The eternal question: should you rent or buy a home?
The idea of owning your own home is part of the American dream, but it may or may not be a wise financial move.
On one hand, mortgages are low, while apartment rents are high. On the other hand, it may be better to wait for the housing market to recover. In the end, there is no obvious answer.
Let’s take a closer look at both sides of the question.
Should You Rent?
There are both advantages and disadvantages to renting a home.
Here are 3 advantages:
- You will enjoy freedom and flexibility once you settle down. If you are currently planning on moving to a new home, you have to consider the stress of moving. According to Allied Moving Companies, “Moving can be a stressful task, full of its fair share of unwelcomed surprises, but what should not come as a surprise to you is the total amount you see on your moving invoice once your move is completed.”
However, once you’ve settled down, you can still enjoy the freedom and flexibility to move again once the lease has expired. You will have even more freedom and flexibility if you opt for a month-to-month lease. The fact that it’s easier to move may be a big plus if you haven’t settled into a career. It gives you the chance to relocate for a better job.
- You don’t have to worry about maintenance. If the faucet won’t turn off, you won’t have to worry about getting a plumber. You won’t have to resolve any maintenance problems. A quick phone to the landlord is all you have to do to get someone else to take care of the problem.
- You need not worry about the economy and fluctuations in the housing market. You don’t have to fret about your home depreciating in value if the housing market falls.
And here are 3 disadvantages:
- You have no control over rent increase. The landlord can raise the rent when he or she desires.
- You won’t get any economic benefits from the house. You won’t build equity over time nor will you receive any tax benefits.
- You have little say when it comes to remodeling. The landlord has to approve any ideas you might have about how to improve the house. If you don’t like the color of the walls, you’re stuck unless you can persuade the landlord to see things your way.
Should You Buy?
Home ownership has distinct advantages.
Here are 3 popular reasons why people often decide to buy a home:
- You can enjoy some distinct economic advantages of homeownership. First, since the value of homes tend to rise in value by about 5% on average every year, you can build equity. This will happen even if the value of your home does not increase because of the economy. As long as it maintains value, you’ll be building equity as you pay your mortgage. Second, you are eligible for any tax breaks. When filing Federal income tax, you can deduct mortgage interest and property taxes. However, your property taxes and homeowner’s insurance can change.
- You can make money from your house if you choose. There are two ways to make your house an investment. The first is to live elsewhere and rent the house. If you buy a cheaper home, pay for the new mortgage out of your rental payments, you can profit from the difference in mortgage amounts. You can also rent a room or a part of the house to offset some of the cost of the mortgage you have to pay.
- You can remodel the house within certain constraints by a homeowner’s association or the county regulations. In most cases, these limits apply to the exterior, but you are free to change your interior décor.
Still, there are also some disadvantages:
- You are completely responsible for maintenance. It’s up to you to hire the right people and pay all the expenses.
- You can’t easily move to a new location. If you have to move quickly, you may have to sell at a lower price. If you decide to rent it out, you have to either hire a property manager or take care of the property and rent yourself.
- You have many risks and expenses associated with home ownership. First, if the economy gets worse, your home could drop in value. Second, you have to pay property taxes, which can always go up. Third, you have to make a large cash down payment, and handle closing costs and other expenses. Fourth, you must get homeowner’s insurance. This means that besides your mortgage, you have to pay insurance premiums.
While personal preference does have a role to play in whether you rent or buy, a lot has to do with your current financial situation.