Renting vs Buying: What to Choose
Any grown-up person one day may get haunted by the idea of getting a house instead of renting one. Yes, I know, we’ve all been there: thinking of redoing your kitchen and then remembering that you are just renting this place and you do not have permission to do it.
First, you take your pen and start adding numbers and calculating whether it’s really more profitable to buy a house right here and right now. It’s fair to admit that as of today U.S. homeowners may pay almost 33% less than renters if they take a 30-year mortgage, pay taxes and spend money on the house maintenance. However, it’s important to note that it was 41% a year ago, so it means we’re 8% down and looks like that number is still falling.
We believe it’s time to review the benefits of renting vs buying, compare the data we have and see what will be the best option for you and your family in the long run.
Buying a House Pros/Cons
Buying a house is a serious step in your life and you need to consider all the problems you may face and review the advantages you get with your own property. There are plenty of reasons to buy or not to buy a house, but we’ll highlight the key points that should help you understand whether you’re ready to buy your own property.
Building Your Equity
Home equity is the difference in the market value of your home and how much you owe. So let’s say you’ve taken the mortgage and the market value of your house went up. You still pay out a fixed mortgage sum, so there is a difference between those two numbers and that difference can be put to good use, that’s your valuable asset.
There are a few ways to pull out the house equity with a loan and, basically, they all use your house as collateral to secure your loan.
Home equity line of credit (HELOC)
People usually pull the equity loan to pay for the kids’ college or invest in something else.
Getting Tax Benefits
Owning a house is, first of all, a huge investment. Even if you’re not pulling your equity loan, there is always a chance to sell your house later for a better price. But as of today, you are here and you love the idea of buying a house, right? Then you’ll be happy to know that as a homeowner you’ll also be entitled to tax benefits.
First and foremost, the imputed rental income that you receive as a homeowner is not taxed. On top of that, you can deduct your mortgage interest and property tax payments from your federal taxable income.
And yes, that thing about selling the house… you can deduct your capital gains from the taxable income if you’ve maintained that property as your residence in two out of 5 last years.
Monthly Mortgage Payments May Be Lower Than Rental Ones
You should understand that it works only for some cities and states, but sometimes the monthly mortgage payment is lower than the rental payment or, at least, equal.
This is a pretty good reason to prepare the down payment and take the mortgage.
Improve Your Home In Any Way You Want
Owning a house gives you a real improvement freedom. There is no landlord who says what you can and cannot do while decorating and improving your house.
Renovate your property or completely redesign your bath, you can do whatever you want with your own place. This is something worth paying for.
You’re Stuck With The Same House
Unfortunately, despite the freedom mentioned above, when you take a mortgage for a house, you’re stuck with this particular place for a long time. For some of you, it may sound scary and boring, so it really depends on whether you like to change your condo a lot.
Paying The Property Taxes
As a homeowner, you have a lot of tax benefits, but you are also obligated to pay property taxes which is usually collected by the municipal government.
The value of your property tax is determined by multiplying the property tax rate by the market value of the particular property. Market changes a lot and it means that municipalities may recalculate the property tax.
Paying For Home Repairs And Maintenance
The house is fully yours and it means that all the repairs and the whole maintenance process are on you. It’s always fun to call a landlord and ask him to fix a sink, but now you’re on your own and, of course, you pay for all the materials, work process and spend money on keeping your house well-suited for living in it.
Make sure you know all the ins and outs before buying a house in a particular area. Do you know the difference between buying a condo in Austin and Tampa? Always do your research.
Renting A House Pros/Cons
Taking mortgage and buying yourself a house may really become a great investment. However, not all of us love this kind of financial deals where you owe lots of money for something and you’re about to pay it off for more than 10 years.
Being free from this kind of financial burden is precious, but there are a few more things that you may enjoy while renting a place.
You Can Move To Another Neighborhood Anytime
So let’s say you got bored and your current neighborhood doesn’t make you smile as it did a year ago. Life keeps moving and you can move too… or even… move out! Yes, move out and get yourself another place, shake the things up and change the environment.
This taste of freedom is truly valuable and you should enjoy every minute of it.
Live In The Area You Cannot Afford To Own A House In
Sometimes the reason why you changed the neighborhood is not about you getting bored with your current one. We all love living in the best possible apartment in a great local community, but most of the time these fancy locations have an insanely high pricing tag on the ‘for sale’ houses.
In this case looking for an apartment to rent is the best option for you to become a part of that community or live by the seaside just like you dreamed as a kid.
Maintenance And Repairs Are On The Landlord
Once something is broken, you don’t have to rush and try to fix it on your own. You can pick a priority of the issue and send a maintenance request to your landlord that something is wrong in your place, the sink is broken or lightbulb should be replaced.
That’s it, just a few clicks and the maintenance process has been started.
No Return On Investment
Yes, it pretty much sucks to realize that paying for your current place is not gonna bring you anything in a long run. But at least you don’t have to pay a property tax, worry about your second mortgage and look for the down payment.
You Should Follow The Lease Agreement And Landlord’s Rules
Since the place you rent is not fully yours, there is a need to follow the landlord’s rules and guidelines mentioned in the initial lease agreement. Even though it’s a money-wasting thing, you can save some time by e-signing the lease contract.
You Cannot Change Anything Without The Homeowner Approval
Basically, any change and renovation at your place should be authorized. This makes you feel like a bird with no wings, but no worries. Some landlords offer their tenants to renovate some particular part of the house and, in exchange, the renovation price will be deducted from the monthly rental payment.