'Owning vs. Renting' & The First-Time Buyer

By Rick Dingraudo, Operations Manager - New Home Star

Years ago, graduating college meant moving out, purchasing a home and planting roots for the next chapter of life. Today, an increased number of adults from the 'Millennial' generation are either choosing to live under their parents' roof or rent an apartment upon graduation. Who can blame them? This generation came of age right as the Great Recession took hold of the U.S. economy. 

Millennials have spent much of their life hearing their parents and elders discuss the sweeping loss in home value, and watching red arrows accompany the ticker symbols that scroll across the bottom of the evening news. If your Target Consumer Group (TCG) is a first-time homebuyer, explaining the financial benefits of owning a home can be one of the most effective and informational selling points. Here are a few pieces of data to keep in mind…

Budgeting: In a rental situation, the leasing company has the right to raise rent as frequently as the contract is renewed. A fixed mortgage rate helps the buyer to experience a sense of consistency and stability in knowing how much they will be spending on a monthly basis for the foreseeable future. This allows for better long-term budgeting and fewer surprises in the cost of housing.

Tax Write-Offs:

• Mortgage Interest – The interest paid on a mortgage can be written off of the buyer's taxable income. This is especially helpful in the first few years of the home-buying process because at the start of the loan, the payments are interest-heavy. Demonstrate this to the buyer through an amortization table and show their total savings by multiplying the amount they can write-off with their current tax bracket.
• Property Tax – Many buyers are going to ask what property taxes will look like on an annual basis. While this number may seem large and intimidating, it can also be used to reduce their taxable income, allowing for further savings.
• Home Improvement Loan – Not only will doing renovation on a home raise its value, but if the buyer has to take out a loan to pay for the labor and materials, the interest paid on that loan can also be used to reduce their taxable income.

Appreciation: If rent is $1,500 per month, in one year that $18,000 spent is a guaranteed cash outflow. It can be helpful to let new buyers know that for the same price, those payments towards a home can be recuperated (and then some, as long as the value of the home appreciates) should they ever sell their home.

Communicating these simple financial benefits is a great way to ease a first-time buyer's anxiety about the volatility of the market and make this large financial responsibility something that they are excited to pursue.
 

Operations Manager Rick Dingraudo oversees New Home Star's financial reporting and analysis, data management, and pro forma statements. He enjoys researching the ties between the financial system and the real estate industry and has a background in economics and human resource management.