Tax credits - To buy or to rent? (Phoenix: sales, real estate)

[DanAyley]

further to my recent post (how to find a good rental home)... someone I know suggested i consider buying (at this point I should explain I am english) as the annual cost is far cheaper due to the extensive tax credits available... is this true? How do I go about calculating this / making a well judged decision. Do I need to speak to an accountant / tax specialist in AZ? Can anyone recommend someone?

[ji603]

This is definitely not true in today's market here in arizona. I'm originally from the UK too, and real estate commissions are much higher here. Ergo, if you own a house for 4-5 years, and are lucky enough to not experience huge depreciation, your carrying costs and realtor commissions as a seller will eat your savings. Standard deduction for married/joint is 11,900 this year if i remember. So you need a mortgage around 200k+ to start saving $ with the mortgage interest deduction. A smaller mortgage means you're better off renting unless you have a lot of other deductions too.

I suppose, like most everything, that it would depend on your own situation. Home ownership here in Phoenix, for the forseeable future, is long-term....

[AZOFFROAD]

You can own a house for a fraction of the cost of renting one. Right now it's like leasing a car when you can finance for less.

[Captain Bill]

Dan, I suggest you google "buying a home vs renting" and read some of the methods of calculating that you'll find.

Here is one example:

http://www.ginniemae.gov/rent_vs_buy...?subTitle=YPTH

One of the factors of home ownership is the build up of equity from the down payment. One makes a down payment of 3.5 % to 20%, but the build up of equity is from the full value of the home.

During the past few years, we experienced an abnormally rapid appreciation in home prices, and since it was mostly based on speculation, it was a growth rate that was unsustainable. Therefore, we experienced a rapid decline in prices that went below a normal growth trend line from 2001.

That means today the home prices are undervalued, many are selling below the cost to build.

For two years the prices here have been bouncing along the bottom, and all that time the demand has been gradually increasing and the supply has been gradually decreasing. The general public never sees that happening because the press only focuses on prices.

The Cromford Index is a measure of the demand/supply. A normal market is 100 on the index. Two years ago at the low point, the CI was at 30. It has gradually increased and for a couple months has been around 110. Today it is at 111.8.

Since the beginning of this year, sales have greatly increased, and supply is continuing to decline.

Price always lags behind supply/demand, but at some point it has to follow.

[Jkgourmet]

Originally Posted by AZOFFROAD

You can own a house for a fraction of the cost of renting one. Right now it's like leasing a car when you can finance for less.

Not a good way to look at this VERY important issue.

If you are only going to keep the house for a few years, that's going to be mighty Expensive to get out of.

As far as taxes, it's a complicated question. Depends on your income, dividends, long term gains, the number of dependents in your home, your filing status.

Yes, you need to do some research and / or speak to an accountant. I used to be a CPA and with the standard deduction increase in 2010, Filing married with no other dependents, a mortgage balance of about $165k at 4.5%, 2k in real estate taxes, and a decent middle class income - it was a financial breakeven on taxes for us to pay of our mortgage. We no longer itemize on our taxes.

Of course, our house depreciated 30% since we bought it in 2007. In that sense, we would have been financially WAY better off as renters.

[Zippyman]

Originally Posted by ji603

This is definitely not true in today's market here in arizona. I'm originally from the UK too, and real estate commissions are much higher here. Ergo, if you own a house for 4-5 years, and are lucky enough to not experience huge depreciation, your carrying costs and realtor commissions as a seller will eat your savings. Standard deduction for married/joint is 11,900 this year if i remember. So you need a mortgage around 200k+ to start saving $ with the mortgage interest deduction. A smaller mortgage means you're better off renting unless you have a lot of other deductions too.

I suppose, like most everything, that it would depend on your own situation. Home ownership here in Phoenix, for the forseeable future, is long-term....

I'd have to disagree with parts of this - there's a neighborhood a few blocks from my house that had a stack of homes listed under $80k a few months ago. Today? they're all pending or closed deals - it takes $85-90k to move into that neighborhood now. And as a buyer, paying $90k still makes sense - $600~ish per month to buy (including taxes and insurance), versus $950+ to rent (rentals get filled in a few days at that price).

Do your own math.

[AndroidAZ]

If you buy now, and plan to own for a while, it is a no brainer to own versus rent.

In the short term, house values may continue to fall or stagnate. In the long run, they will have to go back up as supplies dwindle.

When you do sell after 10 years or more, your gains on the house may be tax free. Adding that to the equation makes it a no brainer to buy, if you're looking to own for 5 or more years. Now is the right time to buy, not 2007 when it was clearly a seller's market and overly inflated.