Buying vs Renting – Your Permanent Home

In the last 35 years or so I have lived in many homes. I really couldn’t tell you all of my past addresses. I traveled from the east coast to west coast and now live in Hawaii. I love traveling, meeting new people, and experiencing new places.

buy vs rentPeople who are struggling with the question, “Should I rent or buy?” are smart to get the best information and analyze the situation before jumping in with both feet. Especially those with a family and small kids.  Moving is not an easy thing to do and if your kids are in sports, the situation may be compounded by laws that prevent you from changing schools. On the other hand, owning your own home is a good way to plant roots in a neighborhood and provide stability for the family.

The Decision Process

What’s the neighborhood like? Are the homes well-kept and neighbors friendly? I have lived in places with great neighbors with holiday parties and common interests and other places that were a nightmare. There were neighbors that partied all night, and were still partying the next morning and through the next day. Not to mention, the non-stop dog barking. We didn’t like living there, so we moved. Renting gave us that flexibility.

Buying is not always the right decision. Some questions you should ask yourself when deciding whether it makes sense to buy: How secure is your job?  Are you living within your means and putting money into savings or investment accounts? How is the local real estate market?  Can you take advantage of interest rates and potential tax deductions?

Advantages of Buying

When you pay off your home, it’s yours. You eliminate a major portion of the cost of your housing once the mortgage is paid off. Depending on where you live, home ownership may be the best investment you can make. If the home appreciates more than you’ve paid in mortgage, interest, taxes, and maintenance over time, you’ve earned a return, or you break even. Tax credits help offset some of the cost of homeownership. Typically, the longer you stay in a home, the more financial sense it makes to buy from a tax and investment perspective.

Homeowners take pride in their homes and generally care more about their neighborhood. Houses are well-maintained, landscaping is groomed and people are generally more courteous. Homeowners are more likely to be involved in community events like neighborhood watch and city council meetings. Rental units are treated more like assets that often get neglected.

Advantages of Renting

Renting isn’t throwing money away—you get a place to live and you didn’t have to dump your life savings into it. You don’t have to pay for repairs, maintenance, or other issues that come up. If home prices are falling, being a renter is the best place to be. Renting offers more flexibility than owning. If you are faced with job relocation or other circumstances which require you to move, renting is ideal. Renting requires no long-term commitment on your behalf, and is best if you don’t intend on staying in one place for a long time. As a tenant, you will probably be able to live in area in which you could not otherwise afford to buy.

Financial Considerations

Buying a home comes with more upfront costs, including a down payment, closing costs, and other fees. Also, there may be renovation costs if the house is less than perfect. For renters, the upfront cost is typically a month or two of rent for a security deposit and the landlord is responsible for maintenance and repairs. Homeowners also have more reoccurring costs like property taxes, home insurance and maintenance costs.  As a tenant, your only insurance cost is to cover your personal belongings.

The Economy

Interest rates will also play a big role in the overall cost of a home. As rates increase, buyers will get less house for their money.  Rates affect the real estate market from both sides. Buying power is lower and sellers may wait for the market to improve.

Saving and Investing

Renting means you could save all that money for a down payment and closing costs and invest your money in something other than real estate. Your 401k, the stock market, foreign currencies, or in your own business.  Financial advisors usually recommend diversifying your portfolio.

But buying a home is also investment and can be a key component of building wealth. Every mortgage payment means you own more of your home, which you will get back when you sell it.

Tax benefits

Homeowners can also take advantage of tax deductions for things like mortgage interest and property taxes, which can lessen the cost of owning a home. But tax laws have changed recently and some of the deductions we have enjoyed in the past have gone away. Buyers are now only able to deduct interest on the first $750,000 of mortgage debt on a home. Plus, homeowners can now only deduct up to $10,000 in state and local taxes, including property taxes — a deduction which used to be unlimited.

Hope This Helps

This article may provide you with some things to consider and is certainly not a comprehensive tool to evaluate your life-changing decision. I wish you the best with your research and feel free to comment with any questions or suggestions.

Thanks.

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