The Power of Home Ownership

by: Greg Nagel
Ask Nagel Realty

Home Ownership Vs. Renting:
Make 32% Annually On Your Down Payment

There has been no better vehicle for the middle class to build wealth than Real Estate over the last 50 years in America. This is become such common knowledge and wisdom, that it’s almost not stated anymore. It’s just not newsworthy to point out that the grass is green and the sky is blue. To that extent, it’s almost been forgotten knowledge, which this article intends to rectify. That might seem like a far-fetched concept, that something can be so obvious, it does not get stated, and it then gets forgotten but in actuality our language & culture are filled with these.

For instance:

  • Minding your Ps & Qs – meant keeping track of how many pints & quarts of beer you have drunk
  • Or traveling “posh” is actually a reference to traveling from England to India Port Outward & Starboard Home, where you get the breeze each way.
  • Getting the shaft (New Orleans based), raining cats & dogs, passing with flying colors – are all examples – just email me.

But I digress, a lot, lol.

Instead, the news focuses on new trends like the decreasing trend of homeownership among millennials due to student loan debt, or Air BNB, or whatever the flavor of the month is.

The problem with understanding the full economic of real estate is that with Real Estate, you make money over three different time periods so the total impact is not obvious:

  • Positive cash flow or reduced expense: Monthly in cash
  • Mortgage interest expense & property tax (10K cap now): Annually in reduced income taxes
  • Principal pay down & appreciation: When you sell or refinance
spreadsheet of ownership calculations

If you purchase a property, you will make 32% on average
on your down payment/investment annually as opposed to renting! 

This includes monthly savings vs. renting, tax savings, principal pay down, and a modest 3% appreciation. The main assumptions are:

  • The market rent for a $425K middle floor 2-bed/2-bath w/garage condo is $2600/mo.
  • Then assume 20% down (higher returns actually are achieved for putting less down)
  • 5% interest rate, 24% Incremental Tax Bracket, $200/mo assessments, $600/mo taxes, and 3% annual appreciation.

Every situation is different but the following is a very typical, realistic, and conservative set of assumptions for the 2-bed/2-bath middle floor Condo Home market in West Town, Wicker Park, Bucktown, Ukranian Village, and East Village Chicago neighborhoods.

Greg Nagel

Greg Nagel is the Managing Broker/Owner of Ask Nagel Realty and a Top 1% producer of all Chicago brokers. He has been featured on two episodes of HGTV’s number one show, House Hunters. Check out the 200+ five-star reviews of Greg’s work from his clients on Zillow.