Should I Rent Or Buy?

One of the most common questions we face on a daily basis is customers asking if they should rent or buy. On the surface it may seem cut and dry to many, but it's really quite a complicated question-and one that should be explored.

The first question you should ask yourself. How long do I plan on living in my home? If your answer to this is 3 years or more, likely buying will be better for you. If you answered less than 3 years, are you willing to rent the home after you move out? If so, buying may still be a better idea.

When analyzing the rent vs. buy decision a big factor that is often overlooked is the massive tax incentive in place to encourage buying. Let's say you purchase a home which has a payment of $1000/month. This is broken out into principal, interest, taxes and insurance. In most cases, insurance and taxes will amount to about $200 of this payment, leaving 800 to principal and interest. All of the interest you pay is tax deductible! In the early years of a mortgage the vast majority of your payment is interest (probably something like $750 in our example is interest!). So...you pay 1000/month, and of that $750 is deductible. But wait...remember that you paid $100/month in taxes..that's likely deductible too! So of your $1000 you get to deduct $850 from your taxes.

Now let's take the rental side. You are going to rent a place for $1000/month. How much of this is deductible? $0. That's right, zippo!

So assuming you're in the 25% tax bracket, in one year, you'll end up get about 2.5 months of payments FREE! (Via the tax deduction) If you buy vs. rent. This amount will adjust year after year as the amount of principal vs. interest you pay changes, but you'll still be saving money. Not to mention that you own the property, so you get to participate in any increase in value...not true with renting.

This is an ultra simplified version of this, and you should always consult your tax professional before making any decisions as your case may be different, but...the fact is often you'll save money on your taxes.

Not to mention when you own...no one can tell you not to hang a picture on the wall, or plant in your garden, what colors to paint, etc....Think about it....