January 07, 2014

What is the Difference Between a Co-op and a Condo? Pt 4

In part 4 of "What buyers need to know before buying a Co-op or Condo", I will cover the importance of knowing how to compare and evaluate the "actual" monthly housing cost of ownership & the tax savings you lose as a renter.

Owning vs. Renting... 

Monthly Carrying Costs Between Owning and Renting: When considering how much your monthly housing costs will be, be sure to take into account the tax savings you'll receive as a co-op or condo owner.


In a co-op, ask each co-op you look at what percentage of the maintenance fee is tax deductible (this will be the interest portion of the underlying mortgage and the real estate taxes). 

In a condo, your real estate taxes are deductible.

In both types of apartments, as in any primary or secondary home, the interest portion of your personal mortgage is also tax deductible. Add up all these tax deductions, multiply by your tax bracket percentage rate, and you will see how much of your housing costs you will get back from the government in the form of homeowners tax savings. 

For example, if your interest and real estate tax payments will be $18,000 a year and you are in the 30% tax bracket (take into account city, state, and federal taxes), then you write off the complete $18,000, giving you a tax savings of approximately $6,000. 

It pays to figure this out ahead of time to see how owning will compare with renting in terms of annual cost.

If the carrying costs on your rental are $1500 per month and the carrying costs on the co-op you are considering are $2,000 per month ($1,200 in mortgage payments and $800 in maintenance fees), you must consider that as much as $16,000 of the co-op costs should be tax deductible, resulting in a tax savings of nearly $5,000.

So $18,000 in rent versus $24,000 in mortgage and maintenance are about equal once the $5,000 in tax savings has been figured in.


Let me help you save money by owning vs. renting.

Next week we will cover: Knowing Who The Management Company Is