Kennedy Real Estate Solutions
Kevin and Sharon Kennedy, Kennedy Real Estate SolutionsPhone: (860) 304-4433
Email: [email protected]

Renting Versus Buying - All About the Money

by Kevin and Sharon Kennedy 09/11/2019

There are several ways to think about renting versus buying. Conventional wisdom might say that buying, and therefore owning, a home is always better. However, your situation may be different. Before you jump in the buying pool, consider how the costs might stack up for you.

How to think about housing

Say that you are moving to a new city and cannot decide if you should rent or buy. Think about this scenario:

If a home is on the market for rent for $1500, or $18000 per year and that fits your monthly budget, but an identical house in the same neighborhood is for sale for $400,000. Do you rent or do you buy?

  • If you buy a house, you will make a down payment. For ease of calculation, you put down $100,000.
  • Also, you must take out a mortgage for the remaining $300,000 for thirty years fixed.
  • For simplicity, assume you get your mortgage for six percent.
  • Every month you pay your mortgage bill of about $1800, and it includes both interest and principal. Using an amortization calculator, you will see that for the first year about $1500 per month goes toward interest and roughly $300 goes to pay down the mortgage. While these change year over year where the amount toward interest goes down and the amount toward principal goes up, it stays around the $1500 interest to $300 principal for the first several years, so it works for our comparison.

In our comparison, during the first year, you will pay $18,000 for rent, and you will also pay $18,000 in mortgage payments. Now is when the calculations get trickier.Potentially, you will have savings on your income taxes for the interest paid. The way that works is that you subtract the amount of the interest paid from your entire gross income. After all your other deductions, you may end up with a few thousand less in taxes due. So, for this year that might be (hypothetically) $3000. That means your annual home cost is now down to $15,000. However, you also had to pay property taxes. To be conservative, calculate that at 1% or $4000. That puts you at $19,000. You also had to pay homeowners insurance. A conservative number for that is about $200 per month or $2400 per year. Your costs now equal $21,400.

One more calculation to consider is that the $100,00 you put in as a down payment you would still have as an investment if you rented. If you just kept it in a savings account with a 2% return, you would have an annual income of $2000.

So, for this year, as a renter, your effective outgo would be $16,000 compared to $21,400 for you as an owner. These numbers do not account for any maintenance, repair, or upkeep expenditures you have as an owner.

In this scenario, dollar for dollar, owning might not be your best choice. However, dollars are not the only reason to buy. Talk to your real estate professional about the intangibles of home ownership, before you decide.

About the Author
Author

Kevin and Sharon Kennedy

"A Personalized Approach to all your Real Estate Needs" Sharon and Kevin Kennedy have built Kennedy Real Estate Solutions with the premise of building relationships and finding creative solutions to unique real estate situations, both residential and commercial. The Kennedy’s work with their clients with the intent of getting a full understanding of the client’s current situation and desired real estate goals. With this understanding and the knowledge that has been acquired from over 50-years of real estate experience, Sharon and Kevin offer guidance and advice best suited for the individual client. Buying and selling a home can be an emotional and trying time for most folks. The Kennedy’s are sensitive to their client’s needs in this ever changing real estate environment. They are with them every step of the way and will help to address whatever challenges arise. About Kevin J Kennedy, Broker/Owner Kevin J. Kennedy is a dedicated and successful Realtor/ Broker. He helps his clients buy and sell homes throughout the beautiful Lower Connecticut River Valley and Connecticut Shoreline. Since buying or selling a home is a major life event for most people, both financially and emotionally, it is important to have an agent you can trust and with whom you feel comfortable. An essential part in creating a great real estate experience is choosing an agent who is detail-oriented, has up-to-date market knowledge, and is a skilled negotiator. Kevin offers all of these qualities. Today, many buyers and sellers insist on the advantages of cutting edge technology. Via his web site and IDX property finder, Kevin delivers. Using these state-of-the-art tools, his buyers save time and energy during the house-hunting process, and his sellers are able to reach numerous prospective buyers. Kevin is highly regarded in the real estate community and is a consistent top producer. He lives in Old Saybrook, is an instructor of T'ai Chi and QiGong, and enjoys photography, music, and kayaking. Call Kevin at 860-304-4433 About Sharon S. Kennedy, Realtor Sharon grew up in Old Saybrook. Her family owned and operated one of the first local real estate companies. She first received her real estate license in 1988 and now has more than 35 years of real estate negotiation experience. Sharon enjoys gardening, spending time with her horses, chickens, cats and dog along with preparing wonderful vegetarian meals for her family. She is knowledgeable in homeopathy and natural remedies. Today many buyers and sellers insist on the advantages of cutting edge technologies, Via their web site and IDX property finder, Kevin and Sharon provide state-of-the-art tools. Contact them today to discuss your real estate needs.