Auston Grove Apartment Homes Blog

One of the most popular home ownership myths in Raleigh, NC is that owning a house is a huge tax break as compared to renting.  I don’t know how many times people have personally told me that they want to buy a home because they NEED a tax deduction!  I just shake my head in disbelief because I have done the math.  

If your mortgage interest and other qualifying expenses such as charity contributions aren’t more than the standard deduction, ($11,600 for joint filers in 2011), there is no tax advantage to owning a home as opposed to renting an apartment in Raleigh, NC.  Assume that you buy a $200,000 house with a 5% downpayment at a 6% interest rate.  Your mortgage interest for the year would be $11,336.  The Standard Deduction for joint filers is $11,600.  

In this example, there is NO TAX BENEFIT.  Even when there is a tax benefit, you most likely paid much more money to maintain the house than you are saving in taxes.  If your mortgage interest is more than the standard deduction and you choose to itemize, there is little to no advantage.  

For example, assume that your mortgage interest in 2011 is $15,000.  You would get to deduct an additional $3400 if you itemize BUT you spent $15,000 in mortgage interest to save $850 on your taxes (assuming 25% tax bracket).    

Don’t forget that you would also have all of the other expenses of home ownership that you would not have incurred when renting an apartment in Raleigh, NC in an HHHunt community.

When deciding whether to rent or buy, you are making the choice to rent an apartment home or renting the capital needed to buy a home. Most Americans don't consider that they are renting equity (from the bank) to buy a home. As you are aware, very little equity is built in the first few years of paying a mortgage. Many people are surprisingly still very unaware of this fact.

This following article explains how renting is financially better than buying in about 75% of cases!

For the Past 30 Years, Renting Was Generally Better Than Buying

If homeownership is the American dream, then the nation had better wake up. That's the message from a new research paper that examines whether buying or renting a home was a better financial decision over the past 30 years. Most would find the result surprising: over the period Americans were better off renting between 65% and 75% of the time, depending on the investment alternative.

The article essentially looks at eight-year periods and assumes that a person invests the money he or she saves by renting. Since buying is generally more expensive than renting, renters have extra money to invest. It also makes a number of assumptions favorable to homeownership, including gains from the mortgage interest tax deduction, the option to refinance, and the ability to walk away -- loss-free -- from an underwater mortgage. Still, renting wins approximately three-quarters of the time.

The staff at economic research organization e21 explains why this result actually shouldn't be so shocking:
Counterintuitive as the finding may be to some, it is actually quite logical. Unless someone possesses the cash necessary to buy a residence, he or she will be renting one way or another. The choice is between renting the property directly or instead renting the capital necessary to buy the property. The amount of capital to be rented is a function of house prices, while the bulk of a mortgage payment is interest, which is the rental payment on this capital. After 2 years, the typical 30-year amortizing mortgage balance has been reduced by less than 3%. This means that a household that took out a $300,000 mortgage with a 5% interest rate to buy a home has only reduced its mortgage balance by $8,600 after two years despite spending nearly $39,000 in total over this period.

Housing advocates may respond by pointing out that at least the $8,600 in this scenario went towards home equity rather than simply being squandered on rent. But, as demonstrated in the Real Estate Economics article, the principal component of each mortgage payment - i.e. the portion of the mortgage payment that goes towards reducing the principal mortgage balance instead of interest - is an added expense renters don't have.

This turns the real estate industry's biggest talking point on its head: you aren't throwing rent into the wind each month, you're casting away equity.

Of course, that equity also provides a potential benefit. The analysis's eight-year rolling methodology appears to miss the biggest reward of owning a home: living rent-free once the home is paid off. After that 30-years is up, the longer a family remains in that home rent-free, the more buying pays off. Taking this into account would almost certainly change the result in some, if not all situations. Renting may be a better option initially, but there's no eventual reward.

An important point still needs to be made here: buying a home that you don't plan to live in for an extended period of time probably isn't a great idea. The rent you pay in the form of interest on a 30-year loan for five or even 10 years won't be any better than if you had just rented outright. But if you're planning on living in a home for 30-plus years, then you could potentially get some benefit from buying rather than renting.

Original article by By Daniel Indiviglio, The Atlantic

We all need a place to call home but even with the real estate downturn, many people continue to think that buying a home is a good investment and a way for them to build wealth. When times were good, this was not really the case for most people.  Wherever you choose to live, make sure it’s for the right reasons. Owning a home can be rewarding. Renting an apartment home with Auston Grove Apartments can also be very rewarding. Don’t just take our word for it – check out this article on Yahoo Finance – Why Your Home is not the investment you think it is. In recent months, the housing market, interest rates and the economy have been the focus of many news stories and are key issues in the political arena. Consumers have been inundated for years with visions of the American Dream and why home ownership is a great investment. As seen with the recent housing crisis, home ownership may not be right for everyone.

• If you bought in Rochester, N.Y., in 1980, you would have seen only a mediocre 4% annual growth for the next 25 years.
• If you bought in Dallas in 1986, as the oil boom went bust, your home wouldn’t have appreciated at all before 1998.

It is also important to look at the “net appreciation”.  Most people do not subtract all of the interest paid to the banks, maintenance, decorating costs, closing costs, taxes, and insurance from the appreciation.  In many cases, especially if you do not own your home for more than a few years, there is not true appreciation and in more and more cases, there is negative appreciation.  Many do not realize the real financial and practical advantages HHHunt residents experience every year when they decide to rent an apartment home at one of our communities. There are just a couple of points to consider and think about. Renting is a long term investment and very rewarding. Especially in the North Carolina area we are a respected and very diverse community. Be sure to take a look at our communities and our activities we have to offer. Our unique apartment homes at Auston Grove combine convenience, comfort, and technology for today’s lifestyle in our apartment homes. Our beautiful interiors are designed to optimize the way you live, work, and play. Contact us today to learn more about renting at Auston Grove, or feel free to stop in and take a tour of our community.