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Why Your Sweet Rental Deal is Costing You a Fortune

I sometimes come across people who have “lucked” into a great deal on a rental.  They tell me “but how can I buy, I’m only paying $1,200 a month for 1 bedroom that’s worth $1,800 a month!”  If this sounds like you or someone you care about, read on.

First, that rental is costing tax dollars.  Our wise forebears have seen fit to bestow a massive tax break on all homeowners in the form of the home interest deduction.  To put this into hard numbers, if you buy a $350,000 condo with 20% down, you would save about $219 a month in taxes.  In addition, you would deduct all your real estate taxes as well, which could amount to another $60 a month.

But by far the biggest loss is rising real estate prices.  Between 2012 and 2013, the average condo price in Brookline jumped over 11%.  In 2014, it jumped over 16%!

So let’s say you got a sweet rental deal and are paying $400 less than market rent.  If that prevented you from buying a condo for the past couple of years, here’s how much cash that decision has set you back.  First, you lost about $279 a month in tax savings, but the increased price of that condo today versus two years ago has cost you a whopping $4,300 every single month!

In other words, if your landlord had paid YOU $1,800 a month to live in your apartment, you still would have been better off buying!

The New York Times came out with a handy “Rent VS. Buy” calculator that might help you decide about your own particular situation.  The calculator asks for the “Home price growth rate”, you might try putting in numbers somewhere between 5% and 16% to see how you would fare under different market conditions over the next year.


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