Buying vs. Renting
Buying a new home, for most of us, can be one of the biggest purchases of our lives. When deciding whether to buy or rent there are pros and cons to each, and it’s important to weight both to what works best for you. Advantages to becoming a homeowner, over a renter consist of:
Benefits to Buying over Renting
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Buying |
Renting |
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Sense of Pride that comes with owning your own home |
No true possession over your home |
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As the value of your home appreciates, you in turn build equity |
Rent goes to the landlord’s equity |
|
You are in control of your loan payment options |
Rent, typically, increases over time |
|
Tax Write-Off |
No Tax Write-Off |
Although there are is much remuneration in owning your own home, just like anything else, there are still risks to contemplate:
Drawbacks of Buying against Renting
|
Buying |
Renting |
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You are responsible for all of your own insurance, utilities and property taxes. |
Some rentals include insurance, utilities and property taxes. |
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Waiting until the right market conditions are right before leasing or selling the property |
Freedom to relocated whenever you choose |
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Full responsibility of all maintenance to the property |
General repairs and maintenance is handled by the landlord or management |
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Upgrading your home can be costly |
No financial responsibility for enhancements |
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Even with everything considered, owning your own home is one of the greatest investments one can make when given the long-term profits.
Choosing the Right Time to Buy
Those who have mostly rented their whole lives, look into obtaining a home for numerous reasons. Watching your investment appreciate over time and possessing something of great value is one reason. Compared to, buying a home to save money over a long period of time is another. |
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For Example:
Say you're presently renting a two-bedroom, two-bath apartment. You pay $1,000 once a month in rent. Then you see a two-bedroom, two-bath home listed at $250,000. Over time you have saved $25,000 – which would be enough for a 10% down payment. For the purpose of this example, you're looking to finance $225,000, which takes in the account of closing costs.
If you used one of the numerous mortgage calculators online, your monthly payment would be approx. $1,385 for a 30-year fixed loan at an APR of 6.20 percent. After appreciation and taxes in equity, your monthly payment over five years would average $499 per month.
Costs Savings of Buying versus Renting
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Calculations: |
Renting |
Buying |
|
Monthly Payment |
$1,000 |
$1,385 |
|
Price of Home |
|
$250,000 |
|
Down Payment Amount |
|
$25,00 |
|
Loan Length (years) |
|
30 |
|
Interest Rate |
|
6.2% |
|
How long you plan to stay in the home (years) |
|
5 |
|
Property Tax (yearly) |
|
1% |
|
Appreciation on Home (yearly) |
|
4% |
|
Results: |
|
|
|
Home Price After Appreciation |
|
$304,163 |
|
Balance Remaining After 5 Years |
|
$209,887 |
|
Home Equity |
|
$94,276 |
|
Tax Savings (28% Bracket) |
|
$23,030 |
|
Monthly Payment Over Time (average) |
$1,047 |
$499 |
|
Payments Over 5 Years |
$62,820 |
$29,973 |
|
Total Savings if Purchasing: |
|
$32,847 |
This outcome could intensely change if an unexpected economic decline or financial hardship occurs. Nobody can predict if mortgage interest rates will increase, or if a home’s appreciation values will spiral downhill; it is clear although that under the right conditions home ownership can be a very money-wise decision.
(The calculations above are estimates only. Always seek professional guidance of tax or financial experts before choosing to buy.).
