Renting vs. Buying

When I started this blog, my goal was to keep in touch with people and update them on Real Estate information (and, honestly speaking, possibly gain some new clients along the way).

But, lately, it's been turning into a blog that's almost entirely about good music and great musicians.

I was thinking that it's about time that I do a blog post that has something to do with Real Estate.

So, let's talk about many benefits to owning over renting.

I want to start by saying that some people will say that if you're renting, you're "throwing your money away".

I disagree.

While it is true that you cannot recuperate the money you've spent on the rental payments, you still have a roof over your head and a place to call "home". So, you're not "throwing your money away". You're paying for a place to live.

Moreover, there are times when it's appropriate to rent instead of owning.

For example, if you are traveling for work and you're only going to be in a certain city for say 6 months to 8 months, or less, for a variety of reasons, I think renting would actually be better. You're not dealing with the marketing, paperwork, and closing costs of 2 transactions.

When you purchase a property, you’re going to have closing costs. Likewise, when you sell the property, you’re going to have closing costs. Even if you sell the property for a price higher than what you paid for it, when you add in what you paid as closing costs as a buyer, plus closing costs as a seller, you may not have any profit if you haven't been in the property long enough for the value of the property to significantly appreciate. You could actually have a substancial loss.

Another reason to rent would be if, either because of your current income or your current credit, you're not ready to buy. And, you're using that rental time to put both your income and credit into a position that will allow you to buy.

Be careful here. You might think you are not ready to buy, when actually you are. If you think you're not ready,it's best to hear it from a reputable loan officer. (Contact me if you need the names of a few good loan officers).

If you are ready to buy, by all mean, do it.

Following are the benefits of owning:

• Most of the first few years of your mortgage payments as an owner will be for the interest of the mortgage. All of that interest is tax deductible. This means that when you do your taxes, you will deduct that amount from your income, as if you didn't earn it. With lower income, your overall tax liability will be less. This is not cheating the government. Interest on home loans being tax deductible is the law.

(After a statement like that, I just realized that I have to put in my disclaimer: I'm not a CPA, and I have limited knowledge on tax law, so this blog should not be treated as professional tax advice. For professional tax advice, please contact a certified tax professional.)

Good. Now my disclaimer is out of the way. Let's continue...

• Like it or not, all home owners pay property tax. In most cases, this is worked into your total monthly payment, so you don't have to send 2 checks each month when making your monthly mortgage payment.

All of the property tax you will pay as an owner is tax deductible. When you rent, your landlord is including in your rent what he or she needs to pay for their property taxes. So in a way, you, the renter, are paying the property taxes. However, he, or she (the owner), is benefiting from the tax deduction! So, they’re actually getting a tax deduction for monies they’re not even paying! Wild stuff when you think about it.

• When you purchase a property, it’s yours. This means that when you sell it, if you sell at a profit, the profit is yours. If you sell at a profit, and you make money on the sale, recuperating all of what you had been paying in monthly mortgage payments, then it’s almost as if you had lived there for free. Think about it. If you paid $15,000 in mortgage payments over the course of a year, but had a $20,000 profit when you sold the property, at the end of the same time frame, didn’t you really live there for free?

Ok. I'm tired now. That's all for today.

More music to come...

Joe