Rent vs. Buy

Rent vs. Buy

The “American Dream” has always included the idea of home ownership. The great recession altered the idea of the “American Dream.” Many in the media are advocating renting over purchasing.

The following is one example of a Rent vs. Buy analysis.

2 BR, 1 BTH Single Family Home in the City of Santa Cruz.

Sales Price $525,000.00
20% down $105,000.00
1st Loan $420,000.00 @ 4.25% = $2,066.00
Property taxes = $5,880.00 per year

Total monthly cost: approx PITI = $2626.00

Tax benefit: approximately $23,880.00 in annual tax deductions at an assumed 30% tax rate = $7,164.00 or $597.00 per month write off for home ownership.

Net monthly housing expense after taxes:
Mortgage $2,066.00
Tax $490.00
Insurance $70.00
$2,626.00
Less tax benefit – $597.00
Net mo. payment $2,029.00

The same home in the City of Santa Cruz may rent in the range of $2,000.00 – $2,500.00 per month. One can conclude that with a proper down payment buying may be a better deal.

There are other factors to consider. Closing costs are not included in the analysis. Writing off a home’s interest and tax payments may propel tax payers into itemized deductions and open up further deductions thereby increasing tax savings. Homes selling in Santa Cruz for $525,000.00 may need cosmetic upgrades and/or necessary structural repairs not included in this analysis. On the flipside, renters may understand that homes offered for $1,800.00 rent per month may also need cosmetic upgrades and necessary structural repairs. This analysis does not consider appreciation or depreciation.

I invite you to contact us to discuss both sides of the analysis.