I know that men and women my age feel more comfortable renting. It’s easy, little commitment, and a lease is less stressful to read than a real estate contract. What you may not know is owning a house is usually always cheaper than renting. If renting was cheaper, then how would so many landlords make money off you month after month?
Here are some facts about renting versus owning:
- Renting is a dead investment, you’re paying the landlords mortgage every month so he/she can eventually sell it and make even more money on their house.
- Renting offers no equity, you don’t own anything.
- Renting offers no tax benefit, while Interest on your mortgage is tax deductible.
- Houses, when taken care of and properly maintained, appreciate. A great mindset to have is that every mortgage payment will eventually be repaid to you, plus some extra.
Here is payment plan based on a $100,000 house with a 30-year fixed rate loan with 5% interest rate and a $90,000 loan balance.* Typical rent for this price would be about $1,000.
Rent vs. Own
|Monthly Payment||$1,000||Monthly Payment||$ 483|
|Insurance||$ 30||Insurance||$ 50|
|Taxes||$ 0||Taxes||$ 60|
|Total Payment||$1,030||Total Payment||$593|
|Interest Deduction||$ 0||Interest Deduction||$ 100|
|Tax Deduction||$ 0||Tax Deduction||$ 60|
|Net Monthly Payment||$1,030||Net Monthly Payment||$ 433|
*Determining how much of your tax and interest is deductible is a very complex process that is different for everyone. Some factors include the amount of your loan, how long you have owned your house, and how much you make, but there are many more factors to determine your deduction.
One of my friends recently asked me what the difference between market value and assessed value on a house, so I decided to write a blog explaining the process of finding the assessed value, and some other valuable terms such as market value, book value, appraised value, and assessed value.
Book Value- The book value never fluctuates like the others, because it is how much you paid for your house.
Market Value – How much your house is worth, or how much you could sell it on the market currently. The market value fluctuates with the economy, and currently, most houses’ market value dropped, leaving people owe more money based on their book value than its worth.
Appraised Value - Appraisals are third parties who calculate your homes approximate value based on the lot size, square footage of the house, the number of bedrooms and bathrooms…etc. Appraised value isn’t necessarily consistent with the market value, because appraisals don’t consider the condition of the house, a very important aspect of trying to resale your house, don’t you think?
Assessed Value – The assessed value is only a percentage of your homes appraised value which determines how much your property taxes are. Your entire houses’ equity isn’t taxed, only a percentage. in Missouri, it’s a 30% assessment rate, so if your house is worth 100K, your assessed value would be 30K, which they tax using a mill rate.
Mill Rate - The rate that is taxed from the assessed value of your home which determines your property tax. The mill rate isn’t expressed is hundredths, like a normal percentage, but is in thousandth’s, or 1/1000 of a dollar. so if they want to tax $50 for every 1000 of your assessed value, then your mill rate would be 50 mills (when in fact its the same as saying its a 5% tax rate) (50/1000 = 5/100, or 5%)
I hope this was helpful. If you have any questions about this, or would like a free consultation to find out your home’s value, contact me, and I would glad to help!