Case Study: Renting vs. Buying – House #4

We talked previously about whether or not owning home is “worth it”. I gave you all the reasons why this stress inducing, debt increasing, hobby is worth it in words.

Well let me give you the numbers. The proof!

Here it goes!!

I bare it ALL! Here is one of my houses’ actual numbers (as close as possible, I am not a perfect, I am an  80%er)

I am a transparent investor. You don’t have to like me, or respect what I do. I do expect you to value my honesty. I have never said this was easy or stress free.  To be honest I think I give as full of a picture as possible. I talk about needing a lawyer, what I put in my leases, my deductible, break lease clause, etc.  For us investing has been very lucrative and we are on our way to our end goal.

That begin said, we are DELIBERATE investors, we invest with an exit plan. We use very specific criteria/building blocks, we appeal to a very specific market that allows us to self manage from a distance. We have a business plan and it works VERY well for us.

So in the sense of the full disclosure here is one of our houses. Here is why I am TRULY an advocate that buying can be a great position for a short termer. That if you think ahead and pay attention to key attributes to a good investment that you have the possibility of being successful!

Please note:

These are MY numbers in one area and on one house. The point isn’t for you to be able replicate my house or follow exactly. The point is for you to see actual numbers on my strategy. While for ME in the areas we live and operate BUYING make sense. I put NUMBERS to my words and answer questions that people have by opening up my strategy by giving an actual number situation.  These numbers are as close as possible!

House #4 

House Stats

Bought as a Short Sale

3 Bedroom 2 Bathroom 1661 Sqft 2005 Considered 2 best school districts in a well desired area

Purchase Price $163, 199 -with VA Funding Fee $168,584

Monthly Payment- $981.00

Principle-$279.39 (today’s pay down)

Rent- $1400

Interest Rate- 3.85%

Down Payment – $0.

Loan Type – VA loan 0%

BAH at Time of Purchase Lemoore 2013 – $1587

Home Ownership Statistics

Savings Based on Owning Versus Renting: We saved $481 a month by owning our home based on rental prices of our area when we first moved in. (It has since increase $25 a month). Over a 3 year tour that would be $17, 316. That is cash only. If we had rented over the course of our 3 year tour we would have paid someone else $50,400. So by purchasing a home we kept more money in our own pockets.

Principle Pay Down: (This is the amount of our mortgage payment that goes to principle- it goes up each month so take it as an approximation)- $279.39 a month; 3 Year Tour $10,058.04

Total Savings: $27,374.04

This house for us on our taxes was not high enough to alone experience a reason to itemize and therefore a tax savings.  For some people it would be enough and they would experience a tax savings too.

Exit Strategy–

Our exit strategy has ALWAYS been renting it out! When I did a market analysis I realized that most areas the rent has stayed the same even during the recession, while there is ALWAYS the abnormality, this was the normal. Therefore while our house has considerably appreciated that is not the point! The point is that our end goal is renting it out so appreciation is not my goal. So I am not even evaluating selling or flipping for a profit.

Repairs–

• $1800 Water Filtration System
• Cracked Tub- The tub was cracked when we moved in but “repaired”. It cracked again when my husband was deployed so we will have to replace it. My husband is handy so it will cost us $2000 and we will DIY. If we had hired it out it would cost $6,000.

Expenses – $7,800 assuming you hired it out.

So total savings – $9,516.13

If you did the work yourself then $13,516.13

Investment

Those are my same numbers as a rental.  So while we put it all in an “oh shoot” account It adds up! Plus there is the awesome thing of someone else providing a “place holder”, paying down your mortgage and then there are the tax benefits.

Here’s what it Comes Down To!

I am cheap! I like to travel, buy houses and my husband like to build boats.We are dual income but we have expensive habits and we put a CONSIDERABLE amount of money into savings. So for us the “stress” of being a landlord is the sweat equity that allows us to play more; both now and later. We live in the home and are saving money because we owners. Then later we are able to put that house into play as a rental. Since we bought it as a personal there is VERY little into the home, our on cash wise. Yes, there is tons of sweat equity, from self managing, and doing the work ourselves, but for us, this is worth it! I would rather put a “little” time into it and be efficient, than have to sacrifice our travel, my husband’s boat building, my houses OR worse; my STARBUCKS!! (Ok, not really, but you get my point.)

Yes it is true that my scenario won’t work in every area. I know that! There will be markets that renting makes more sense than owning. This is just to show you how I come up with my rent or buy decision. Why I rent our homes out and how it works for us!