FILAM FINANCE

There is always this argument of which one is better: owning or renting a house. Both have different pros and cons depending on your situation. Most people rent a house because they cannot afford to purchase one. There are some who rent because they don’t want to deal with the headaches of the cost of maintenance such as the replacing a leaking roof, yard maintenance, plumbing, termites, etc. In the long run, owning is always more beneficial than renting because of the following reasons:

Pride of ownership – Home ownership has always been one of the American dreams. You always have this sense of pride when you own a piece of America. You experience this priceless feeling when you see your name on the TITLE of the house.

Income tax shelter – when you are renting, the rent expense cannot be deducted on your tax return. The best that you can get is a tax credit of around $60 (for a single person) if you are living in California. However, when you purchase a house with a mortgage, the interest and property tax are deductible. In addition, you can then deduct other legal deductions that are otherwise not claimable if the total does not exceed the standard deduction. Examples of these deductions are gambling losses, charitable contributions, casualty losses, medical expenses, state income tax withheld or sales tax, car registration fees and other miscellaneous deductions.

Builds equity – Most people say that real estate is a hedge against inflation because when there is one, just like what happened in the last few years, the value of your home increases and your payment stays the same (assuming that you have a fixed rate mortgage). For example, the three bedroom house that my parents bought in 1995 cost only $185,000 with a monthly payment of $1,200. Now, the value of the house increased to an estimated price of $450,000 and they were still making the same monthly payment. Guess how much is the market rent right now for a three bedroom house or apartment! As you can see, my parents will generate a $300,000 profit if they sell the house. In addition, when they decided to sell it, the profit is not taxed because they qualify for the “tax-exemption” of $500,000 for married couple since they live there for more than 10 years.(The rule is you have to live at least two years in the last five years from the date that you sell the house) Another way to take advantage of the increase in equity is by borrowing against it and use the proceeds to pay-off higher interest credit cards, auto loans, or use the proceeds for home improvement. And guess what, there is this added incentive of having the interest on the home equity loans (subject to restrictions) as tax deductions. Compare that to the non-deductible interest that you are paying on the credit cards and auto loans!