11/02/2023
The 5% rule is a great way to determine if you’re ready to buy because it compares three costs that homeowners face that renters do not. The three expenses include property taxes, maintenance costs, and the cost of capital.
The first part of the 5% rule is Property Taxes, which are generally around 1% of the home’s value.
The second part of the 5% rule is Maintenance Costs, which are also around 1% of the home’s value.
Finally, the last part of the 5% rule is the Cost of Capital, which is assumed to be around 3% of the home’s value. Remember, your cost of capital is your cost of debt + the cost of equity.
When you add up the unrecoverable costs, they add up to around 5% of your home’s value. That said, the easiest way to put the 5% rule in practice is multiplying the value of a property by 5%, then dividing by 12.
Then, you get a breakeven point for what you’d pay each month, helping you decide whether it’s better to buy or rent. If the cost of owning a home is less than renting, you may want to consider purchasing a home.
With that said, we can help with both! Contact us today.
Kugler & Joseph Realty and Property Management
3925 Iberville St
New Orleans, LA 70119
☎️ 504.264.1000
kuglerjoseph.com
Licensed by the Louisiana Real Estate Commission
