Fact: You are going to pay for a place to live. Period.

There is no free lunch and paying for a roof over your head is going to be part of your budget for a very long time. Given your needs (either just you, a partner or a larger family), there is a certain amount of space you need. For a family of 4, that means 3 bedrooms for at least 18 years and likely closer to 30. You are either going to spend that paying to live in someone else's home or your own.

Fact: Rent and mortgages are closer in monthly payments than you think.

Average 3BR rents in my metro area (Minneapolis) are $900-1000/month with many closer to $1200. That's for a rented condominium, not a house. In my metro area, there are currently over 250 condos and townhomes (equals owning the same thing you rent) under $1000 a month in payments. There are another 853 single family homes (an upgrade from apartments) under that same threshold.

Fact: The value of your home comes not from paying it off, but from compounded appreciation.

Example:

$215,000 financed for 30 years at 6% and 6% average appreciation (a historically reasonable number). Over the course of the 30 years, you will make payments totalling $464,054. At the end of that 30 years, your home and the land it sits on will be worth $1,234,850. Of that value, only about a third is what you actually paid in mortgage payments. The rest ($770,796) came from the appreciation.

Combine that with the fact that the nearly $250,000 in interest paid over the 30 years is tax deductible, knocking nearly a third off in terms of take home money (the money left over after taxes in your paycheck and the money you use to pay rent) and the "free" money ends up closer to $850,000 and even more if you used the tax savings wisely.

Fact: Owning a home comes with built in rent control.

As the years go by, your rent will go up and a mortgage will not. Assuming you rent my house (see note at the end) for what the mortgage costs right now ($1300 a month) and the rent goes up only on pace with inflation (3% or so this year), which, in most urban markets is very conservative, in 30 years, the rent will be $3155 a month instead of the last $1300/month payment I'll be making. After that, with the homeowner no longer making ANY payments, the rent will continue to go up. Over the 30 year span, the value of just pegging your monthly housing costs at a single number is over a quarter of a million dollars.

Fact: Paying for a place to live is paying someone's mortgage.

In the vast majority of cases, when you pay rent, your landlord does not own that property outright. What that means is that your landlord takes your rent and makes the mortgage payment on your home, putting the rest in his pocket. As the years on that mortgage go by, the rent will increase and his mortgage will not, meaning your apartment becomes more and more profitible.

Fact: Affordability over the last 100+ years in real estate has come not from income gain, but from sprawl.

Historically, home prices have increased at 6% annually while inflation at large has increased at closer to 3% with salaries lagging behind even that. This odd gap is fueled by urban sprawl. New houses are built on cheap land outside the city. Those cheaper houses often go to 1st time home buyers, while the 6% is people moving up by cashing in on their 6% growth. As a result, the longer you wait to buy a house, the more this gap will affect you and you will be living further away from jobs to live in a house you like.

Fact: By the third year of renting my house, the difference between the payments alone is nearly $1000.

By year 7, you've got an entire IRA contribution ($3000) extra every year to save for retirement. This means that even if the payments are slightly higher than rent, it only takes a couple of years for them to no longer be.

Note: All examples use rent in my area and my house as the basis for numbers. My house is a 4BR/2BA in a northern border suburb of Minneapolis, 10 minutes north of downtown. It sits on a third of an acre lot and has a 2 car attached garage.

About The Author

© 2005 by J Wynia.

J Wynia is a web consultant, writer and geek who lives in Minneapolis, MN with his wife and 2 basset hounds. His personal site is at http://www.wynia.org.

j@wynia.org

As you may know, I have a very deep passion for real estate and mortgages.  In fact, this website is a true labor of love for me.   As publisher, one my many duties is to review the many books, programs and courses about real estate and mortgages that are on the market today.  I’ll be honest with you.  Most of them are garbage.  (Although I do strongly recommend the programs in the “Must Have” box above).  But, let me tell you, when I came upon the following headline, I new I found a winner… “Learn How To Quickly Build At Least $40,000 Worth Of Home Equity And Pay Your Mortgage Off In 10 Years Or Less” -Without Making Biweekly Mortgage Payments-Or Changing Your Current Mortgage. Now, the reason I knew it was a winner was because of the name behind the headline.  Craig Romero.  Many consider Craig to be one of the true geniuses in our field.  I have a lot of respect for him, and I urge you to drop what you are doing right now and click the link below...