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Gas $1.50; Money 3.875%

With the burst of the real estate bubble in the mid-2000’s there has been a rush to rentals by many.  Increased demand has meant an increase in rents.  Like the herd that moved to the drum of home ownership I think we’re seeing that same herd mentality – moving to a similar drumbeat but in a different direction – to rentals.

There is no risk in renting.  You give $1,500 a month to a landlord.  You do that over 5 years and you’ve given your landlord $90,000 to pay-off her mortgage.  No risk.  No reward, except for the landlord who uses your rent to pay down her mortgage with the intent of creating equity.

In April of 2002 it cost a $1.45 a gallon to fill your car with gas.  Today we pay roughly $4.00 a gallon.  Most people probably wish they could have locked in the $1.45 a gallon price for the past 10 years.  Of course a mechanism did not exist (nor does it) to do that on an individual level.

Mortgage rates in April of 2002 were 7.06% (30-year mortgage) and 6.5% (15-year mortgage).  These rates are 2.5% – 3.0% higher than mortgage rates today.

Today I checked with loan officer Shane LaMacchia at the downtown office of PyraMax Bank who quoted a 30-year mortgage at 3.875%; a 15-year at 3.125%; a 7-year ARM at 3.125% and a 5-year ARM at 2.875%.   I verified these rates with Bob Domach who was offering the same options at his North Shore Bank Brookfield office.

I wonder if in 2022 people will wish they had purchased a home and locked into a mortgage rate of 3.875%?  Two of your largest expenses are transportation and housing.  It’s good to know the most important one, housing, can be locked in for the long haul.  If I was renting I’d want to lock in a fixed rental rate.

The above resonates with me this week as I finish the second of six sessions of a basic finance course I am teaching to MPS students.  The course is sponsored by Make a Difference Wisconsin.  I’m teaching Junior and Senior students the basics of saving, spending less than you earn, maintaining good credit, limiting debt and paying off credit card debt and the concept of investing and compound interest.

I’ve suggested to them that if they want to be successful it is important they make sound financial choices throughout their lives.  To make sound financial decisions means gathering information.  I noted to the students that education and learning should never stop.  High school is just the foundation – the “basement” as a real estate metaphor –  of their education.

If you are considering buying a home and have concerns (which you should) then begin to gather information (keep learning).  Providing information is probably the cornerstone – the most important aspect – of what Homebuyer Associates does on behalf of our clients.

As you ponder home ownership keep in mind:

A.         Affordability

B.         Risk

C.         Tax Law

D.         Rates

E.         History

When you understand those concepts then learn about:

F.         Dirt

G.         Stucture

H.         Wants vs. Need

I           Value

J.          Circumstance

When you have the information as regards A – J you are in a position to buy a home.   Ah, the complicated difference between making an informed choice as opposed to an emotional one; and the complicated difference between what Homebuyer Associates Exclusive Buyer Agents do as compared to traditional real estate agents and part-time buyer agents.

You have to live somewhere.  Gather your information and make a choice.  I’m fine paying $4.00 a gallon for gas – I’ll never make money on a car so I’ll walk and bike and limit my car usage.    I’m not fine paying $1,500 a month rent when I can own for the same or less.  I’d rather be my own “landlord” and have a chance the $90,000 will work for me.  Whichever choice you make (renting or buying a home) gather the information.

Thanks for reading.

P.S. You can see homes on market by visiting my website.  All the homes available online at the big boy and girl companies are available at www.homebuyerassociates.com for your perusal – located in the Quick Search Property link on the top right of the page

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129