Written By Josh Bootzin, New Mexico REALTOR® 

Recently Laurence Yun, Chief Economist for the National Association of Realtors, said in a podcast interview, "If one looks at it cumulatively, typical homeowners have about $430,000 in net worth versus renters with about $10,000. These are a staggering difference that accumulates over multiple years, which clearly implies that to be financially successful, financially secure in America, one has to own some real estate."

Now I don't know about you, but I definitely want to be on the $430,000 (owner) side as opposed to the $10,000 (renter) side. Do you keep saying to yourself, "It is just too expensive to buy right now?" I have a couple of questions for you. If two people started out at the same point of time. One bought a house for $220,000 at 6.5% interest and the other started out with a 2 bedroom apartment for $1500 a month. Who will pay more? And, Why does the home owner have so much more net worth?

The Renter: On average rents go up 3 to 5 percent annually. We will split the difference for our example and use 4 percent.  The first year a renter would pay $1500 per month or $18,000 per year. Year two their rent would go up to $1560 per month or $18,720 per year. Year 10 rent will cost $2135 a month, or $25,619 annually. By year 30, rent will cost the renter $4678 per month, or $56,136 annually. When you add it up, the renter would pay nearly $1,000,000 over a 30 year period to maintain the same lifestyle by renting.

The Home Owner: Our home buyer got into the market for $220,000 at 6.5% interest. They made a modest down payment (hint: you don't need 20% down) of $11,000 or 5% down. Their first payment with an estimate included for taxes & insurance will be in the ball park of $1,655 per month for a 30 year fixed rate mortgage. At year 10, the payment is still $1,655 a month or $19,852  and this doesn't change until the house is paid off. 

Sometimes a picture is worth a thousand words. Look at the charts below.

Chart Insights: 

* The annual mortgage cost remains constant at $19,852 over the 30-year period.

 * The annual rent cost starts at $18,000 in the first year and steadily increases, reaching $56,135.70 by the 30th year.

  * The annual rent cost surpasses the annual mortgage cost around year 3.

To hear more on this topic listen to this recent episode of Diary of a CEO. It has some really great thoughts on this topic!