Own-to-Rent

December 20, 2014

Own-to-Rent

 

Owning a home — it’s the quintessential American dream, but this nation’s lingering housing crises (largely a construct of government ) has resulted in so many home foreclosures and underwater mortgages that it has transformed that dream into an absolute nightmare for millions of Americans.  Most of us have heard of the term “rent-to-own” which is considered a constructive way to transform a home-renter into a homeowner, but when the government gets too involved in something the results are usually the opposite of what you’d like to see happen, hence we are now seeing a new trend in this nation that looks more like — own-to-rent.  And trust me it’s not a positive development.      

Before taking that giant leap into home ownership it makes sense to weigh-in on the pros and cons of renting vs. owning.  This Ginne Mae chart lists some of the pros and cons and contains some good reasons for each position.  Notice that one of the cons of renting as outlined in the (government generated) chart is “no tax benefits”.  This deduction can literally save a homeowner thousands of dollars per year as shown in this chart.  The resulting lower (in effect) monthly payment could mean the difference between homeownership and remaining stuck on the perpetual-rental-treadmill.

Government owned Ginne Mae hammers-home this point nicely:

In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant.  

Anyone still on the fence about the idea of renting vs. owning (if their lucky enough to find credit that is) may find that the decision will be much easier to make if the Obama administration has its way and is successful in severely altering or eliminating the mortgage interest deduction from the tax code.  The Administration has recently backed off of previous proposals and now only proposes to alter it for the so-called “rich”, but judging from the past proposals that came out of Obama’s bipartisan debt commission, I think it’s fair to say that the ultimate goal would be to eventually close-the-door on the deduction all together.  The NAHB is certainly trying to raise awareness on this issue and provides some good resources to sift-through.

 It’s hard to find any wisdom at all in such a proposal, let alone it being made with the economy in such a shambles.  And with the housing market stuck in the proverbial gutter as well, the added expense to potential homeowners would be nothing less than a disaster that would send real estate prices sliding down into the dark depths of the storm drain.   And what will all of those current home owners that are already facing the worst housing crisis since the Great Depression do when their payments suddenly go up, in effect, by several hundred dollars a month in many cases?  This would be like adding fuel to a house-fire at a time when common sense says all that is really needed is just a good dousing of water.

 I’m all for the simplification of the US tax code and would have no problem with some sort of a flat tax system that everyone takes part in and that consumes a much smaller percentage of our earnings.  Taking away the Mortgage interest deduction as-is though would be a large tax increase added right on top of what we are already paying in taxes which, as I’ve discussed before, is already way too much of a burden on the taxpayer.  What we have in this nation is a spending problem, not a revenue problem.  The government needs to first get its own house in order by controlling spending — period.

 While weighing the pros and cons of owning vs. renting, I think it’s also fair to ask those that already own a home — do you really own your home?  Most would instinctively answer yes, but if you think about it, “owning” your home comes with the obligation of paying property taxes.  And the government treats this obligation very seriously.

 If you’ve busted-your-behind over the last 30 years and have finally paid off your mortgage in full you may think that you’re now home-free, but just try ignoring that property tax bill that’s sitting on your desk and see what happens to your “ownership” rights (don’t get sick grandma).  You may want to hold off on that mortgage-burning- party indefinitely.  And if you do happen to have a mortgage and lapse on paying your taxes it’s in your lenders best interest to pay those taxes in order to prevent a loss of their investment.  That’s right; the government has the luxury of being able to void all other contracts and to move to the front of the line in terms of lien priority (our founding fathers would love that one).   

 So in reality the foundation of own-to-rent started many, many years ago but in recent years the government has been working overtime in order to accelerate its construction.  If despite all of this you are still interested in home “ownership” don’t worry — the government will be right there with you every step of the way.

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