Tuesday, October 19, 2010

Should You Rent or Buy Your Next Home?

house-shopping

Reposted from: Ryan Guina's article on GoBankingRates.com



Whether you are moving for a new job or simply want a change in scenery, deciding whether you should rent or buy your next house is one of the biggest financial decisions you will ever make. There are many factors to consider before deciding which option is right for you, your family and your finances. Here we look at some advantages and drawbacks of both buying and renting a home.

Pros of Buying Property



Traditionally considered one of the largest and potentially best investments a person can make, home ownership offers the following benefits:

  • Housing payments remain the same. If you avoid adjustable mortgages and opt for a fixed-rate mortgage, you will know immediately what your monthly payment will be from the first day forward. The cost of rent typically increases over time.
  • Build equity. You build home equity as you make your mortgage payments and when you complete your payments, you own a home. You don't own anything when you rent. Though the housing market has hit troubled times in recent years, housing typically appreciates in value, making home ownership a decent financial option in the long run.
  • Tax advantages. There are certain tax advantages associated with home ownership that are excluded from renters. Mortgage interest is usually considered a tax deduction when you file your tax return.

Cons of Buying Property


On the flip side, home ownership is not always what it is cracked up to be. Consider the following drawbacks before committing yourself to a mortgage:


  • Home ownership is expensive. Home ownership is almost always more expensive than renting. Consider the cost of property taxes, homeowner's insurance, maintenance and utilities before buying a home.
  • Potential loss of your home. If you are unable to meet the terms of your mortgage, you risk not only losing your home but all of the money you have invested into it up to the point of foreclosure.
  • Additional expenses. Renters do not have to worry about paying for a new roof or fixing a broken furnace, but homeowners do not have that luxury. One of the biggest deterrents from home ownership beyond the cost is the time and energy required to maintain a home.

It would stand to reason that what is considered a disadvantage to home owners is a benefit to renters and vice versa. There are additional pros and cons to consider if you are considering renting.


Pros of Renting


  • Smaller initial investment. Where a home owner may be required to invest a healthy down payment, renters are required to put up much less money in a security deposit. This makes it more affordable (initially) to rent.
  • Flexibility. Beyond a lease arrangement, which is generally one year, there are not other commitments made by a renter. If your job changes or your finances improve over time you are free to look for another property.
  • Few maintenance costs. Beyond utilities and rent increases, you should not see any other expenses while you live in a rental home. Property taxes, most maintenance costs and many other costs are incurred by the property owner.

Cons of Renting


  • Less stability. As long as your landlord acts within the laws, you are always at risk of losing a place to stay.
  • The property is not your own. Since you are only renting a space, you do not have the freedom to paint, remodel or decorate as you would in your own home.
  • No equity or tax advantage. Renters are not able to recoup the money spent on rent through tax advantages or growing equity in the property.

The Verdict: Should You Rent or Buy?


There is a lot to think about when you are deciding to rent or buy your next house. Take these pros and cons into consideration, as well as your future personal and financial goals.


How long will you live in the area? Do you plan on expanding your family? Do you have money for a substantial down payment? Can you afford ongoing maintenance costs? The answer to these questions and the pros and cons listed here can help you make the decision that is best for you and your family.

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1 comments:

Yarrawonga real estate October 22, 2010 at 8:16 AM  

Hi Gunny,

great post here, you have layed the pros and cons out nicely for both sides of the sides of the equation.

There is a lot to think about here and I agree deciding whether to rent or buy is definately one of the biggest financial decisions you will make.

I've always said that I would prefer to pay some interest off my house loan than someone elses.