Owning vs Renting

Owning vs. Renting? Why?

1. The current Real Estate market presents a VERY RARE opportunity:

Prices are extremely low!

Interest rates are extremely low!

2. Own a home, build a strong future:

	Advantages	Considerations
Buy	Property builds equity	Responsible for maintenance
	Sense of community, stability, and security	Responsible for property taxes
	Free to change decor and landscaping	Possibility of foreclosure and loss of equity
	Not dependent on landlord to maintain property	Less mobility than renting

Rent	Little or no responsibility for maintenance	No tax benefits
	Easier to move	No equity is built up
		No control over rent increases
		Possibility of eviction

3. Now let’s consider the financial aspect of owning vs. renting:

NOTE: As of early 2009, and for CONDOMINIUMS ONLY: Fannie Mae and Freddie Mac (which backs the majority of the residential loans in the US), now requires a minimum of 20% down payment for any loan above $417,000. Which means that with a conventional loan and with only 10% down payment, you cannot buy a condominium for more than $463,350. BUT you can still do an FHA loan with as low as 3.5% down payment. (call Michel Bron for mre information about FHA loans (323) 788-5686)

$463,350

- $46,350 (10% down payment)

$417,000

· Let’s say, as an example that you are considering buying a $464,000 2bd/2ba condominium in Los Angeles and you are able to make a down-payment of 10% ($46,400) and therefore take out a loan of $417,000 at 5% interest:

Owning monthly cost (approx.):

$2,300      Mortgage payment: $1,824 (interests) + $476 (principal)
$   483       Property Tax (based on 1.25% of property value per year)
$   181       Mrtg Insurance (required with 20% down payment)
$     50       Property Insurance
$3,014

Renting monthly cost (approx.):
Now in order to compare apples to apples, let’s consider that you are renting a similar appartement as the condominium you would be buying. Therefore, the rent would be approximately $2,100/month which will incur a yearly rent increase of 4% (as of July 2009 for the City of Los Angeles)
Tax advantages:
Let’s also figure in the great tax advantages of owning a property and taking out a loan:

Please verify all the information below with your tax accountant as I am not a tax professional.

If this is your primary residence, all of the interests and property tax will be tax deductible

$1,824 (interests)
$ 483 (prop tax)
$2,307 x 12 = $27,684 can be deducted from your yearly gross taxable income!

If you are in an average 25% tax bracket: $27,684 x 25% = $6,921/year in actual tax savings! Or $576.75/month savings!

Now let’s see the results:

Years	Monthly Rent Payments (with 4% yearly increase)	Mortgage Payment	Approx. Tax Saving	Mortgage Monthly Pymts figuring in tax savings	Monthly Savings
1	$2,100	$3,014	$577	$2,437	-$337
2	$2,184	$3,014	$577	$2,437	-$253
3	$2,271	$3,014	$577	$2,437	-$166
4	$2,362	$3,014	$577	$2,437	-$75
5	$2,456	$3,014	$577	$2,437	+$19
6	$2,555	$3,014	$577	$2,437	+$118
7	$2,657	$3,014	$577	$2,437	+$220

o So as you can see, by your 5^th year of ownership you will actually start paying less money by owning than if you kept renting. But even before that, even during these first few years where it is going to cost you a little more (and less and less each year…), at least you are investing money in your own property, your are building equity in something you own, rather than helping the owner of your rental unit, building equity in there property! Doesn’t that make more sense?

o Also, as part of the 2009 new Stimulus Economical Plan, you could also qualify for up to an $8,000 additional tax credit, if you purchase the property by Dec 1^st 2009, check with your accountant.

o And of course, let’s not forget one of the most important aspect of buying real estate:
If you buy real estate this year, especially in this “down market”, you are buying at the best time possible! In a “normal” market, statistics have showed that the value of real estate goes up on average 5% per year. Of course, there is no guarantee of futur value but buying in this down market definitely offers the best chances that your property will go up in value in the next few years.
If we keep in line with this statistic, your $464,000 condominium could be worth $592,194 in just 5 years! That’s a gain of $128,195 in 5 years! If you kept your original down payment money in the bank ($46,350) and it earned an average 3% (if you're lucky) it would be worth $53,732, that a gain of only $7,282…You do the math...

More information, please call Michel Bron (323) 788-5685