Should I buy a home or rent it? This is a question many people are asking themselves today. You have probably heard people say that renting is equivalent to throwing money away. From a general financial perspective, they are often right. Everyone’s situation is different and there are, of course, many different circumstances in which renting is a smarter move. Without getting too wrapped up in those specifics, let’s do a quick comparison of the rent versus buy decision.
Ownership vs. tenancy
So, which is better: ownership or tenancy? First and foremost, ownership means that you’re living in a home that is yours. Nobody can ask you to move out and you can make improvements to your home whenever and however you want. On the other hand, a rented home is owned by a landlord who can, typically with a little notice, ask you to vacate their home at any given time. Furthermore, you need to ask permission from the landlord before making any renovations to the house, perhaps even for something as simple as painting a wall. Finally, you never know what kind of landlord you are going to get. It could be the really nice type who takes care of issues quickly; or, not so much.
The financial benefits of owning
The financial benefits are usually quite significant. There are some who will compare the likely mortgage payments and the rent payments of similar homes in the same area and decide which one is more expensive based on that alone. Those simplistic comparisons may sometimes point to renting being cheaper. Plus, you have more maintenance-related costs and taxes. The negatives of owning can appear to pile up.
The counter-argument to this is that, with a rented home, you get nothing for your investment. Often, people refer renting to as ‘dead money’ simply because you get nothing from it. On the other hand, as you pay down your mortgage, you are gaining equity in an asset. And, in the long run, real estate is an appreciating asset so not only are your payments reducing the debt, the value of the asset is most likely increasing as well. That has the potential to mean a sizeable amount of money you are investing in your future. In fact, the single largest source of wealth creation among Americans has historically been their homes.
The decision on whether to rent or buy is often based on a number pros and cons are that are different for everyone. Buying a home or deciding to rent will also have long-term effects on your financial future. You should make sure that you have all the information you can possibly gather when you evaluate your options. For a detailed financial evaluation of your options, do not hesitate to reach out to me at your convenience.