Buying vs Renting: Which is Right for You?
Buying a home actually costs less than renting a home when you include the income tax benefits of home ownership. Here's how it works: Determining the cost of an apartment over 5 years is simple. If your rent is $1,100 per month, your five year cost is $66,000 ($1,100 X 5 /years X 12 / months per year= $66,000). There is no income tax deduction for the rent you pay on your rental residence. If you purchase a new home, the government will allow you a tax deduction for the interest and real estate taxes that you pay. The actual deduction will be based on your actual interest and taxes paid, but for comparison to the rental unit, assume you purchase a house for $175,000 with 5% down payment and a 30 mortgage at 4% on the balance. Your monthly principal, interest and real estate taxes will total approximately $1,086.
Equity is another strong reason to buy instead of rent. Equity is the difference between how much a property is worth and how much is owed on it. So, continuing the example from above, if a house costs $175,000 and you borrow 95% of the cost at 4% over a 30 year term, at the end of the first 5 years your loan balance will be $150,400. Let's be conservative and say the home's value grows by 3% a year. The value of the home has increased from $175,000 to $202,900 after five years, resulting in equity in the home of $52,500. As the home owner, you're entitled to this equity. If you're renting a property, the landlord gets the equity. Owning a home is the best way for most of us to increase our personal wealth.
Buying a home is one the biggest decisions that many of us will make and we all want to choose the option that suits us and our family best. Evaluating the cost of buying a new home versus renting or leasing and taking a careful look at the tax benefits of new home ownership should help us clarify the choice. As rents continue to rise, more and more families are choosing to leave crowded apartment complexes and move into new homes. Today might just be the right day to stop growing your landlord's wealth and start growing your own!