Does it Make More Sense to Rent or Buy?
Known the world over, the American dream usually includes that of white picket fences, a front lawn or the huge backyard for barbecues, and the kids playing with the family pet in that beautiful space.
From the most recent market and census reports, this dream is alive and well however, the reasons for purchasing that new home varies from one person to the next. When do we know if it makes more sense to keep the rented space or to buy that dream home?
The Benefits of Buying:
1. Homeownership is a Form of
Simply put, this just means that you as a homeowner build your equity as the mortgage gets paid. This is opposed to renting where you are the one shouldering for your landlord's mortgage (and then some) and the equity builds under your landlord's name. This equity will allow you for an extra avenue to tap financial resources from in the future such as for paying off high-interest debts or maybe putting the kids through college.
2. Your Housing Expense is Set
The usual dreaded phrase: Rising interest rates. When your home is purchased via what is known as a fixed-rate mortgage, it means that your monthly housing cost is locked and will remain the same for the next 5, 15, or even 30 years. This means that as you pay off your mortgage and build your equity, the value of your home will continue to rise due to inflation but your monthly costs will not.
3. Two words: Tax Savings
In case this is the first you have heard of this, one good thing about being a homeowner is you can avail of certain tax advantages. You may be able to deduct mortgage interest and property taxes. Best to check with your accountant to find out which tax advantages apply to you in your area.
4. Buying IS Cheaper than Renting
The Rental Trap is something that we are working on educating renters about. This is a situation where renters are locked in contract for a specific period of time while the rental costs rise. This results in the struggle to balance between their cost of living (i.e. decent healthcare, groceries, food, education), being able to save for a rainy day, and the rising rental cost.
Should You Rent?
First off, let’s get something straight. Renting is not a waste of money. Sure, giving your money to the landlord may mean you’re not investing in homeownership. But you’re paying to live somewhere! And as long as you’re paying to live, your money is being well spent.
Though renting as a way of life is not something we recommend, there are a few situations in which renting is the better option.
When should you rent?
1. You’re paying off debt.
If you have student loans or credit card debt to stomp out, consider your apartment your stomping ground. Unless your rent is devouring too much of your paycheck—in which case you should probably find a cheaper apartment—renting can offer you the opportunity to get out of debt and save.
2. Your job requires moving around.
If you’re in the military or if you don’t plan to stay long in an area, then you should rent. In most areas, you’ll need to stay in a house for two to three years to make buying worth the investment.
3. You need time to make a plan.
Buying a house is a long-term commitment. As is the case with any relationship, you should think through your decision; acting impulsively is never a smart real estate move. So, if you just got married, graduated from college, or aren’t sure which neighborhood you want to live in, don’t feel guilty about renting until you have a solid plan.
Perspective is still the key to everything. Look at it this way, you can always choose to make investments in gold or dabble in the stock market, but you will still need somewhere to live. Having a home that you own, you know you can wake up every morning knowing that your investment is gaining value while providing you with a safe place to live. So before you sign another lease, maybe it's best that you chat with a real estate professional in your area so you could learn about what options are available for you.