Today’s current economy is nothing like most people have ever seen in their life.  New millionaires are being made everyday through the appreciation of real estate.  The pandemic has seen an explosive growth of housing prices and record low interest rates but lately we are seeing a shift in the market.  Consequently, a rapid increase in rates has halted people from qualifying for mortgages and buying power has decreased tremendously.  If people were hesitant to buy a home when the price and interest rates increased, what is the cost of waiting to buy a home?

Here is a slide from Aligned Mortgage Hawai’i showing why real estate is “The Number One Portfolio Item For Millionaires”.  The left shows the median sales price by year of Honolulu County from 2000-2021.  On the right describes two hypothetical scenarios.  One situation describes an individual who purchased a home in 2000 for $295,000. The other describes that same person renting for $2000 then eventually purchasing in 2021.  This is how they compare.

Scenario 1

The top right of the slide shows someone who purchased a $295,000 home with a 5.5% interest rate in 2000.  Principal, interest, taxes & Insurances (PITI) would be about $2000 per month.  At the end of 2021 they would have $143,446.49 left on their mortgage.  Need more information about PITI?  Learn more about What Is PITI?from this article by the ascent.

Scenario 2

 The bottom right shows someone who started renting a home for $2000 per month in the year 2000.  Every year they pay a total of $24,000 in rent and we are excluding any increases the landlord may make.  In 2007, they would have paid a total of $168,000 in rent.  By 2021 they would have paid $504,000 in rent.  If they decide to buy in 2021, the median sales price would be $990,000!  

 

How Much Can You Save?

Comparing each situation, undeniably scenario 1 will save that person a lot more money than scenario 2.  But let’s dive even further into this and find the cost of waiting to buy a home. 

Scenario 1:

Buyer purchases a $295,000 home with a 5.5% interest rate in 2000.  Their PITI would be $2000 per month.  The total cost of a 30 year mortgage would roughly be $720,000.  With a median sales price of $990,000 in 2021, they would have $143,446 left on the mortgage.  Altogether this would leave them with $846,000 in equity.  

Scenario 2:

Renting from 2000-2021 for $2000 per month they would have paid $504,000 in rent.  They would purchase a median sales price home of $990,000 with a 30 year mortgage at 3.45% in January 2022.  Subsequently their PITI would be around $4,800 per month.  After 30 years and 360 payments, altogether their total would be over 1.7 MILLION dollars.  Also add in their $504,000 in rent they paid from 2000-2021.   The total cost would be over 2.2 MILLION dollars which is their cost of waiting to buy a home.

Overall:

By purchasing a home in 2000, the buyers would have saved nearly 1.4 MILLION DOLLARS compared to scenario 2.  Additionally, they would have a free and clear home decades earlier.  Also keep in mind that in scenario 2 we used a much lower interest rate of 3.45% which was the approximate rate in January 2022.  This is a very simplified example, excluding some factors, of how purchasing a home early can save you a lot of money in the long run.  Interested in creating your own path for real estate wealth?  Click To Contact Me Today for a complimentary R.E.W analysis.

✅ Website: Click ➡ModernHomesHawaii.com

✅ Let’s connect on IG: Click ➡Insta Earl.

✅ Subscribe on Youtube: Click ➡Earl Solidum.