Whether you buy or rent your next home is a decision that depends on how your life fits the advantages of both
- Location and flexibility
- Investment and tax considerations
- Peace of mind
By Hal DeKeyser
Owning your own home has long been – and still is — the American dream. It offers stability, asset appreciation and a feeling of familial comfort. It’s your nest to do with as you like. But it’s not for everyone, and it’s not for many people at certain points in their lives. There are different reasons at different times of life to buy or rent. Sometimes there are very good reasons for renting … or living in the parents’ guest room.
To buy or rent question: How long will you be there?
It costs a lot of money to buy, and later to sell, a house. You have fix-up costs, closing costs, financing costs, real estate commissions – not to mention the general inconvenience of having people wander through your home (which must be kept immaculate while selling). It takes a while for the cost of housing to rise enough to cover that investment.
Most people move every 5-8 years, and in most traditionally appreciating markets a few percentage points a year generally will cover those costs — and sometimes a healthy gain. If there’s a good chance you won’t stay in your new home very long, perhaps renting is a better choice. If your job is tenuous, you don’t much care for your city or some other reason that’s likely to drive you elsewhere, consider your options.
When you first move to a town, it might be worthwhile to get a feel for the city before deciding where you most want to set down roots. When making big lifestyle and investment choices, it helps to know the paths you generally travel, where family and friends will be living and where good schools and your kind of entertainment might be.
Advantages of renting:
- In addition to flexibility, with a rental you don’t have major maintenance headaches or expense, allowing you to focus on work or other pursuits and also save money for a down payment.
- It allows you to test drive parts of town where you might want to own a house. You can see if you’re comfortable with the commutes, the shopping and restaurants in the area, the access to recreation and friends.
- If you’re a newcomer, you may well discover that the people with whom you spend time live on the other side of town.
- Renting also makes it easier to lock and leave.
- Insurance is cheaper.
- If the housing market goes down (which is uncommon but does happen), you haven’t lost equity.
Advantages of owning:
- It’s your place, and you can do what you want with it – turn it into your own castle. You can make it the dream home for you and your family.
- The bank may own more of the house than you, but you get 100 percent of the appreciation. When you sell, you will capture that (minus the cost of sale).
- Mortgage interest and taxes are deductible from your federal income taxes. (Nevada has no state income tax, so it doesn’t help you there, but hooray for that anyway). In the early years of a mortgage, it’s predominately interest you’re paying, so it’s a significant tax break, depending on your income and other factors. That also may mean you can itemize deductions, which might allow you to get other deductions that weren’t worth itemizing previously. And because it’s a deduction you didn’t have before at presumably the same income, it reduces your taxes at the high end of your rate. (Check with your tax preparer; tax and legal issues are not my expertise.)
- Stability. The landlord isn’t going to sell or raise rent on you. If it’s a fixed rate loan, you know what you’re going to be paying for the rest of the time you’re in the house (not counting taxes, which tend to rise more than fall).
- If you have kids, they can go to the same schools and keep their friends and stable home life.
- For some people, home ownership is the rock that makes them feel secure, knowing that they won’t have to move. The peace of mind is worth it.
This post is taken from Hal DeKeyser’s book: “Buying New – Discover hidden savings, dodge pitfalls and have find finding your newly built home.” Click here to get the entire book. It’s free to blog readers.