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Tuesday, January 27, 2015

$700,000 MISTAKE

The $700,000+ mistake nearly 6 in 10 millennials may make

Marketwatch.com recently published an interesting article regarding the millennial generation's preference for renting vs buying a home and outlined the financial consequences of this decision, noting that “In most markets it is still cheaper to buy than to rent [each month]” — even when you factor in the insurance and property tax payments, in addition to the mortgage payments. To put things in perspective, the article makes the following point:

Considering that the median home in America costs $190,000 and historic annual home price appreciation is around 3%, according to data from RealtyTrac, a millennial who bought an average home today (and put $19,000 — that’s 10% — down) with a 30-year fixed rate mortgage at 4% would outright own a home worth $426,000 in 2045, and pay a total of roughly $373,000 for it (mortgage, taxes and insurance included) — a difference of $52,000. Plus, after 30 years, the person could live rent-free — a compelling prospect for retirement.

If that same millennial rented — let’s assume he pays $1,312 a month in rent this year (which is the average fair market rent for a three-bedroom nationwide, according to RealtyTrac) — and his rent appreciates at a rate of 2.7% a year (the average increase over the past decade, RealtyTrac says), he’ll end up shelling out nearly $717,000 in rent over that 30-year period — all without an asset to show for it in the end.

This article really hit home for me as it relates to the Starter Home 2.0 project, which is located within 5 minutes of several 1-bedroom apartment buildings renting for nearly 50% more per month than what the mortgage payment will be on the Starter Home 2.0 house.