Isn’t it always smarter to buy rather than rent?
Many people feel that renting is like throwing your money away, and that you should buy a house as soon as you can. However, this isn’t necessarily true. Although there can be many benefits to homeownership, many people find renting more advantageous than buying. Which is better for you? To find out, you’ll need to evaluate many nonfinancial and financial factors.
The nonfinancial advantages of renting include:
Financial considerations
Is renting really a better financial option than buying? Certainly you’ll save some costs associated only with buying, such as a down payment (though if you rent you generally must pay two months up front plus a security deposit), closing costs, and property taxes. You may even save on other expenses of owning, like purchasing new furniture/appliances, landscaping, or remodeling. And, you can generally rent an apartment, house, or condo for less than the monthly cost of buying the same space.
The answer seems easy, doesn’t it? But this is deceiving. Rent payments are not deductible on your federal income tax return (although some of it may be deductible on your state return), but mortgage interest and property taxes are if you itemize. As a result, the effective cost of owning a home may be lower than it appears compared to renting. To get an accurate comparison, you need to calculate after-tax costs. Further, there are other financial benefits of buying (e.g., equity) that you must consider. For more information on the financial benefits of homeownership, see below.
Tip: The rent vs. buy calculation is complicated and many factors come into play, such as the price of the home, the amount of your down payment, current interest rates, the current property tax rate, your income tax bracket, how long you intend to live in the home, and the amount of rent you’re currently paying. You may want to seek the help of a financial advisor to determine whether renting or buying makes better sense for you.
What are the benefits of homeownership?
For many, owning a home represents the American dream–a back yard, privacy, a place to call your own. If you’re committed to fulfilling that dream, you’ll never be happy renting regardless of any advantages doing so may hold. Other advantages of homeownership include:
Stability and flexibility
Owning your own home can provide a certain sense of security. You won’t be faced with the prospect of finding yourself without a place to live if your landlord dies suddenly or decides to sell the building, and you won’t have to deal with increases in rent.
Caution: The price of this stability is a certain amount of risk. If you become delinquent in your house payments, your mortgagor may foreclose and pursue a forced sale of your home–and you may lose money on the sale. Renters are not faced with this possibility because they do not own the property in which they live.
Financial benefits
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Posted on 06/10/2010 at 12:00 AM