Renting Vs. Owning

Appreciate Appreciation

In 1992 a young Massachusetts couple purchased a home for 126,000. They bought it with a FHA mortgage. Their total "out of pocket" cost was $6,000. That money covered their down payment, closing cost, taxes, insurance ­ everything. Ten years later they called for financing of their next home. When asked how much their new home would cost they said $374,000. Then they were asked how much financing they would need ­ they said $254,000. They were putting $124,000 down! Their down payment was the equity they received when they sold their home. Ten years after purchasing their home for $126,000, they sold it for $250,000! Their $6,000 investment had turned into $124,000 in 10 years. That's a 207% return per year on their $6,000.

We know it sounds too good to be true. When they were asked, "What did you do to the house?" They said nothing. They kept it up and they made their mortgage payments. You're also making mortgage payments right now. The difference is that you're making your landlord's mortgage payment. For those of you who have a 401K, you would agree that if you had a 20% return last year, you were happy. Consider that against a 207% return!

Owning a home means a significant income tax break.

When you purchase a home the interest on your mortgage and the real estate taxes due on your property are both tax deductibles. Consider this example: On a $100,000 mortgage with an 8% interest rate, you pay $8,000 in interest your first year. If this property has real estate taxes of $1,000 each year, you make a total of $9,000 worth of tax-deductible payments. If you income is $40,000, without a home, you pay taxes on $40,000. Now that you own a home, that $9,000 of tax-deductible payments will be deducted and you'll only pay taxes on $31,000. If you are in the 25% tax bracket, you'll receive a tax rebate of $2,250 (25% of $9,000) at the end of the year!

REMEMBER you are paying interest and Real Estate taxes right now--- they're just not yours, they're your landlords. Your landlord is receiving these benefits

However, you don't have to wait. When you started your current job you filled out a W-4 form. This form determines the withholding allowances that you're going to claim on your income. You never had a reason to complete the back of that form. Now that you own a home you have a very good reason. By claiming the legitimate withholding allowances you receive from home ownership, in the example above, you will receive approximately $187 more per month in take home pay instead of having to wait until the end of the year courtesy of your new home.

If you are still renting your just throwing your hard earned money out the window!

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