Why Rent When You Can Buy

  • Are you unsure about becoming a homeowner?

  • Thinking that you can’t afford to buy a home?

  • Are you worried about whether home buying is a good investment?

Buying a first home can be an intimidating process. But the first step is making those first decisions:

  • I want to own my own home

  • I can afford to own my own home

  • Owning my own home makes sense for me financially and emotionally

If you are still struggling with those first decisions, here are some facts that might help you make that first step towards becoming a home owner.

 You can’t afford NOT to buy a home!

Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year (In the Portland area rents have increased 3.6% this past year). That means that an apartment or home renting for $1000 per month will cost more than $1300 per month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $137,567.

 Year 
 Monthly Rent 
avg. increase 3%/year 
 Total Annual Rent 
1
$1,000
$12,000
2
$1,030
$12,360
3
$1,061
$12,731
4
$1,093
$13,113
5
$1,126
$13,506
6
$1,159
$13,911
7
$1,194
$14,329
8
$1,230
$14,758
9
$1,267
$15,201
10
$1,305
$15,657
Total Rent Paid Over 10 Years
$137,567

 Tax Advantages of Owning a Home Results in Savings

None of that $137,567 is returned to you, either through savings or as an investment. Home ownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. Unlike your monthly rent, part of your monthly mortgage payment “comes back to you” in tax savings. Here’s an example.

You purchase a home that costs $210,000. Your down payment is $10,000 (Your bank or credit union may also have "no money down" home purchase plans available). You finance the balance with a 30 year fixed rate mortgage at 6.5% interest. Click here for a mortgage calculator for other loan amounts. Your monthly payments (not including utilities, insurance, etc.) are:

Monthly Mortgage and Tax Payments
Mortgage
$1,264
Property Tax (est.)
$230
Total Monthly Payment
$1,494
Tax Savings per Month (assuming a 30% income tax bracket
Mortgage interest tax deduction
-$322
Tax deduction for property tax
-$68
Total Monthly Tax Savings
$390
Total Monthly Cost After Tax Savings 
 $1,104

You actually save $390 a month by owning your own home. On a yearly basis, the saving is even more dramatic:

Total Annual Costs
 
 Home Owner
Renter
Annual Mortgage/Rental Payment
$15,168
$12,000
Real estate taxes
$2760
$0
Tax deduction for Mortgage Interest
-$3864
$0
Tax deduction for Property Tax
-$816
$0
Mortgage principal accumulation
-$2232
$0
Appreciation*
-$9450
$0
Total Annual Cost
$1566
 $12,000
*Based on 4.5% annual appreciation rate from National Association of Realtors

 Home Ownership is a Good Investment

For the majority of Americans, their home is their largest financial asset and a major part of their investment portfolio. It’s a good thing, too, since stock market value has declined since 1998, while home price appreciation has increased. The National Association of Realtors estimate that home value rises, on average, by 4.5% a year. That’s a steady return on investment: Our own home is a much less volatile asset than stocks, bonds, or mutual funds.