If you rent, you are always paying too much for housing. I recently sold a really nice townhome in Morrisville. I represented the buyer. The neighborhood was Hamlet in The Park. The sell price was $162,000 for a 1360 square foot end unit with a first floor master and no garage. As I do for all my buyer clients, I did a market analysis of the neighborhood to check the price and make sure my clients were getting a good deal. I was very impressed with what I discovered and once again found myself wondering why in the world anyone would want to rent rather than own a home.
So how much would a three bedroom, 1360 square foot end unit apartment cost in such a convenient location as Morrisville? A quick Google search pulled up results ranging in price from $950–1200. I also ran a mortgage calculation for the townhome I sold. Financing the full purchase price at a 6% rate for 30 years gives you a monthly principle and interest (PI) payment of $971.27. Does this sound interesting so far? It gets better!
Mortgage interest is typically 100% deductible. Assuming that about $900 of the PI would be interest for the first year, let’s take a look at the tax implications. You simply reduce your income by the amount of interest paid and avoid taxes on that amount. If you are single and earn $40K per year your federal tax is about $546.46 per month. If I did my math right, the interest deduction would reduce your federal tax bill by $147 per month.
I’m pretty sure your state tax would be reduced too, but let’s be conservative and only consider the federal tax savings. By deducting the $147 tax savings from the $971.27 PI payment we get $824.27. This is what your mortgage payment (PI) would be, in our hypothetical scenario, after considering only the federal tax savings benefit from owning your own home.
So far, you would save between $126–376 per month by owning vs renting. Let’s look at other expenses you will be responsible for in order to become a homeowner rather than a renter. You will have to pay property tax and homeowner’s insurance on your new townhome. The exact monthly figure for both of these items for the home I sold was $147.60. Hmmm, you had to give back the amount you saved on federal tax. So, you are somewhere around break even to possibly saving $229 per month if your compare owning a home at Hamlet in The Park to renting the $1,200 apartment. Is renting still worth it?
The real benefits of owning a home come in the form of value appreciation. I saved the best part for last. As part of the market analysis I did for my client I looked at the average sell price in the neighborhood from 2003 to 2007. The average price actually increased 33% during four years! Assuming this trend continues, you could own this $162,000 home for four years and potentially sell it for $215,460.
That’s a profit of $53,460 in four years! And how hard is that? You had to live somewhere, right? Even if after all the smoke clears away you end up paying about the same amount to own as you would to rent. You could make over $53,000 just because you were smart enough to buy a home rather than rent. Isn’t this a great country? 
If you are renting, or know someone who is, give me a call at 919–602–7000 or send me an email and I’ll be glad to help you analyze your individual situation. My experience has taught me that in almost every single case my clients are much better off owing a piece of the American dream rather that paying for their landlord’s dream.
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I could not disagree more!! As someone new to the area it is hard to find where you want to be in 3 visits and many people we talked to have moved within 3 years because they like another area better. In addition, the trend of decreasing home values , in the price range of over $500K is going to decrease even here. This is because folks moving from other areas are getting less for their homes. We rented and it was the best move we could of made. Therefore, it is a matter of choice and knowledge of market trends.
Hi Clark – Thanks for your comments. I agree that if you are new to the area and having difficulty figuring out where you want to live, making rent payments on a temporary basis is really the only choice. If the people you talked with purchased a home here 3 years ago and then moved again, they should have made money and come out way ahead compared to paying rent for the same period. As far as the trend in home values, I can tell you with great certainty that it is not decreasing. Neither you or I know exactly what the trend will be in the future; however, the data overwhelmingly supports continued growth of 3-5% annually. If you are coming from a market where prices ran up at double digit rates for many years, I can understand how you might be fearful that the same thing might happen here. Just remember, you should have plenty of warning because home values would first have to increase by these same unnatural rates here for many years. So far that has not happened and we continue to enjoy one of the most balanced and predictable markets in the country.