If you haven't done the math recently, let's use this new foreclosure (pictured) that just came on the market. It is a typical 2 bedroom, 2 1/2 bath townhome with a 2 car garage built in 2006. It is 1500+ sq/ft under air, and over 2000 sq/ft including the garage. It has some nice features including upgraded granite counters, and has recently been re carpeted and repainted by the bank. A 2006 build means you have the most current hurricane wind readiness features that results in the biggest savings on your homeowners insurance. On a recent closing for a similar townhome less than 1 mile away from this property which sold 25% more, and was about 20% larger, my client paid $1046 in HOI for the year. I would estimate on this townhome you would have about a $850 yearly HOI policy, or about $70 per month.
Unlike a condo, with a townhome you will be responsible for full coverage of the structure, and as a result your HOA is much less than competing condos per sq/ft. In this case, you only pay $510 per quarter or $170 per month to the HOA. If you divide that by 1519 sq/ft it comes out to just .11 per sq/ft. The average condo in a high rise downtown would run anywhere from .39 per sq/ft (Two City Plaza) all the way up to .73 per sq/ft (Esplanade Grande). The HOA still does cover the basic upkeep and maintenance of the common areas including maintenance of the exterior, lawn, pool, and the roof.
Taxes projected in 2012 for this unit are $ 3,552 or $296 per month. If you are living in this townhome full time and are a Forida resident you are able to claim a homestead exemption. This reduces the amount you have to pay for your property taxes by $50,000 of the assessed amount. If you are a veteran, or have a disability you can claim a further homestead exemption, but for the average person this $50,000 property tax exemption will result in about a $700 savings per year. The homestead exemption also gives you the added benefit of a maximum assessed value increase of 3% a year in subsequent years. With property values appearing to have bottomed out in 2011, you are able to lock in at lower assessed values. This is another very strong argument for buying now. You can hit the trifecta with record low interest rates, low property values, and benefit from these lower assessed values as well. Back to the example for this property. With the homestead exemption as a primary homeowner in FL your taxes in 2013 would be approximately $2728 per year, or $227 per month. For more information on Florida Homestead exemption check here (http://dor.myflorida.com/
Now the fun part! Calculating your P & I on a $189,900 loan with only 3.5% down! With an FHA mortgage you are required to pay what is called a Mortgage Insurance Premium (http://themortgagereports.com/
Your total principle & interest ($813), taxes ($227 w/HE) insurance ($70) mortgage insurance premium ($194) and HOA of $170 per month would equal $1470 per month. However, that's not all. When you rent, you do not get any federal income tax deduction. At a 25% tax bracket you will could save approximately $2,000 with this loan in your first year, and a marginally less less savings as you pay more principle in each subsequent year. In addition, you also can write off your property taxes which could (depending on your tax situation) save you another $700 with this additional deduction. If you break this down the additional $2,700 in tax savings would be about $225 per month. The adjusted monthly payment for these tax savings would be $1245 per month ($1470 - $225). The average rent in this development in 2012 was about $1500 per month. So, I ask you, why rent when you can own for less!
We could stop here but we still have a couple things to talk about: Appreciation and leverage. If you look at the graph earlier you will see that that values in 2012 are more than 56.5% lower than they were in the peak in 2005. No one is saying that we will ever hit this peak again, but we have seen values increase 11% for the first three quarters of this year for all condos that were purchased in the 33401 zip code versus the same period in 2011. We are headed in the right direction, and with foreclosures and short sales becoming a smaller percentage of overall sales, these trends are expected to continue. Historically we have seen about 4% annual increase in real estate values in the last 100 years.
When you only put down 3.5%, but can see appreciation on the entire value of the house you are taking advantage of leverage. A traditional investment of $6647 at 4% would would yield $265 in one year. Now compare this $6647 which you are able to leverage on your entire investment of $189,900 which at 4% would yield $7,596. That is over 28 times greater than a traditional investment. The power of leveraging your investment is amazing, and the banks are allowing you to do this at record low rates. With these interest rates so low, and values again on the rise, there really has never been a better time to buy real estate.
A lot of people took it on the chin when they bought in the several years ago, but we are in a completely different place today. Back then one of the biggest differences was that owning a home cost much more than it cost to rent. That's where we started with this article, and that's the biggest driving factors that will ultimately drive prices up, so get it while the getting is good! I have yet to touch on why in my opinion West Palm Beach will show better appreciation versus other FL counties, but even if we just get our share, with 10,000 people turning 65 every day, FL is positioned to see a tremendous increase in population in the next five years.
- With record low interest rates, and factoring your tax savings you can own a home for less than it would cost to rent.
- By leveraging your down payment with a home mortgage you can see realize a tremendous gain versus the same returns in a traditional investment.
Look for my upcoming releases on investment properties, our shrinking inventory-how we have moved from a buyers market to a seller's market- and why West Palm Beach has turned the corner as one of the premier destinations in FL, and is poised to attract a significant piece of the estimated 300,000 people that will move to Florida next year.
To learn more about home buying in Palm Beach, search for properties and/or contact me, visit http://www.yourwestpalmbeachrealtor.com .