1. Renting or Owning a Home
6.2

2. Cost of Home Ownership Terms/Information to know:
Expenses to a homeowner
Two less obvious expenses:
Depreciation
Loss of income on the $ invested.
Equity

3. Cost of Home Ownership (Example)
Hansen’s want to buy a home… (see Example in your packet) First Add all the expenses:
$5,244 Mortgage interest
$2,350 Property taxes
$360 Insurance
$1,240 Depreciation
$1,710 Utilities
$1,535 Maintenance, repairs
$1,270 Lost interest
$13,709 Total Expenses

4. Cost of Home Ownership (Example - Continued)
Second Subtract the tax savings from the total expenses:
$13,709 Total expenses
- $1,428 Tax Reductions
$12,281 Net cost for the first year

5. Check For Understanding (Solution A)
Find their net cost of home ownership for the first year. (See packet for Scenario)
Add all the expenses
$6,848 + $3,782 + $560 + $1,790 + $1,300 +
$2,050 + $1,320 = $17,892 (total expenses)
Subtract the tax savings from the total expenses
$17,892 - $1,320 = $16,572

6. Check For Understanding (Solution B)
What will be the net cost of the home the first year?
Add all the expenses:
$5,788 + $1,904 + $347 + $1,140 + (.02 x $87,000) +
$900 + $1,860 = $13,679
Subtract the tax savings
$13,679 - $1,050 = $12,629

7. Costs of Property Rental
Advantages
No down payment
Earn interest on down payment
More predictable major housing costs
Disadvantages
No federal income tax benefit
Security Deposit – without guarantee on return.
Sign a lease or rental agreement

8. Costs of Property Rental (Example)
May plans to rent an apartment for $710/ month includes heat and water.
Security deposit is 1 months rent.
Other annual costs equal =
Insurance $110
Utilities $600
Covered parking space $ 240
What is the total first year cost of renting this apartment?
How much is it per month?

9. Costs of Property Rental (Solution)
What is the total first year cost of renting this apartment?
# of months per year x monthly rent = yearly rent
12 x $710 = $8,520
Add all annual costs + yearly rent = Total 1st year costs.
$8,520 + $710 + $110 + $600 + $240 = $10,180

10. Costs of Property Rental (Solution)
How much is it per month?
Total 1st year costs / 12 = monthly costs
$10,180/12 = $848.33

11. Check For Understanding (Solution C)
What was the cost of renting the apartment for the one year?
# of months per year x monthly rent = yearly rent
12 x $625 = $7,500
Add all annual costs + yearly rent = Total 1st year costs.
$7,500 + $625 + $85 + $1,210 + $10 = $9,430

12. Check For Understanding (Solution D)
What will be her first-year costs of renting this home?
# of months per year x monthly rent = yearly rent
12 x $1,250 = $15,000
Add all annual costs + yearly rent = Total 1st year costs.
$15,000 + $1,250 + (12 x $100) + $136 + $1,700= $19,286

13. Comparing Renting and Owning Homes
Costs are not always the same
You can still compare
Why do you think we want to compare?
versus

14. Comparing Renting and Owning Homes (Example)
$17,000 Down Payment
$85,000 house
Interest/year on mortgage = $5,184
Property Taxes $1,720
Other costs $3,270
Lose $680 interest
$850/ month
$1,200 security deposit
Annual expenses
Insurance $130
Utilities $1,400

15. Comparing Renting and Owning Homes (Question & Solution)
Is it less expensive to rent or buy the home? What is the difference?
Find net cost of home ownership
(add expenses)- tax savings = net cost
($5,184 + $1,720 + $3,270 + $680) - $895 = $9,959

16. Comparing Renting and Owning Homes (Question & Solution 2)
Is it less expensive to rent or buy the home? What is the difference?
1. Find the net cost of renting (annual rent)
12 x cost/month = annual rent
12 x $850 = $10,200
Annual costs + annual rent = cost of renting
$10,200 + $1,200 + $130 +$1,400 = $12,930

17. Comparing Renting and Owning Homes (Question & Solution 2)
Is it less expensive to rent or buy the home? What is the difference?
Cost of owning = $9,959
Cost of renting = $12,930
It is less expensive to OWN
Difference is
$12,930 - $9,959 = $2,971