REAL ESTATE MATH
When Does $1,300 – $900 = $200? When you use “Real Estate Math” to buy a home!
That’s right! If you buy a first home worth $200,000 and put 10% down, then get a mortgage at 4.5% interest, with mortgage insurance and typical monthly property tax escrow, your total monthly payment will be about $1,300. If you left a $900 per month rental unit to do that, it would cost your $200 a month more – right?
Sure, we we’re told in school that $1,300 – $900 = $400, but that was math, not “real estate math”! When you use “real estate math” then $1,300 – $900 really does equal about $200 (plus or minus a nickel). Here’s why – with “real estate math” three things change the formula:
First, some of the money you give to the bank each month actually goes right back into your “other pocket”, if you will – it goes toward reducing your debt. More money saved – less money owed; it’s pretty much the same thing.
Second, with a home you get to take your property taxes and mortgage interest as deductions when you do your income tax return. The exact amount of tax savings is a question for your tax preparer, but it’s a big reason why home ownership has always been the thing to do – put another way, Uncle Sam actually can be a nice guy when it comes to taxes, honest!
Third, although right now real estate prices in Wisconsin are pretty flat (ok, maybe even a little down in places), overall, historically property values go up on average something like about 2% to 3% a year.
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