FAQs- What are the Benefits of Buying vs. Renting?
by Rick Cox
on Wednesday, May 13th, 2020 at 10:35pm.
For many renters, the transition of owning a home can be a major decision that will impact personal finances and can sometimes add stress. Although, renting seems hassle free, the benefits of owning a home can also be a great investment. Owning a home is a long term financial commitment that can pay off with the right knowledge and care. If you look at owning a home as an investment and tax deduction your future returns and retirement can benefit from that mindset. Ultimately, whether you rent or purchase a home, here are some data and comparisons of both to help you make your decision.
According to this case study from This Realty Matters, “Over the course of a year, a $1600/month renter would have spent $19,200 on rent. On the other hand, a homeowner with the equivalent $230,000 (down payment aside) would have spent about the same ($20,891) on his mortgage. (with a 5% down loan. With a higher down payment conventional loan the payment would be significantly lower) Of that $20,891 that our homeowner spent, about $5741 (2.1% is a fair estimate) went to taxes, $900 went to homeowners insurance, $2910 on mortgage insurance (also much lower with conventional), $7098 went towards interest and $4412 went towards principle. So already in the first year you are $4k better off, because the principle you pay off becomes your equity in the home. That amount may not motivate you start driving the streets searching out “For Sale” signs, but it only gets better from there.” The best way to find out your options for a loan and the price range of housing you can afford is to connect with a lender.
Which fits your lifestyle is the question you should be asking yourself when making the decision to buy or rent a home. Most of the time, the decision to buy or rent can rely on personal finances. If you are in a situation where you need to build your credit and save for a down payment usually renting can be the best short term route until you feel comfortable to invest in a home. Although, if you have saved and have no outstanding financial obligations, then owning a home can prove to be a great long term investment that might even turn you into a landlord once day.
There are many advantages and disadvantages to renting or purchasing a home, below we have laid out the most popular attributes -
Pros of Purchasing a Home
Build equity through paying a mortgage
Mortgage interest is tax-deductible
Build your own wealth through this long-term investment
Monthly payment is locked in
Stability and the ability to customize your home to your liking
Cons of Purchasing a Home
Responsibility of repairs
Down payment and closing costs needed to be paid at time of home sale
Home may depreciate if you do not keep up with updates and fixtures
Pros of Renting a Home
Great option for short residency
Landlord liable for repairs and maintenance
Cons of Renting a Home
Monthly rent is likely to increase over time
Fees and security deposit that is not guaranteed back
If you live in a rental long term, you have essentially paid the mortgage for the landlord
If you are interested in renting or purchasing a home and seek a consultation, reach out to the Rick Cox Realty Group for an assessment and advice to refer you to a renters agent or a short/long-term plan to get you set up to be a future homeowner.