04 Jul Renting to get into a better school district

Q. I want to get my son into a better school district but I can’t afford to buy a home there. What should I think about before I sell my house and rent an apartment so he can get a better education? I know I’ll save on property taxes but what else is there?
— Trying

A. You’re talking about a very big move.

Here’s some of what you should consider.

Depending where you reside, homes in the U.S. typically increase in value on an annual basis along with inflation, said Chip Wieczorek, a certified financial planner and investment advisor with Tradition Capital Management in Summit.

“If you rent, you will give up that appreciation,” he said. “However, one way to offset giving up appreciation is to invest the proceeds from the sale of your home into an investment portfolio.”

Wieczorek said if you can save money by renting, the monthly savings should go into that investment account for future retirement needs or other expenses down the road.

Owning a home does have some other benefits besides building equity, and much of this has to do with your tax bracket, your mortgage interest deduction and your property taxes.

The higher your income, the more favorable owning a home becomes due to the deductibility of these items, Weiczorek said. However, he said, if you make too much money, you may have to pay Alternative Minimum Tax (AMT), which will lower the attractiveness of the deductions.

“Without those itemized deductions, you will most likely use a standard deduction,” he said. “For 2016, the standard deduction was $6,300 for singles, $9,300 for head of household and $12,600 for married couples filing jointly, so you will have to weigh how much tax benefit you will gain or lose by a move to a new school district.”

And don’t forget you could owe capital gains taxes when you sell your home.

Weiczorek said one of the most overlooked items when calculating the cost of a home is maintenance.

Although a home does appreciate in value, it usually costs approximately one percent of the value of the home in maintenance costs each year, he said. For example, if you own a home worth $300,000, you should budget $3,000 for maintenance and repairs.

The last item to contemplate is how long you plan on living in the new district.

“Remember, if it is only a few years, renting may your best choice either way,” he said. “If you have to pay a 5 percent sales commission to sell your home, that will take big bite out of any appreciation over those years.”

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This post was first published in July 2017.