Rent or Buy Home?

Excerpted from the book, It’s More Than Money—It’s Your Life
by Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP

Rent or Buy?A tremendous sense of pride comes with owning your own place, and owning a home has financial advantages as well. You can deduct the mortgage interest and property taxes on your income tax return, your house may appreciate in value, and when you sell your home you’ll likely realize that gain tax-free. Those are pretty great perks for investing in property.

But buying a house at the wrong time or spending more than you can afford are mistakes that can seriously derail your financial plan. Fail to pay your mortgage and you could lose the roof over your head. During a housing slump, renting is often your best bet, since property owners who are waiting for prices to rise will rent out their property, flooding the market with rentals and causing rents to drop.

Your decision to rent vs buy should be based on your own personal situation and finances. Here is a worksheet to help you get a better sense of the financial and tax consequences so you can decide to rent or buy a home.

Online Calculator (below) or Printer Friendly format

Step 1: Compare the costs     
Monthly mortgage payment    
Monthly property taxes    
Monthly homeowner’s insurance    
Homeowner association fees    
Routine maintenance    
Monthly ownership cost    
Monthly Rent    
Monthly Ownership cost Minus Monthly Rent   
Annual savings of renting instead of buying (monthly x 12)   
     
Step 2: Compute lost earnings on down payment   
Down payment    
Times rate you could earn if invested elsewhere  %
Annual lost earnings on down payment  
 
Step 3: Compute income tax savings  
Annual mortgage interest   
(multiply the balance of your mortgage by the interest rate)   
 
Annual property taxes   
Total interest and property taxes   
Your Annual Tax Bracket %
Income taxes you will save by buying    
 
Step 4: Compute Annual Appreciation  
Value of the home    
Annual appreciation percentage (can be negative)  %
Expected annual increase in value  
 
Option #1: Add bottom lines of Steps 1 and 2   
Option #2: Add bottom lines of Steps 3 and 4  
 
Which number is greater, option #1 or option #2?   
If it’s option #1, renting is better for you right now.   
If it’s option #2, buying is better for you right now.   

At WIFE we welcome your comments. Please feel free to contact us.


At WIFE we welcome your comments. Please feel free to contact us.

 
 

Help support WIFE.org and the Money Club


All proceeds support the non-profit Money Club and WIFE web site and projects
Free Gifts with Different Membership Levels

           

Bahr Investment Group (Carlsbad, CA)
Understanding your deepest concerns and needs is critical as you approach this part of your life. Find out how Bahr Investment Group can help you achieve your goals.

Bahr Investment Group: Financial Planning for Women

Securities offered through LPL Financial. Member FINRA/SIPC

 
 
WIFE.org Booklets WIFE.org Financial Freedom Booklets