Is It Time To Escape The Rent Trap?
If you rent your home in Honolulu, then you’ve probably noticed your monthly rent ticking up each year. You’re not alone — in August 2017, rental listing website Abodo ranked Honolulu the 10th most expensive market for renters in the nation, just behind Chicago, Miami and Oakland.
“People rent for many reasons, but chief among them are because either, 1) They don’t think they can afford to own a home, or 2) they are hoping home prices will go down,” says Carl Worthy, who leads first-time homeowner seminars for Locations. “However, the truth is that, for most people, if you can afford to rent on Oahu, you can probably afford to own.”
With a median monthly rent of $2,331 for a two-bedroom condo, Oahu renters are shelling out nearly $28,000 a year. That’s money that goes directly to your landlord — money that could have been working for you instead.
“Whether you rent your home or own your home, you’re going to pay a mortgage,” adds Worthy. “The question is, whose mortgage do you want to pay: yours or your landlord’s?”
With interest rates still near historic lows, your rent payment is closer than ever to equaling a typical loan payment, and in some cases, your monthly loan payment may be lower than what you’re currently paying in rent — especially once the tax benefits are considered, says Worthy.
If you’re still hesitating because you’re worried you won’t have enough savings to make a down payment, you should know that there are many financing options available that allow you to put down as little as 3 percent of the home’s value or, in some cases, even less. If you qualify for a VA or a USDA Loan, you aren’t required to make a down payment at all. There are even loan programs that are aimed at helping first-time homeowners.
If you fall into the second camp of renters who are hoping home prices will come down, you’re betting on a costly, not to mention unlikely, gamble. The median price for a single-family home on Oahu today is $750,000. Ten years ago, it was $645,000. In that same time period, rent for single-family homes on Oahu has increased by $1,122 a month. As home values rise, so does rent — often following a very similar trajectory.
So, if you’re still watching the market and waiting for the right time to jump into homeownership, ask yourself if you are prepared for
the prospect of your rent doubling every decade or so. You may find that it makes more sense to lock in a monthly loan payment now for the next 20 to 30 years. Remember, when you take out a fixed-rate loan, your monthly payments will always remain the same.
“If your rent is $2,000 a year now, home prices would have to drop by $24,000 in one year just for you to break even,” says Worthy. “And what if prices continue to go up, as they have been for many, many years?”
If you’re still on the fence about the value of owning your own home, keep in mind the security that comes with homeownership. It’s not uncommon with our high home prices in Hawai‘i for landlords to decide to sell their rental properties with very little notice, and sadly, many renters have to vacate their units in a short amount of time. When you own your own home, you may stay in it as long as you like, paint the walls any color you want to and even have as many furry friends as you’d like.
“You won’t know how much home you can afford until you take the first step to find out what your preferred price range is,” advises Worthy.
For more information, register for a free Locations First-Time Homeowner Seminar at LocationsHawaii.com/seminar.