Rent vs. Buy: The Cost of Waiting to Buy a Home in Northern Virginia
Opportunity Cost is defined as the loss of potential gain when one alternative, or path, is chosen over another. As a Trusted Real Estate Advisor with deep roots in finance and economics, the term opportunity cost really sums up the question many would be buyers face. Should I rent a home, or should I buy a home?
Over time, I’ve seen home prices rise an average of 4% per year. As well as rental prices rising on an average 4% per year. So, let’s consider a typical first time home buyer in Northern Virginia looking to purchase a home at $350,000 versus renting a home of $2,000 per month. At a quick glance, purchasing at $350,000 with very little or no money down will cost (estimated April 2019) $2,100/month. Assuming no tax benefits for purchasing, the gap in payment initially is small, $100/month; however, over time the benefits of home ownership, in my opinion, outweighs the gap. The missed opportunity cost is huge for those who continue to rent.
The tenant has spent $129,998 in rent! This money has been enjoyed by the landlord/real estate investor and provides no return to the tenant.
The home buyer has spent $126,000 in mortgage and has reduced their principle balance by approximately $33,000.
The gains recognized by the home buyer over the 5 year time period are huge! From property appreciation to debt reduction, and rental savings. The opportunity cost of renting instead of buying is $111,708 over 5 years in this scenario.
In my opinion, if you are able to buy a home in Northern Virginia and willing to live in the home for 2 + years, it makes tremendous sense to purchase a home. Feel free to call me to discuss the benefits of buying a home today.