Home : Path To Home-Ownership – Mark Van Dellen – Medium

Let’s discuss homeownership! This guest blog post was written by my long time buddy Mark Van Dellen. Mark’s passion in life is to help navigate the path of homeownership for us Millennials. You rock Mark! If you have any city survival strategies or real estate tips, head on over to my contact page and let me know!

So you think you want to buy a home?

Hi, I’m Mark, a millennial living in an expensive city. No matter where I go (backyard BBQs, brunches, games nights, family get togethers), the conversation inevitably steers towards one topic. Homeownership, the housing market, and how expensive it is if you live (or want to live) in a city! As a millennial working in real estate lending (9 years and going strong), I get asked about the housing market more than most. That said, it’s become a common topic among us millennials. Lately, my conversations are about how there are not enough homes for sale and prices seem to keep climbing. Yikes! However, it is much easier than eight years ago to qualify for a loan (the first step towards homeownership).

Buy vs. Rent

Before diving into the specifics of homeownership and affordability, you need to ask yourself one question. Does it make sense to continue renting, or would it pay to become a homeowner? This question is not always an easy one to answer.

It depends on several factors. In high priced cities like Los Angeles, San Francisco, and New York, renting may seem like the only affordable option available. Other factors might include taxes, the lifestyle you want. For example, do you want to handle home maintenance vs. have a landlord do it for you? Do you want to use your income on life’s luxuries now vs. investing in your future?

Flexibility

Flexibility is another factor. You might want to be able to relocate quickly if a job opportunity or financial need arises. Renting will generally give you that flexibility. On the other hand, homeownership means you get to control your destiny. A rental property owner may sell the property, decide to raise the rent too high to afford, or not renew your lease because they want to move in themselves.

The single biggest factor in the rent vs buy debate is time. When a homeowner, you pretty much have fixed costs, while renting brings variable costs with rising rents. The real estate game can pretty much be summed up in the phrase, “You don’t wait to buy real estate, you buy real estate and wait”.

The Test of Time

For instance, if you were to purchase a property for $650,000 (reasonable price for a condo in San Francisco or Los Angeles) you can put as little down as 5% ($32,500). When you factor the mortgage payment at ~4.875%, mortgage insurance, property taxes, hazard insurance, and homeowners’ association fees, the monthly total payment is around $4,438. That same condo would rent for $3,000/month. In year one, you are spending $1,438 more a month buying the condo. Note that state and federal income tax deductions for interest and real estate taxes on your home mortgage are not included in this analysis, but should be considered.

If you factor in a 3% appreciation rate in the value of the condo and a 2.5% rent appreciation year over year, you hit a break-even point at about the 7th year. Your monthly costs would be about $3,064 having spent $257,391 for both renting or homeownership.

Every year after that for the next 23 years, the numbers skew in favor of homeownership. By year 30, the total cost of owning the home would be $1,040,000 while renting is $1,384,168. Bottom line; you would have saved $343,200 in owning that same condo vs renting!

So what are the steps to become a homeowner?