Lately, I've been considering whether I should either sell my house or rent it out, so that I can rent an apartment 'closer-in' as they say in Portland. 'Closer-in' means someplace much closer to downtown, to the river, to shops and coffee houses, and restaurants. To me, closer-in means being able to walk to the grocery store, getting to work on public transportation in 15 minutes rather than 45, and being much closer to friends with whom I'd like to socialize more frequently. This article from the Washington Post is typical of the reading I've been doing lately; and it was written in 2006, before the housing market really went bust!
Since selling a home is nearly impossible these days (even in Portland, which hasn't suffered from the craziness that other cities have), I've thought about renting out my house (at about a $350 dollar loss---meaning the rent I would get would probably not cover all of my mortgage). Then I would need to find an apartment to rent in the $700-$800 range (at the most), so my total rent plus $350 mortgage coverage would still represent a savings to me. This sounded like a great idea. Until I ran the numbers to determine my tax savings with a primary home mortgage versus the tax savings I'd receive by renting my house out.
What I discovered is that by renting, I would lose about $8,000 a year in itemized deductions. This is because I would have to offset the roughly $17,000 in deductions with my 'rental income' (which I'm estimating would be about $1200 for my house in my location). This would result in my paying more taxes. On the other hand, websites such as this one actually tell me that renting is smarter than owning right now anyway, even with the tax deductions taken into account!
The only way this makes any sense at all is if I purchase an extremely cheap condo (again, nearly impossible in the areas in which I'd like to live) so I can retain the primary home mortgage interest deduction AND add the rental deduction I'd get by having tenants in my current home.
Complicated? Yes. And me with my limited math skills---I'm not even sure I'm calculating any of this correctly (I used Schedule A and Schedule E on the IRS website to estimate all of this).
So what's a girl to do? It appears that it may be better for me to stay in my little house (which I do love, if not the location) for a while longer, until it really makes sense for me to either sell and downsize, or rent and buy a smaller, cheaper place.
Tuesday, June 10, 2008
Buy versus rent?
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5 comments:
There are cases where it is smarter to rent, but I would not sell or rent at a loss. The current (downward) market may mean that is is smarter for a new home buyer to hold on a little longer, save a little more, and buy a house at the same cost.
Part of the problem is that banks tell all young people that buying a house is the smartest thing they can do regardless of financial situation.
keep in mind (at least in canada) you can probably write off a lot of expenses, including the loss you'd be taking by renting for less than the mortgage/property taxes
This does not really have any relevance to this post but I am looking for a second job something that I can do at home or very close so gas isn't a factor...I see that you have a second income and that it is online and you found it on Craig's List I believe any tips or hints on how to find something similar?
Thanks
MKG
@mkg: I was very, very lucky in finding my second job. I had been applying for waitressing jobs (with no luck) and happened to be cruising the craigslist ads and applied for my web researcher position. I think it's kind of like finding good deals at thrift or consignment stores: you have to go back regularly to the stores to see what's new. So, it's really a matter of going again and again to craigslist, maybe doing a search just on telecommuting (there's a checkbox) and applying for jobs that you may not normally think you're qualified for. Also, ask people you know: I'm convinced that there are many more telecommuting jobs (valid ones, not the scams) out there than we think, but they're rarely advertised.
I think the idea of renting out your current home to move closer to the city does make sense, but if the numbers don't make it worthwhile, it sounds like a lot of trouble for little gain.
I have been thinking more along the lines of buying a second home to rent out. With the down market in our area, I could realistically get a good deal. The only thing that keeps us from doing it is we don't really want to be landlords and hiring a property manager would induce too much overhead.
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