SHOULD I RENT OR SHOULD I BUY IN THIS MARKET?

November 18, 2008

Consider this: If your rent is $1200 per month, your annual rent is $14,400. Once the month is gone, so is the money spent to put a roof over your head for that month.  In just ten years, you will have paid (assuming your rent has not risen) $144,000 in rent payments.  It is no wonder your landlord is smiling.  You are voluntarily paying for his real estate!

Assume on the other hand that you have a $220,000 home with a $200,000 mortgage. Your monthly payment is about $1,199 principle and interest, at 6 percent interest and amortized over 30 years .  This amount is nearly equal to the $1200 that was spent for rent each month. There are still the property taxes and home owner’s insurance to contend with, which may be about $350-400 per month in addition to the $1,199. (payment of about $1549) This amount does exceed your rent payment but there are more things to consider.

The interest on your loan (6 percent x 200,000) = $12,000 per year. Assuming you’re in a 30 percent tax bracket, you have a tax savings of $12,000 x 30 percent = $3,600 per year.  This is a write off on your federal taxes schedule A that is not available to renters. Property taxes are also deductable as well.

www.Forbes.com, in the November 5th 2008 article called Buy Real Estate Now, stated that Zillow.com reported in October that half of American homeowners believe their residences are worth just as much now or even more than they were worth a year ago.  It may be safe to suppose that your home appreciates on average 5 percent a year, a reasonable assumption over time. Thus, in one year your $220,000 home is worth $11,000 more, and is now valued at $231,000.

$11,000 + $14,388 + $3,600 = $28,988.

Donald Trump, when interviewed for the article mentioned above said “ For me, I go with real estate all the time. “

The decision is yours, would you rather rent or buy?