Invest or Rent?: Buying vs Renting

Buying vs Renting

Buy vs. Rent

I am continually amazed at how many new apartments there are in Arizona, yet rents is so high that you can afford to own for about the same payment. There are many benefits to buying vs. renting! Our goal is to locate a property that will bring you the maximum return on your investment.

Benefits of Buying

When comparing the benefits of buying in Arizona versus renting, you really need to look at the tax law. If you learn the rules and play by them – you can maximize your investment. Here’s an example:

Say you pay $900 in rent. That money is not tax deductible . Most of us are in the 28% tax bracket, so you pay 28% of this amount to the IRS $900×28% = $252. Now let’s assume that you live in Arizona and the state income tax is approximately 5.9%. You now have to pay $900×5.9% = $53. That’s right – one third of what you pay for rent goes to the government.

So that’s $305 per month that you owe in taxes. Now let’s assume that you had a mortgage payment of $1200. You would be able to legally deduct one third of this payment because of the interest and taxes that you paid. So at the end of the year (if you had a full year of mortgage payments) $400×12 months = $4,800 in your return! This is how the rich get richer – leveraging “other people’s money” and utilizing the IRS tax code.

Even if your monthly cash flow gets tighter during home ownership, the tax benefits are awesome! Plus, you need to take into consideration the appreciation and the equity applied to your home each month.

Food for thought: You place $10,000 in the stock market – a 12% return on your investment equals $1,200.
You put $10,000 down on a home and get a 4% equity growth, that would equal $4,000.

Let’s take it one step further:

As a broker and realtor, I feel it’s very important to share this information with you. With the Phoenix housing market averaging 5%-6% per year historically, I believe this a conservative projection. I urge you not to wait to purchase a home, interest rates are still low but the prices will continue to climb over time.

  • 5% appreciation per year on the value of the home with as little as 10% invested. Example: $200,000 home with $25,000 invested – appreciation is $10,000 first year. Compare that to any investment!

If you choose to have multiple homes and be the landlord – look at the additional benefits:

  • Depreciation (home – land divided by 27.5 years) = $6,545 tax deduction for 27.5 years Example: $200,000 – 10% = $180,000 divided by 27.5 years = $6,545 Literally one third comes back to you at the end of the year. $2,182
  • Payment on a home like this is approximately $1285 and the rent would be $1350. So it pays for itself.
  • You can write off trips to Phoenix because you are checking on the property.
  • The write off of the interest, taxes, and insurance plus HOA fees are offset with rent. Therefore, you have not increased your income tax bracket.
  • In the first year, your tenant will pay $2,210 towards principle In the second year they will pay $2,345 towards principle In the third year they will pay $2,491 towards the principle In the fourth year they will pay $2,645 towards the principle In the fifth year they will pay $2,808, etc.

We make the buying Process Easy

Lorrie, the broker of Real Estate Lifestyles LLC, will teach you about the “hot spots” that Arizona has to offer, while her team of knowledgeable professionals will cover the “how to” part. After you are pre-approved we will locate the best choices for your lifestyle and walk you through the buying process step by step. The education we provide is extremely valuable in the housing market. We want to earn your respect and then we want you to be so ecstatic about the service that you enthusiastically refer us to others. When you experience success we all feel it!

When you are the buyer, our fee is paid by either the builder, seller or cooperating real estate agency. There is no cost to you, so take advantage of my 25+ years of knowledge!