I am always amazed at how many people that rent a home don’t stop to wonder why their landlord decided to buy a home only to rent it out. Simply put, it is because it is your landlord’s investment strategy to get their tenants to pay off their debt while they get tax deductions themselves! If that isn’t good enough, property values historically appreciate 3.8% a year so if you borrow the money from the bank (using other people’s money) the appreciation essentially even pays off your mortgage at today’s interest rates. Keep in mind the property keeps typically appreciating, while your mortgage (and interest payments) declines giving even better leverage!
Before most people begin buying investment properties, they start by buying their primary residence so they can fire their landlord. I have a complete system that sets buyer's on a "Path 2 Own" their own home. At least here in the Boise, Idaho area, there are multiple programs for 100% financing and sometimes below market interest rates for first time home buyers that are considered low to moderate income. Sometimes, it actually helps to make less money so you can get your share of the government stimulus money! I consistently have clients buy their own home for less than what they had in security deposit on their rental and their monthly payment typcially drops giving them more disposable income almost like getting a raise!
Here are the three main tax advantages you will potentially start earning when you decide to own verses rent your home:
- Primary Residence Mortgage Interest Deduction. All the mortgage interest paid on a primary residence is a potential deduction.
- Primary Residence Property Tax Deduction. Here in Idaho, we have the “Homeowner’s Exemption” so property taxes are considerably less on the same home if you live in it, plus it is a tax deduction. (lower taxes on the same property is yet another reason why owning can be cheaper than renting)
- Residential Mortgage Point Deduction. This is when you buy the property and pay “points” on your mortgage.
As always, check with your CPA for specifics on how these might impact you and your specific situation! Now is a great time since you should be starting to complete your 2011 taxes and it is a great time to do a “what if analysis” with your tax preparer to see how much less you might have paid in taxes had you been able to claim these deductions instead of passing them off to your landlord!
I have owned rental homes in the Boise area for twenty years. If you have any questions on buying investment property or want to know about some of the government programs designed to help first time buyers acquire their first home, please call or email me @ GoOwnIt@gmail.com.
Jim Paulson, CRS, GRI, EPRO, SRES
Owner/Broker – Progressive Realty
Boise, Idaho
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