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The Opportunity Cost of Delaying Homeownership - 7/23/2025

Opportunity cost is the value of the next best alternative that you give up when making a decision. In real estate, this concept plays a crucial role for buyers who are delaying to purchase a home due to high interest rates and rising home prices. The question is: What is the cost of waiting?

Many potential homebuyers remain on the fence, choosing to rent instead of purchasing a home. However, by doing so, they may be missing out on one of the greatest wealth-building opportunities: home equity. Let's break it down.

Comparing Renting vs. Buying

Consider a renter paying $3,300 per month versus purchasing a $400,000 home with a 10% down payment and a 30-year mortgage at 6.76% interest. The total monthly mortgage payment (including principal, interest, taxes, and insurance) would be $3,526.68—higher than rent at first glance. However, this doesn't account for the financial benefits of homeownership.

  • In the first year:
    The homeowner reduces their loan principal through mortgage payments, averaging $587.57 per month in principal reduction.
  • The home appreciates at 3% per year, equating to $1,000 per month in gained value.
  • Factoring in $2,000 in annual maintenance costs, the true cost of homeownership is reduced to $2,374.23 per monthless than the cost of renting.

Long-Term Equity vs. Investment in CDs

After 7 years, the homeowner will have built $165,062 in home equity through appreciation and principal reduction. Meanwhile, if the renter put $40,000 they have for the down payment into a CD earning 2.5% interest, it would only grow to $47,547...less than a third of the homeowner's equity.

The Cost of Waiting

The opportunity cost of continuing to rent instead of buying is significant. Even if interest rates or home prices seem high now, waiting means missing out on the long-term financial benefits of homeownership, including appreciation, equity buildup, and potential tax advantages.  Not to mention that home prices are expected to continue to rise because of the continued shortage of inventory and so are rental rates.

If you're on the fence about buying, let's discuss your options and look at a projection with your numbers to see if now is the right time for you. The numbers might surprise you!

The Alan Smith Team RE/MAX PROFESSIONALS Littleton, CO (303) 503-2526 98573T Alan J. Smith CRS, GRI Broker/ Owner RE/MAX Professionals Alan has been a licensed Realtor since 1983. He is one of the Broker/Owners of RE/MAX Professionals, and holds the CRS, GRI, CDPE, and CLHMS Designations which gives him expertise in all aspects of negotiating Residential Real Estate including as a Certified Luxury Home Marketing Specialist. He is also a CRB Candidate which specializes in Residential Brokerage Administration. After spending 10 years with Century 21 early in his career, Alan joined RE/MAX Professionals in January of 1994. Alan absolutely enjoys working with the best Realtors in the business and thrives with the Top Producers and True Professionals at RE/MAX Professionals. He is a member of the RE/MAX Diamond Award Club, and has been inducted into the RE/MAX Hall of Fame and received the Lifetime Achievement Award. Alan entered the Pinnacle of RE/MAX Honors in 2010 as he was inducted into the RE/MAX Circle of Legends. . He is a Broker/Owner of RE/MAX Professionals with 9 offices and approximately 500 agents. Alan is currently the President of Professionals Investment Group, d/b/a RE/MAX Professionals, and also served as the Chairman of the REColorado Board of Directors, and currently is a Director on that Board. Alan J. Smith RE/MAX Professionals 8500 W. Bowles Avenue, Suite 100 Littleton, CO 80123 303-503-2526 Cell 303-932-3306 Office alan@alanjsmith.com TheAlanSmithTeam.com Contact Me Visit my Website Send a Referral Subscribe to Newsletter