	× 10.29	= $___________ in 40 years
$__________	× 18.42	= $___________ in 50 years
$__________	× 32.99	= $___________ in 60 years

Although the cost of purchasing a home generally increases over the years, after you purchase a home, the bulk of your housing costs aren’t exposed to inflation if you use a fixed-rate mortgage to finance the purchase. As we explain in Chapter 6, a fixed-rate mortgage locks your mortgage payment in at a fixed amount (as opposed to an adjustable-rate mortgage payment that fluctuates in value with changes in interest rates). Therefore, only the comparatively smaller property taxes, insurance, and maintenance expenses will increase over time with inflation. (In Chapter 3, we cover in excruciating detail what buying and owning a home costs.)

You’re always going to need a place to live. And over the long term, inflation has almost always been around. Even if you must stretch a little to buy a home today, in the decades ahead, you’ll be glad you did. The financial danger with renting long term is that all your housing costs (rent) increase over time. We’re not saying that everyone should buy because of inflation, but we do think that if you’re not going to buy, you should be careful to plan your finances accordingly. We discuss the pros and cons of renting later in this chapter.