Renting a Home is Like Leasing a Car...Sounds Good at First
Renting a home is like leasing a car...it can sound good at first until you find out that renting, just like leasing a car, can end up being a lot more expensive then just buying one out right. Many moons ago, when I went to buy my first car, the sales folks there convinced me that leasing a car would be the way to go. It seemed really attractive! The payments on a new car were low and all I had to do was bring
the car back in great condition (normal wear and tear excepted...but what's that on a car?), and then I could get another car with cheaper payments! Well, being young and not making a lot of money, I thought this was the perfect solution for me!
the car back in great condition (normal wear and tear excepted...but what's that on a car?), and then I could get another car with cheaper payments! Well, being young and not making a lot of money, I thought this was the perfect solution for me!So, off I drove in my shiny new leased car thinking I had just made the deal of the century...until the insurance bill came and the registration bill came! I was amazed at HOW much insurance is for leasing a car AND since the car wasn't mine, the registration was like $500 bucks or something, because I didn't own the car.
Now, me being young and inexperienced, I called the dealership to say..."What's The Deal?!" This is costing me way more than I thought it would and I am not pleased. I also asked them how much would it be to just buy the car and they kind of told me a fib and said it would be waaaayyyy more expensive if I tried to buy. So, since I was stuck, I continued to pay high insurance and registration rates until I couldn't stand it any longer and called the bank I was leasing from and asked them how much I could just buy the car for....my payment went up like 20 bucks and my insurance rates and registration went way down.
How does this relate to home buying vs renting? Buying a home can seem more expensive at first. After all, it is a big investment, and home buying does cost you some money. However, renting can cost you the same, or even these days, more since the rental market is so hot. And I must mention again, that when you are renting, someone else already owns that home. This means you are helping them pay off their investment while they get to go and own another home. Most likely the person you are renting from owns another home and you are assisting them to do that.
Let's look at the numbers really quick. If you decided to buy a home in San Antonio TX for $150,000 (just a number I picked out of a hat), with a conventional loan with only 5% down, your Principal Payment on that home would be approximately $680.00 at a 4% interest rate (which is about what home buying will cost you in interest rates these days...EXCELLENT by the way). Property taxes and PMI (a charge for putting down less that 20%) will run you another $530.00 dollars putting your entire payment at a little over $1200.00.
Guess what rent is going to cost you for that type of home? Probably at least $950.00 to the $1200.00! Hmmm, so you say, it costs the same. But, it is really costing you more on a month to month basis. First, remember that the $680.00 a month is actually paying for your home...meaning someday that payment, if you stay in the home long enough, will go away and you will actually own the home outright. Second, some of that payment is interest and you actually get to claim that on your taxes every year and that other $500.00...since a little over $400.00 of that is property taxes...you get to claim that on your taxes every year too...
So, look at your tax forms and see where the block for that rental payment you get to claim is? Find it? No? That's right, it ain't there. So, in fact, your rent money is just going to pay off someone else's investment. Oh and by the way, the real owners, they get to claim that investment on their taxes as well. Did you know that? So, because their home is a rental, they get to claim their home as a depreciation and end up making even more money at the end of the year.
What is the grand total over three years of renting vs owning a home? Let's take that principle payment of $680.00 over three years and a rental cost of $950.00 over that same three years. For owning the home you would have paid $24,480 into your own home...for renting you would have paid $34,200.00 for someone else's home. Now, I ask, what is more expensive, renting or owning?
Are there times when renting a home or leasing a car make sense? Of course there are. For leasing, if you are the kind of person that needs to have a new car every two to three years and don't mind switching out, then lease away. If you are perhaps military and never plan on staying in San Antonio past the three years you are stationed here, (although I would be careful, there are those of us who never thought we'd stay and it grew on us!), then renting makes sense. If you cannot afford to buy a home yet because of credit issues or don't have the money yet, then renting a home makes a ton of sense....
but if you don't fall into the above categories, then renting a home is a lot like leasing a car...sounds good at first until you really look at how expensive it really is!
Comments(43)