Buy or Rent?

Owning your own home may be part of the American dream, but in some instances it makes more sense to rent. Yes, your monthly rent check is a recurring cost you'll never get back. But owning a home involves a lot more than just paying your mortgage.

What's best for you? Here are some guidelines.

Does It Make More Sense to Rent or Buy?

For an easy way to compare the costs, find the rent ratio by dividing the sale price of a home by its estimated annual rent. A high rent ratio (above 20, typically) means the cost of ownership exceeds the cost of renting. Please note that this rent ratio is just a general guideline and may vary by location.

Example: If a $250,000 home rents for $1,000 a month, the ratio would be $250,000/$12,000, for a rent ratio of 20.8. In this case, it's probably more cost-effective to rent.

If the same home rents for $1,500 a month, the rent ratio goes down to 13.8, and buying becomes more attractive.


Tax advantages of owning a home.


A mortgage is a big liability, but it can also provide some tax advantages to help offset the cost. Here's why:
  • A home mortgage is a tax-deductible interest expense. IRS rules say you can deduct the interest expense on up to $1 million ($500,000 for married filing separately) of home-secured debt used to purchase or make capital improvements on your qualified principal and/or second residence.
  • If you pay points on your mortgage, these can be deducted in the year you pay them for an original mortgage.
  • Property taxes are also income tax-deductible.
Talk to your tax advisor about how a mortgage might benefit your tax situation.




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