With rental rates expected to rise 12% on average statewide in Utah and an occupancy rate of 96.2%, demand is high and supply is low. In Salt Lake City rents were raised an average of 10.4% from 2006-2007 and continue to increase at a rate of 1% a month. The Provo - Orem area saw the largest increase in our state at an average increase of 13.4% last year. With the collapse of the sub-prime mortgage market this trend of high rent - high occupancy is expected to continue for a substantial period of time. Renters who refuse to pay the high rents are simply being replaced by renters who will. Landlords mortgages are being paid off faster and the tax advantages are phenomenal.
Advantages to being a landlord
When done properly and diligently being a landlord can have some serious advantages. Listed below are just a few of the advantages to being a landlord that can become multiplied 10 fold in a market like this.
- The ability to set up a constant income stream
- Have your mortgage paid while your home appreciates
- Freedom of time and work
- Tax advantage
- A strong leveraging position
You will receive your income month after month like clock work as long as someone is renting your properties. Furthermore, many investors start out with only one or two properties, and then quickly improve their portfolio. Eventually, they have several properties that are all working for them simultaneously. In short, they will have an income stream set up based on each property.
Freedom of time and work:
Being a landlord is not like working in an office, you do not have a lot of work except some administrative work each month when it comes to collecting money. Even though you will be responsible for up keep on the rental units, but you can always hire others to complete the maintenance work for you. This will never add up to a full-time job.
Tax advantage:
Tax advantages include the ability to write off mortgage interest and taxes. Maintenance fees such as home repairs and even yard expenses. Probably the most favorable tax advantage of all is the ability to depreciate the property while the value goes up. See a tax adviser for more information on local tax laws.
Oh it's good to be a landlord these days but what about renters? Are there advantages to being a renter right now?
Yes! Renters have the most to gain in current conditions. With home prices softening and interest rates low many buyers will shuffle to get back into the market. Unlike current home owners that have a home to sell before they can buy, renters have a much shorter time frame in which they can be in a home and can buy a home without the purchase being subject to the sell of their residence. This is great for renters and puts them in a stronger negotiating position.
Should I rent or should I buy? The cost Question.
This is becoming less and less of a question. Rental prices are raising and mortgage rates are dropping closing the gap between monthly rent and monthly mortgage. Also there is the often overlooked tax advantage factor. Did you know that you can deduct your mortgage interest and even your private mortgage insurance from you income taxes?
There is a big difference between cost and price. Below is a case study I have put together to determine the cost of owning a home vs the cost of renting.
Case study: Tom has a $200,000 home mortgage with a 6% interest rate and a term of 30 years. Tom's payment with principal and interest is $1,199 per month. Because interest is paid heavily up front on a fully amortized loan, Tom will pay approximately $11,926 the first year in mortgage interest. If Tom earns $50,000 per year he can now deduct $11,926 from his income on his taxes. Instead of paying taxes on $50,000 tom will now pay taxes on $38,074. Using a taxable income calculator based on the federal tax bracket for 2007 filing single here are the numbers: At $50,000 taxable income, Tom's federal income tax liability is $8,924. At $38,074 taxable income, Tom's federal tax liability is only $3,942. That is a difference of $4,982. It saved Tom $4,982 on his taxes to own a home. To figure the cost you simply divide that number by 12 and subtract it from your monthly payment. In this case Tom's cost by realizing the tax savings would be $718 / month. Carefully consider the difference of the kind of apartment you can get for $718 a month Vs a $200,000 home. Tom now owns a home that is appreciating each month. Tom also has no neighbors above or below him. Also keep in mind that your income tax is not necessarily the same as Tom's and I would recommend seeing a tax adviser to get the exact number of your savings.
Help your local landlord:
If you are currently renting rest assured that your landlord loves you. He knows that he will be able to raise rents on an average of 1% a month. He knows his home will be occupied and you just keep on paying his mortgage while he realizes the appreciation of the home and the tax advantages.
Like the title suggests; Everyone pays a mortgage either your own or your landlords. Contact me today to find out how much money you could be saving a month by owning instead of renting. I can compile a customized report for you that will compare mortgage rates, your rent, appreciation, tax savings, anticipated time at residence, and other economic factors to determine if it is indeed the right move for you. It's time to get the facts.
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