You are here

Rent or Buy?

Does it make any sense at all to rent property, today?

Rarely. Consider the tax savings from interest deductibility-state and federal taxes. The equity you build with each monthly payment. The increasing value of your new brownstone, condo, townhome, or house. The pride of property ownership. Giving as much as a quarter of your income over to a landlord just doesn't make much sense.

Run the numbers.

Let's say you take the $1,200 you're now paying in rental property and apply it to a $150,000/30 year mortgage at 6 1/2% interest. The first year you'd pay $14,400 into your mortgage. A portion of that payment would be deductible from your income on federal and state taxes. Plus you could deduct most of the settlement costs. Of course, as your principal payment increases in later years, your interest payments decrease and tax savings adjust accordingly.

Capitalize on equity.

In recent years, return on investment in real estate in the Washington DC area has far outpaced other investment options like rental property or commercial property. As you build equity in your home and it escalates in value, you have a great financial resource. Home equity loans offer a unique opportunity for low interest money that can be used for home improvements, luxury items or reduction of other higher interest debt another benefit: the interest on home equity loans is usually tax deductible.

Words to the wise.

Home buying is, indeed, a win/win situation. But it's important that you come to the table knowing what to expect. Keep in mind that your mortgage payment will include property taxes and homeowner's insurance. So don't get too excited when you see the interest/principal portion of the payment. The total figure will typically be an additional $200 or more, depending on your townhome's value.

Also, remember you'll have added expenses.

  • Moving costs
  • Utilities
  • Repairs
  • Decorating costs
  • Condo and/or homeowner association fees, if applicable