Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Path: utzoo!watmath!clyde!caip!elbereth!rutgers!lll-crg!lll-lcc!qantel!intelca!oliveb!glacier!kestrel!king From: king@kestrel.ARPA (Dick King) Newsgroups: net.taxes Subject: Is renting cheaper than buying? Message-ID: <13387@kestrel.ARPA> Date: Sun, 12-Oct-86 11:21:56 EDT Article-I.D.: kestrel.13387 Posted: Sun Oct 12 11:21:56 1986 Date-Received: Tue, 14-Oct-86 04:45:04 EDT Organization: Kestrel Institute, Palo Alto, CA Lines: 95 From: fulford@altos.dec.com (Mike Fulford, MS: UCC, DTN: 544-1313) Newsgroups: net.taxes Date: 10 Oct 86 19:57:24 GMT Sender: daemon@decwrl.DEC.COM The following analysis was obtained the Consumer Reports magazine, May 81. Proper investing- a 7% yield after taxes is considered to be par. The apartment is a large two bedroom, 2 bath, 2 carport, in midtown USA The house is a 3 bedroom, 2 bath, two car garage, with average 1/10 acre of yard space. Bought in 1970 for $50,000, and sold in 1980 for $100,000 in midtown USA, and has 1000 cu/ft more space than the apartment Why are you comparing a 2BR, 2 carPORT apartment with a 3BR, 2 car GARAGE house? Go all the way, compare a studio apartment with a mansion, and REALLY make the renter come out ahead! ------------------------------------------------------------------------- National average of time spent on homeownering- Time dealing with appraisers- 1 hour/year Time shopping and buying for- House itself- 50 hours Lawyer- 5 hours Financing- 15 hours Tax preparation & and general home owner financial managment- 1 hour/mo Permits, inspections, ect- 5/year Maintenance- Yardwork- 4 hours/week Interior work- 2 hours/week Shopping for home related items- 1 hour/week Dealing with contractors, ect- 5 hours/year Total time/year= 457 hours= $4,570 of worth of work. ===================================+===================================== First year homeowners costs | First year renters costs -----------------------------------+------------------------------------- Down payment= 10,200 | Rent= 3,600 Payments= 5,100 | Deposit= 300 Closing costs= 4,700 | Utilities= 600 Time in money= 4,570 | Insurance= 100 Utilities= 2,100 | ----- Maintenance= 1,200 | Nominal total= 4,600 Property taxes= 920 | Insurance= 200 | Minus renters Tax preparation= 200 | tax credit= 20 Water= 240 | ----- Legal fees= 75 | Real total= 4,580 Trash= 60 | Inspections= 50 | Sewage= 24 | ------- Nominal total= 29,639 Tax savings= 4,952 (writing off closing costs, interest, property taxes ------ and tax preparation) Real total cost=24,687 Homeowners real cost minus renters real cost= amount avaliable to invest= 20,107 Properly invested= difference of 21,514 How many renters do YOU know who set aside the entire amount they are saving by not buying a house? You make the assumption that if I didn't spend all this time working around the house, I would work for someone else for ten dollars instead, and invest it. Even if you BELIEVE that, the tax savings of home ownership ought to reflect that the Time in Money is after tax money, whereas when the renter earns $4570 in his second job he would have to pay taxes. Also, every renter I know of has to spend time dealing with his landlord and often making repairs that the landlord won't make. When I rented I was still the one that had to wait for tradesmen. I have NEVER paid $240 in any year for water. I have NEVER paid $2100 in any year for utilities. When I lived in New Jersey, during the height of the energy crisis, in an oil heated house, I paid 950/yr in oil, and 400 in other utilities (excluding telephone, which I would have paid in an apartment). I did not have to pay anyone to do my taxes in the year I bought my house. The only time I did was when I was RENTING OUT two houses, and it came to about $120. THESE ARE QUIBBLES COMPARED TO MY MAIN EXCEPTION, which is that you compare a 2BR apartment to a 3BR house. You could either compare a 2BR apartment to a 2BR condo (I know of several complexes nearby where approximately identical units can either be bought or rented) or a 3BR house with a rented 3BR house. If you do this, a lot of the expenses come out the same, or even higher, in a rental property. For example, back in New Jersey where it matters, owner-occupied houses tended to be better insulated than their rental counterparts. -dick