This is the video transcript of is it better to rent or buy Las Vegas homes, condos by numbers with all embedded data
This is a realistic example of is it better to rent or buy Las Vegas homes or condos, by numbers.
We have seen many articles and actually wrote a blog post about is it better to rent or buy Las Vegas homes or condos however none provided a realistic example of renting a Las Vegas home versus buying one by numbers, so here it is.
For our example, we picked a Las Vegas home with $200,000 mortgage and also picked the interest rate, Annual Percentage Rate or APR and insurance from Las Vegas mortgage sites that are offering them today. Please find the mortgage loan terms below
We found a $199,755 mortgage loan which we rounded up to $200,000. The mortgage loan terms are 30 year FHA loan with 3.25% interest rate, and we rounded 4.236 APR to 4.25% APR. Payment for interest and principal are $885 per month.
Total Monthly payments for $200,000 mortgage loan
The insurance rate for a $200,000 home is about $1800 which we added to the loan payment in addition to $1300 per year property tax and came up with about $1200 per month in total loan payments. Property tax for Las Vegas homes that are priced about $200,000 are in the $1000 to $1800 range, however the majority fall in the $1200-$1400 range, so we picked $1300 as a good estimate.
We made the following assumptions:
A: The average home price appreciation for Las Vegas homes in the next 10 years will be 3% per year
B: The average rental rate appreciation will be 4% per year
These rates are far below the appreciation rates for the past three years which we will discuss later.
Mortgage loan’s amortisation table Plus home appreciation and rental rate escalation
This is the mortgage loan amortization table plus 2 other columns that we added ourselves.
Appreciation Adjusted Home price
|Beginning Balance||Ending Balance||Interest Payment||Principal Payment||Cumulative Interest||Cumulative Payments||Total Loan Payments||Rental Cost|
The first column is the payment number, the second column shows 3% appreciation rate adjusted home value which we have added, beginning balance, ending balance, payment for interest, payments that go towards principal reduction, cumulative interest, cumulative payments, estimated total loan payment and finally 4% rental rate appreciation adjusted payments for years zero through ten. We stopped at year ten because the life of an FHA loan is about 7 years and many buyers are better off changing the loan to conventional after a few years.
Formula to calculate savings from buying a home in Las Vegas VS renting one
In order to figure the savings see the formula below.
Mortgage loan amortization table, 3% annual appreciation adjusted home value, 4% rental rate adjusted costs
Total savings = (Rental cost – total loan payments) + (appreciation adjusted home value – ending loan balance)
We deducted the total loan payments from rental cost and added the difference between ending balance and appreciation adjusted home value from the table.
At 3% annual home price appreciation rate and 4% rental rate escalation
Savings from buying a Las Vegas home VS renting one if home prices appreciate by an average of 3% per year along with 4% rent escalation
|Year||Total loan payments||Rental cost||Difference between Rental cost and mortgage payment||Equity||Total Savings|
This table shows the home buyer’s savings after 1, 2, 3, 5, 7 and 10 years. As you can see, the savings escalate with the number of years that the homeowner keeps the house.
Selling a house or condo will cost the seller about 8 to 10% of the home price, so if a homeowner intends to hold the home for one year, then it is definitely better to rent than buy. If the owner intends to keep it for 2 years, then he/she is neither better off to rent or buy Las Vegas homes, however, can save many headaches by renting.
The home buyer is definitely better off buying a Las Vegas home instead of renting one if they intend to keep it for 3 years or more.
Total savings from buying a home surpasses $30,000 in savings if the seller wants to sell it after five years, including the 10% seller’s costs.
However, it should be noted that higher interest rates will cut down on the savings gained from buying a home and it will take longer to break even or to make a profit.
What if Las Vegas homes prices appreciate by 5% annually?
This table shows loan savings if Las Vegas homes appreciate by 5% per year
|Year||Total loan payments||Rental cost||Difference between Rental cost and mortgage payment||Equity||Total savings|
If home prices go up by 5% per year in the next three years, the home value at the end the third year raises to $231,525 for $42,085 equity in the home and total savings of $43,865 and even if the borrower sells it at the end of the third year they will end up with $20,686 in profit, while deducting $23,150 in seller’s costs.
To simplify the example of whether it is better to rent or buy Las Vegas homes or condos we assumed that the home is initially worth the loan amount which is not correct as down payment adds to the home value, however, the difference in calculations is negligible. We did not take into account HOA fees or repairs as not all homes have an HOA fee or need repairs; however, we neglected the renter’s insurance as well, because not all renters will get it.
We only assumed 4% rental rate escalation per year, while rental rate escalation for Las Vegas homes has been 6.7% and 6.3% in 2015 and 2016. We also conservatively assumed only 3% home price appreciation per year in Las Vegas while prices went up by 10% in 2015 and 6% in 2016 and we believe that 2017 will see more than a 6% price appreciation.
We wanted to give an updated and realistic example of whether it is better to rent or buy Las Vegas homes. However, if you can get a better deal on the APR, put down more down payment or buy a $200,000 house that rents for more than $1200, then the savings become much bigger.
In our example the rental rate in year zero was equal to total rent payment, this is not true in lower price ranges. The difference between mortgage payments and rental rates are increased, so it takes much less time to be worse off renting than buying a Las Vegas condo or home.
Our table was mostly a mortgage amortization table that any mortgage loan officer can provide, we added the 3% per year appreciation adjusted home value and total rental costs ourselves.
So if you wanted to know should I rent or buy a home in Las Vegas, the answer is that if you plan to stay for more than 3 years, you should definitely buy. If you are going to stay for less than 2 years, you may be better off renting.
The reason that many rent rather than buy in Las Vegas is the lack of down payment money, bad credit or ignorance of the benefits of buying versus renting. There are many programs that help the first time or repeat home buyers which we explain in our Nevada first time home buyer assistance pages. For example, Wish Funds can provide for up to $15,000 in down payment and closing costs. We can’t-do much about bad credit, however, there is free help available to help fix it and lastly, those who do not want to make a commitment to buy a home or condo will not reap the benefit of ownership either.
We hope that you find this video about is it better to rent or buy Las Vegas homes or condos useful. If you are not sure about your situation call us and we will put you on the right path.
If you want to buy or invest in Las Vegas, Henderson or North Las Vegas homes, condos or townhomes, please call us at 800-762-4917. You can find the links for website and blog in the video description.
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On behalf of The Saber Team, this is Karen Saberzadeh of Realty One Group and www.lasvegas4us.com wishing you a great day.
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