Money "lost" to taxes is the same as money "lost" to interest. If it costs you $10,000 in interest and real estate taxes to save $3,000 in taxes you are still "out" $7,000.
Only the appreciation on a home helps you overall in comparison to renting and the average appreciation on homes over the past 30+ years has been about 1.1% greater than the inflation rate. So, as an investment, a home is no way to build wealth. It is and always should be considered a place to live. Owning is better than renting if you plan to stay in the home long enough to reap the benefit of this appreciation.
People are quick to not buy a mutual fund with a front-end load of 5.75% (because no-load funds are so readily available) but a home carries a much higher front-end load than this and a back-end load, too. That is, the closing costs, prepaid interest, taxes and sales commissions. To buy will cost 10-12% and to sell is another 6-10% (including moving costs).
That cost alone is then about 20% of the home purchase. With inflation at 3.5% and maybe average appreciation of 1.5% (to be kind, but I expect the next 4-5 years will be difficult), you can see that it would take 4-5 years just to cover your costs with appreciation, even net of the tax benefit.
The key to living anywhere (and I do believe that everyone who can, should eventually purchase a home) is to not spend more than 25%-28% of your gross income on P+I+T+I (mortgage payment) or rent.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.