For years I was firmly planted on the side of thinking that buying was always better than renting. However after nearly four years as a homeowner, I’ve begun to question this line of thinking, especially now that I have the freedom to live anywhere I choose because I’m self employed and my business is entirely based online.
However, there are financial benefits to both renting and buying that must be taken into consideration before you, or I, decide if renting or buying is best. Here are some financial benefits of both renting and buying a home.
Length of Time
The length of time you plan to live in a home or apartment should play into this decision. If you are only planning to live in the same home for a few years, it would probably be better for you to rent rather than buy a home. The financial cost of moving as well as closing costs, realtor fees, etc. need to be spread out over several years to make it worth purchasing a home.
Compare the Payments
When you compare the monthly rent payment you currently make to the mortgage payment you would be making on a home, don’t forgot there’s also insurance, maintenance, and taxes to be paid as a homeowner. Granted, owning a home is an investment and hopefully the value of your home would increase over the years, but that is provided it is well cared for.
Even though I just told you to compare the monthly payments of renting vs buying, there’s more to it than just that, especially when you own a home. Not only do you have to pay for the new roof or new air conditioning if you own the home, you will have many other maintenance responsibilities as well. If you have a yard you will need a mower, rakes, shovels, and hoses. If you are at all handy you may need to have a place for tools as well. These are all part of the expenses you incur as a homeowner that you would not have as a renter. When you rent, all you need to do is just pick up the phone and call your landlord if there is a problem with your property. This can also save you time too.
Control Over Future Payments
One disadvantage of renting is not having control when it comes to your rent payment getting raised. If you are notified of an increasing rent, you are expected to absorb it into your budget or find a new place and move out. Granted, your house payments are not always static either, considering your homeowner’s insurance and taxes can potentially go up from one year to the next and you really should consider them as part of your house payment, but for the most part your house payment will be fixed for the life of your mortgage, and after that you’ll be able to live payment free if you don’t move and take on a new mortgage for a more expensive house.
There are some tax benefits from owning your own home that you can’t take advantage of as a renter. When you file your federal taxes, you can deduct any interest paid on your mortgage and also the property taxes you paid for the year. If you are renting, you obviously don’t have these deductions. That said, this should NOT be the sole reason you decide to buy a house instead of renting. The tax deduction is not enough to make up for the other large expenses that can come along with owning a home.
Another thing to consider is that when you purchase a home, you must come up with a cash down payment. This can be anywhere from 0% to 20% of the cost of the home. For some people, this can be difficult to save up for because we are talking about several thousand dollars, and of course, this amount varies depending on the purchase price of the home you are considering buying. While you are saving up for this large downpayment you are subject to some opportunity cost, as in what else could you be doing with that money in the meantime if you didn’t have to save up for a down payment? Buying a home does require a large capital outlay and ties up a lot of cash.
You should also consider the fact that if you do need to sell your home in the future and are unable to do so timely, you could be stuck with it for a while. It depends on what the housing market in your area is like at the time you try to sell it. Real estate typically increases in value over time, but this is not a guarantee, so you must consider this carefully before buying a home.
These are all things I’m thinking about now that I have the flexibility to live anywhere I want. Renting would give me more flexibility so I could experience new locations, but staying in the home I own is also a good choice for stability, not to mention the fact that I’ve almost got it exactly how I want it after almost 4 years of maintenance and upgrades. 🙂
The decision between renting vs buying is a difficult one.
Can you think of other financial benefits of renting vs buying?