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Misconception: Renting is wasting money

Chris Welch at InvestorGeeks shows us why renting may not be a bad idea. Normal perception shows paying mortgage for a house is better than renting – at least you could own the capital of the house progressively. However in this article, Chris runs through sometimes renting may not be a bad thing at all:

… Look, I like being appreciated just like the next guy, but this rule of thumb takes into account two assumptions. First, we can’t take into account taxes or price appreciation. With few exceptions, a home purchase should first make financial sense without taking appreciation into account, so that no matter what the price of your home does, you won’t be perched precariously over a financial disaster.

Because personal mortgage interest is deductible on your taxes, your overall tax burden is minimized at the end of the year. Because most of the interest in a mortgage is paid at the beginning of loan, your first year you would receive the greatest benefit. For a typical mortgage on a $125,000 house at today’s interest rates, you’d be spending about $7,400 on interest for the first year (it drops to $7300 in year 2). Of the deductible amount, the standard deduction will chop off a good hunk of that right away, so you’d be saving maybe an extra $1,200 on your taxes, and that’s for only the first year! It’s money, but nothing to write home about, in my opinion. In either case, I don’t believe you should spend more money to have a bigger deduction…

Misconception: Renting is for Suckers – [InvestorGeeks]

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