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Q: Would you comment on my thinking about the own-vs.-rent decision?

I own a home that I purchased in 1976. I paid off the original mortgage early, and paid off a second mortgage for a remodel early as well. Right now I’m just paying the local government “rent” to live in my home, plus insurance and maintenance.

A: How renting or owning works out, long term, depends very much on inflation and how much your house appreciates.

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Own a house in a rapidly appreciating area, and there is a chance that its appreciation and accumulated loan amortization will be as much, or more, than every dime you have ever spent on the house.

The longer you own the house, the better the odds you’ll experience something close to this.

Q: My wife and I are 75. Within the next five years we will sell our home and move. Our children are doing well on their own.

What is the sense of us having a house in our estate?

We are contemplating renting from a son or grandson. All currently have houses with 15-year mortgages. How could they find better renters (I am a do-it-yourselfer)?

And how could we find better landlords? We could draw up a lease that would guarantee the rent would equal mortgage, insurance and taxes. They would have the asset appreciation.

We would have more money to live on, and if we passed, our heirs will have cash instead of a house that they would need to sell. Thoughts?

A: I’m not sure how you figure your heirs will have cash instead of a house to sell. What they will have is your estate, whatever it turns out to be, plus a rental property, which they may choose to continue to own or sell.

If the house were in your estate, they would inherit it at its value upon your death. If they own the house, they would own it at its depreciated (and tax liable) cost.

This doesn’t mean you shouldn’t do this; it just means you need to be clear on who is getting what.

You’ll get to live in a rented house and have the use of your liberated home equity — which may, or may not, be enough to support you. In addition, any rental agreement will need to pass an “arm’s distance” test, meaning that your monthly rent will need to reflect local rent levels. That may be different from the sum of mortgage, tax and insurance payments.

Questions: scott@scottburns.comCopyright 2014, Universal Press Syndicate

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