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Question regarding renting vs. Owning

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Question regarding renting vs. Owning

Old 04-26-05, 12:24 AM
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Question regarding renting vs. Owning

I know this subject is a matter of one's preference-
They both have good and bad points-

I currently am renting- I am pretty content, and don't want to really own at least at this point in time-(Possibly an option maybe move in with a room mate as an option for a bigger place, but then privacy is sacrificed) My Fico score is pretty high- but when I talk to realtors for a Condo or Townhome when they hear my FICO score they say oh we can get you in for something at $180 or more easy- I ask them what is the monthly bottom line and it just scares me that they think I can afford that much based on a score and when you look at the monthly expenses (Mortg, taxes, Hoa, PMI etc on top of utilities etc I am better financially renting.- My question is because I take the standard deduction each year- now it's $4,700 - Do you lose that deduction if you were to purchase property (Home, Condo, Townhome) because you are writting off your interest and a portion of the taxes?, and do you lose the standard deduction once you itemize?
Just curious because the standard deduction would seem more than by deducting for the Mortgage or taxes each year- In this economy and forclosures are at an all time high it just concerns me- Thanks in advance.

Last edited by brtcmfn; 04-26-05 at 12:28 AM.
Old 04-26-05, 12:26 AM
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You don't really lose it, you generally exceed it. Suppose you pay $1500 a month, and $1,000 of that is interest, property tax, etc. That's a deduction of $12,000 per year. A bit better than the standard deduction. Plus you can then keep track of all the other stuff that can be deducted.

And keep in mind that foreclosures are at an all time high mainly because credit is so easy to get an abuse. They let you make your own noose. If you aren't one to abuse credit to begin with, it won't be a problem.
Old 04-26-05, 12:28 AM
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well, I used to rent an apartment and now I own a house. My house has gone up like 90K in value since I bought it and I've probably paid about half that in mortgage payments. I just refinanced and my payments didn't go up, but I was able to take out 31K to pay off credit cards. Can you do that with a rental? no.
Old 04-26-05, 12:56 AM
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Renting has its advantages if you plan not to be in any one area for too long.

If you're living in an area long term, then buying will often make more sense.

And ultimately, it comes down to what you feel comfortable with. If you can (or can't) handle a 200K mortgage and the responsibility that comes with it (upkeep of the house, mortgage repayments, etc) then that should be factored in too.
Old 04-26-05, 01:34 AM
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Once I found out my rent was going to be more than $800 a month I decided that the time was ripe to buy a house. My mortgage for a property that I will own is now $885 which is only 20 dollars more than what my rent would have been. And I am looking forward to waht my taxes will look like with all the new deductions I have.
Old 04-26-05, 06:20 AM
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Originally Posted by kvrdave
You don't really lose it, you generally exceed it. Suppose you pay $1500 a month, and $1,000 of that is interest, property tax, etc. That's a deduction of $12,000 per year. A bit better than the standard deduction. Plus you can then keep track of all the other stuff that can be deducted.
I disagree with you. Unless the OP has close to the original standard deduction in intemizable things, he will effectively lose it. That needs to be taken into account when calculating the true cost adjusted for taxes of buying. Of course, unless the OP lives in a state with no state income tax, that can be a big chunk of that standard deduction right there.
Old 04-26-05, 08:26 AM
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is rent tax deductible? - no

does rent build equity? - no

do you share in any rise in property values if you rent? - no

can you take the equity you built by renting and use it for another place? - what equity?

does your rent pay the landlord's mortgage and property tax bills and lower his taxes? - yes
Old 04-26-05, 11:01 AM
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There are advantages to renting though. Its low maintenance, so you don't have to worry about mowing the lawn, fixing stuff, etc. This saves some money and a ton of free time.

Also, you have to consider property taxes, depending on where you live they can be quite expensive. I was paying $3000/year in property taxes on my first house as I live in a high-property tax area. The property tax when you rent an apartment is included in the rent, but the tax is generally a lot lower on an apartment than a house/condo.

Then, once you have a house you'll notice you'll be spending all kinds of money on things for the house that you don't really realize. Like lots of tools, yard equipment, furniture, household items, etc. At least for me, when I was in an apartment I really wasn't ever spending money on that kind of stuff. But now I have tons of items that kind of go with having a house.

Life is much simpler when you have an apartment.
Old 04-26-05, 11:18 AM
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I bought a duplex 25 years ago. It was the best investment I ever made. Right from the start, the rent from the other unit helped with the expenses. I've put a lot of work into it but I think it was worth it. I paid off the mortgage 5 years ago and the rent more than pays all of my living expenses.
Old 04-26-05, 12:12 PM
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Originally Posted by matchpenalty
I disagree with you. Unless the OP has close to the original standard deduction in intemizable things, he will effectively lose it. That needs to be taken into account when calculating the true cost adjusted for taxes of buying. Of course, unless the OP lives in a state with no state income tax, that can be a big chunk of that standard deduction right there.
You never lose the standard deduction, ever.

You get to take a deduction that is either 1) the standard deduction or 2) an itemized deduction. You get to pick which one you take. If your itemized deduction is less than your standard deduction, stick with the standard. If your itemized deduction is bigger -- and with a mortgage, it almost certainly will be -- then you can take the itemized deduction.
Old 04-26-05, 12:43 PM
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Here was a good chart somebody posted in a similar discussion we had a few weeks back:

Old 04-26-05, 01:52 PM
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Originally Posted by JasonF
You never lose the standard deduction, ever.

You get to take a deduction that is either 1) the standard deduction or 2) an itemized deduction. You get to pick which one you take. If your itemized deduction is less than your standard deduction, stick with the standard. If your itemized deduction is bigger -- and with a mortgage, it almost certainly will be -- then you can take the itemized deduction.
It's really a semnatics question, a glass half full or empty thing, but really, you effectively do lose the standard deduction. In other words, your net change in deduction is going to be whatever you're entitled to less the standard deduction. I think that is what matchpenalty was referring to.

If the OP is someone with very little to deduct, and was very much taking advantage of a standard deduction because he couldn't itemize much, then the increase in deduction made possible by the interest on the mortgage will not accrue to him one for one. The first few thousand will just bump him up to the deduction he was already entitled to, and only the interest (and other deductibles) above that amount will give him a net gain. Sure, he hasn't technically lost the standard deduction, but effectively he has, because he's realized less gains from his interest deduction because of the standard deduction.
Old 04-26-05, 02:01 PM
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Originally Posted by Jeraden
There are advantages to renting though. Its low maintenance, so you don't have to worry about mowing the lawn, fixing stuff, etc. This saves some money and a ton of free time.

Also, you have to consider property taxes, depending on where you live they can be quite expensive. I was paying $3000/year in property taxes on my first house as I live in a high-property tax area. The property tax when you rent an apartment is included in the rent, but the tax is generally a lot lower on an apartment than a house/condo.

Then, once you have a house you'll notice you'll be spending all kinds of money on things for the house that you don't really realize. Like lots of tools, yard equipment, furniture, household items, etc. At least for me, when I was in an apartment I really wasn't ever spending money on that kind of stuff. But now I have tons of items that kind of go with having a house.

Life is much simpler when you have an apartment.

Life might be simpler, but I am sure the value of your home has gone up significantly in the past X years.

As far as the whole not-making-mortgage payments things go, it is far easier to be kicked out of an apartment than kicked out of a home you own (compare 60 days to a year), you can always rent out the home, and you can always sell the home. You don't have those options available as a renter.

Over the past 5 years, the real estate market has been hot enough that staying somewhere for as little as a year could still make you better off than renting. If you think you will be somewhere a solid year or two, or, if less, think it would be easy to rent out your property and are prepared to deal with that, then please buy a house.

I would only be extremely cautionary if we're talking about overheated markets (California) where property prices HAVE caused an asset bubble. You don't want to spend $700,000 for a house and then have it be $500,000 a year later, yet you still have a $600,000 mortgage.
Old 04-26-05, 02:09 PM
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Originally Posted by Red Dog
Here was a good chart somebody posted in a similar discussion we had a few weeks back:

In some area (like L.A.) it makes sense to rent, because you probably can't afford to buy. Houses in my sister's area (not a great area) are now going for $500-600k. These are 1200-1800 sq ft houses, btw.

In other areas, if you can afford to buy, it makes a lot of sense.
Old 04-26-05, 02:10 PM
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Originally Posted by DodgingCars
In some area (like L.A.) it makes sense to rent, because you probably can't afford to buy. Houses in my sister's area (not a great area) are now going for $500-600k. These are 1200-1800 sq ft houses, btw.

In other areas, if you can afford to buy, it makes a lot of sense.

Sure. I live in the DC area so I have no regrets renting.
Old 04-26-05, 02:13 PM
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Deja vu.

http://www.dvdtalk.com/forum/showthread.php?t=415618
Old 04-26-05, 02:14 PM
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Originally Posted by Red Dog
Sure. I live in the DC area so I have no regrets renting.
Yeah -- it's my only choice at the moment. That's why I'm moving -- so I can afford to buy. I consider owning a home a retirement investment.
Old 04-26-05, 02:18 PM
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Originally Posted by DodgingCars
I consider owning a home a retirement investment.
That's kind of the way I look at it.

And I do not want to be an old person having to rent and move and deal with all that renting entails.
Old 04-26-05, 02:46 PM
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Originally Posted by DodgingCars
Yeah -- it's my only choice at the moment. That's why I'm moving -- so I can afford to buy. I consider owning a home a retirement investment.
That's not a good way to think about it... Sorry to burst your bubble. More than likely at the time of your retirement, you want to have your home paid off, if that is the home you're going to be living in. At that point, you also want to make sure your income will cover taxes, expenses, etc.

The only exception would be if you're going to be moving from a high-expense to a low-expense area. Say, San Diego to Costa Rica. Or Long Island to South Carolina. Or La Jolla to North Dakota. Then, you could buy a comparable house for 20-80% less (or more) and have the difference to invest/etc.

Basically, don't consider your home a retirement vehicle. However, do consider having it paid off at the time of retirement a necessity.
Old 04-26-05, 03:02 PM
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If you can afford it (don't be too scared to try) and you plan on staying in the same area for a few years, then I would suggest you buy.

Most reasons to rent can be offset by the cost advantage to buying, some can not.
Old 04-26-05, 03:39 PM
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Originally Posted by The Bus
Basically, don't consider your home a retirement vehicle. However, do consider having it paid off at the time of retirement a necessity.
It's also a retirement investment, because even with taxes, it should be cost considerably less to live in a home I own than to rent -- EVEN IF I don't pay it off by retirement. Anything that costs less is an investment.

However. You're right that there are other things to consider. However, if I found myself needing more money, I could move to a cheaper home, get a reverse mortgage, etc.
Old 04-26-05, 05:46 PM
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I would say BUY if you plan to stay in the area. RENT if you are arent.
Old 04-26-05, 09:49 PM
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Originally Posted by DodgingCars
In some area (like L.A.) it makes sense to rent, because you probably can't afford to buy. Houses in my sister's area (not a great area) are now going for $500-600k. These are 1200-1800 sq ft houses, btw.

In other areas, if you can afford to buy, it makes a lot of sense.
Yep.. Same with Boston.

I can see the positives of not renting, but when you're talking 3X the monthly payment for buying (excluding deposit) or more for something not much better then an apt size space, I can see why people don't do it. There are lots of cities where mortgage isn't 20 bucks more month, else I think everybody would buy.
Old 04-26-05, 10:14 PM
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Originally Posted by The Bus
The only exception would be if you're going to be moving from a high-expense to a low-expense area. Say, San Diego to Costa Rica. Or Long Island to South Carolina. Or La Jolla to North Dakota. Then, you could buy a comparable house for 20-80% less (or more) and have the difference to invest/etc.
True and not true. In the late 1960's, my parents bought a large apartment in NYC (I'm one of 5 kids, we needed a big place!). 30 years later, they sold it and bought a much smaller place in the same neighborhood, and the difference became a nice nest egg.

I get your point, and as a general rule it's important to keep in mind that a paid off house that you live in doesn't give you a retirement nest egg, but your "only exception" is incorrect. And not just by the example above, there are also reverse mortgages where you can actually turn the house into a nest egg while still living there.
Old 04-26-05, 11:11 PM
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When I was renting, I had a place across the street from work in a kickass location within walking distance of all kinds of stuff. To buy a place anywhere near that location would have been prohibitively expensive, and I wasn't particularly interested in moving out to the suburbs and fighting traffic to get to work. Was I building equity? No. Was it worth it? Absolutely.

Common wisdom is that renting is just throwing your money away, but the thing to take away from this thread is that renting and owning both have their advantages and disadvantages. Figure out what your needs are, and choose the one that best works for you. More often than not, owning is a better solution, but don't be discouraged by the legions of people who insist you must buy a house, because it may not right be for you.

das

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