Welcome to San Diego Blog | April 26, 2012

Rent VS Own – A Calculation

The numbers speak for themselves.  It is more costly to rent than to own.  In the end, tax deductions from owning your home will save you money.  Read on for a detailed calculation on a $300,000 purchase.

RENT

2 BDR – $2,000/mo

Renter’s Income = $100,000/annual

Income taxes (30%) = $30,000/annual

$30,000/12 = $2,500/mo payment of income taxes

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OWN

3 BDR – $300,000 Purchase Price – Single Family Home

Down Payment (3.5%) FHA – $10,500

Closing Costs (3%) – $9,000

Loan Amount – $289,500

Loan-to-value Interest Rate (4%)

$289,500 x .04 = $11,580

Annual Mortgage Interest Deduction – $11,580

Annual Property taxes (1.17%)

$289,500 x 1.17% = $3,387

Annual Property Tax Deduction = $3,387

First Year Deductions Includes Closing Costs, Property Taxes, and Mortgage Interest

$9,000+$3,387+$11,580 = $23,967

First Year Deduction = $23,967

Second Year and Successive years deduction includes Property Taxes, and Mortgage Interest

$3,387+$11,580 = $14,967

Second Year and Successive Years Deduction = $14,967

Income $100,000

               -$23,967

$76,033 – pay taxes on new income amount

$76,033 x 30% = $22,810 – new income tax payment

First Year Income Taxes – $22,810

$30,000-$22,810= $7,190 Savings

$7,190/12 = $599/mo Savings

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Income $100,000

                -$14,967

$85,033

$85,033 x 30% = $25,510 – new income tax payment

Second Year and Successive Years Taxes = $25,510

$30,000-$25,510= $4,490 Savings

$4,490/12 = $374 /mo Savings

Monthly Mortgage Payment on $289,500 – $1,970/mo

Principle and Interest – $1,382

HOA – $31

Homeowners Insurance – $75

FHA Mortgage Insurance – $200

Property Taxes – $282

= $1,970/MO

 $1,970 – $599 = $1,321/MO  – Payment –Savings -1st Yr

$1,970 – $374 = $1,546/MO – Payment –Savings- 2nd Yr

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It will take 1 year and 8 months to recoup the down payment of $10,500 from the monthly savings of owning versus renting.  If you have any questions, or comments, please call us at (619) 246-8400.


Written by: margaret

Categories: Buyers, Real Estate Investment, San Diego Real Estate

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