Owning vs Renting a Home in Austin

Owning a homeOne would think that a home builder would make the case why owing is the correct choice between owning verses renting a home. But the truth is that buying a home is a big commitment that should be weighed out given each person’s specific situation.

Renting may be the only option if someone has had bad credit issues in the recent past or had a foreclosure in the last seven years. Another big deciding factor is how long one will be living in Austin. Is their job secure and are they enjoying what they do for a living? If the answer is no to the job security question or if their current job is less than ideal then having to sell a home may be too cumbersome and make someone feel stuck in their situation.

If the person is happy, secure and plans to stay in the Austin area then the Austin market’s historical 3-6% price increases will help offset the roughly 8% in commissions and transaction (closing) costs that it takes to sell a home.

Given the high cost of renting in Austin, a renter will generally have to pay $1.00 per square foot per month in rent. Let’s take a 3 bedroom, 2 bath home that is 1600 square foot and sells for $200,000. If the buyer put the minimum 4% down ($7,000.) then their payment would be approximately $1354 per month at 4.07% APR including property taxes and insurance. The rent on the same home at $1.00 per square foot a month would be $1,600 per month. So owning would save you $246 per month and the savings wouldn’t stop there.

The IRS allows the interest and property taxes to be written off against current income. In our example, that is approximately $7,600 in annual deductions your first year of ownership. If you are in the 25% tax bracket that would yield about $1,900 annually in income tax savings, or about $158 per month. That would bring your effective monthly expense down to $1,196 or over $400 per month cheaper than renting the equivalent 1600 square foot home for $1,600 per month.

So, to sum it up it makes financial sense to buy verses rent today if you plan to stay in the area for 3 years or more. And to be making payments on your own home instead of your landlord’s. Start your search for homes for sale in Austin today.

 

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