In a previous post we talked about whether or not it makes sense to rent or buy. The great news is on
www.sentryresidential.com we have a calculator that will let you see what your net worth variance will be depending on what you choose to do.
How to Use Sentry Residential's Rent vs. Buy Calculator
As seen above, Sentry's Rent vs. Own Calculator is completely customizable. When using the calculator you will put values in that are relevant to you. Please note, for the calculator to work correctly all spaces must have a numerical value in them.
Currently Monthly Rent (or BAH if Military) - In this space, input what you're paying in your current monthly rent, or if you're in the military what your Basic Allowance for Housing (BAH) amount is.
Likely Purchase Price - This space is where you will input the price of the home you want to purchase
Down Payment % - In this space, input what percentage of the home's purchase price you will put down as a down payment. If you are using your VA loan you may put 0%. 3.5% and 20% are common down payments when using other loan types such as FHA and Conventional loans.
Interest Rate - An interest rate is a percentage of the total loan balance that is paid monthly. Interest rates have been low lately, averaging around 3.5%.
HOA (if any) - Home Owners Association (HOA) fees are usually paid monthly by residents living within the HOA community to help maintain the properties, common areas, and amenities. The average HOA monthly fee across the U.S. is around $200. In some areas they can be as low as in the single digit range ($9) or in the thousands ($3,000).
Effective Income Tax Rate - This is the amount you expect to pay in combined state and federal income tax effectively at the end of the year after your deductions. An easy way to calculate your estimated effective tax rate is to divide your income expenses (taxes paid) by your earnings. If you are unsure what your effective income tax rate is you can put 17%.
Likely Purchase Price - Here you will input the price of the house you are wanting to purchase
Monthly Rent Received (if any) - If you plan to have roommates once you purchase the home you will put the rent amount that you expect to receive from them here. If you are not renting any of the rooms out you will put 0.
Loan Term (Years) - A loan term refers to the length of time you have to repay the loan. Loan terms can be any number of years but 15 years and 30 years are the most common.
Expected Property Value Annual Appreciation - This is how much the value of the home will likely go up year over year. Historically, the national average has been at 3.5%.
# of Years Before You Sell the Home - In this space you will input the number of years you plan to keep this home.
Realtor Commission When Selling - When it comes time to sell your home and you choose to hire a real estate agent you will need to pay them commission. Just so we have an all-in comparison we include that in our calculation as well. This is usually a percentage of the sale price and averages around 5-6%.
Rent vs. Own Calculator Example from Video
For the example used in the video above, the information inputted into the calculator was based on an E-05 stationed in San Diego, California.
The E-05 BAH rate in 2021 for San Diego is $2,793 so we inputted $2,800 for Current Monthly Rent.
Since they are using their VA loan for the home purchase they are able to have a 0% down payment.
The interest rates have been pretty great lately so we put it in here at a 3% rate.
The HOA on the particular property that they are considering is $300 a month, which is typical for the San Diego area.
Next we will put in their effective income tax rate. We're going to use 17% just as a round figure and a pretty common number there for the effective rate.
Out here in San Diego, it's slightly more expensive to purchase a home so we'll use $525,000 for the purchase price.
Now, if the service member plans on having someone else live with them and paying rent like other service members, the amount of rent coming from them would be included here. Since they will be living with just their family we put $0.
We chose 30 years for the loan term.
San Diego annual appreciation rate trends a bit higher, but to be conservative we'll keep it at 3.5%.
This military member is planning on keeping this home until they retire from the military, which is 10 years from now so we will input 10 for the number of years before you sell the home.
We'll put in 5.5% for real estate commission when selling.
How to Read Your Results
After inputting all of the information and ensuring every box has a numerical value, scroll down and click calculate. This is going to populate a chart showing your net worth variance.
This particular scenario shows the net worth variance for the E-05 stationed in San Diego from the example above.
These results show that if the E-05 were to rent a house, their all-in expenses over those 10 years would be $390,000. Now, if they purchase a home, their all-in net expenses are going to be $99,000. Meaning that their net worth variance over 10 years is $290,000 more just from owning a house instead of renting in San Diego.
If you want to get more detail, you can click "See Amortization Schedule" which will show you how your loan is paid off over the course of you owning the home.
For more questions contact a Sentry Residential agent in your area to help you get the most accurate results and get you started on the home buying process*.
*The totals calculated by Sentry Residential's Rent vs. Own Calculator are based on estimated calculations and are not a direct representation of what your payments, net worth, taxes, etc. will be. Actual payments, net worth, taxes, etc. will vary. All information provided from this tool is merely for entertainment, educational, and informational purposes only. It is not intended as a substitute for professional advice. Should you decide to act on the information provided by this tool, you do so at your own risk and release Sentry Residential from being tied to the outcomes produced by acting on this information. Reach out to a real estate agent, lender, and tax professional to receive the most accurate information on these calculations.