Buy Or Rent? Things To Consider Before Jumping Into Home Ownership
Home ownership has long been the cornerstone of the American dream. In an age where social media has made “Keeping up with the Joneses” a necessity, buying a home remains one of the top social status markers. It’s a sign that you’ve made it, right?
Perhaps it’s because home ownership can take on so many forms. Cultural pressure that makes you believe that it’s a natural progression in life. Or even the feeling that you’ve grown up and should take on additional “adult” responsibilities.
Although married couples have the highest home ownership rate, there is a rising trend of singles buying homes. Particularly, more single women are buying homes than single men. Putting aside the sex of the buyer, is it worth it for a single person to buy a home?
Buying a home is a big step. There is a lot to think about as a homeowner. Even if you are prepared financially, you may be taking on a lot more than you bargained for. Before you make your next move, take some time to consider how your life will be impacted by this important decision.
With that, let’s take a look at some of the pros and cons of buying or renting a place to live.
Things to Consider When Deciding to Buy or Rent
- Buy – A mortgage will usually be the largest debt and recurring expense a person will have if they decide to purchase a home. The typical rule of thumb is to keep your mortgage expenses to 25% – 30% of your gross income. A mortgage is paid over a period of 15 to 30 years.
- Rent – You won’t incur any debt for housing if you rent. But if you’re renting, compare how much you will be spending over time on rent with the monthly cost of buying a home.
- Buy – Because a mortgage is amortized, over time, you will gain equity in your home. Equity is the market value of a home minus any debt owed on it. Equity is also created if a home rises in value. Equity can also be lost if a home loses value. Although it is not a liquid investment, some people consider equity as a type of forced “savings.”
- Rent – You will not get any equity through renting. Some people consider renting as throwing away money because you never have the possibility of seeing that money again. You do have to remember that rent money goes to housing and your primary residence shouldn’t be considered an investment.
- Buy – If you own a home, you may fall under the governance of a HOA (Home Owners Association). These are typically made up of a board elected from the community’s residents. They are responsible for maintaining private roads, common areas, and enforcing maintenance requirements. Residents pay fees to HOA’s on a monthly basis. Depending on amenities, the fee can range from a few dollars to a few hundred dollars a month. HOA’s can fine you for not abiding by the association agreements (like not keeping your lawn up to standards), or even put a lien on your house if you fail to make a payment.
- Rent – Renters have to deal with landlords and/or management. Depending on where you live, or what kind of relationship you have with the landlord/management, it can be a pleasant or an awful experience. Tenants usually have to abide by rules laid out in a rental agreement.
- Buy – Homeowners insurance can be a large monthly expenditure in addition to a mortgage. Homeowners insurance is a requirement if you carry a mortgage and covers damage to a home due to a fire, liability due to injuries on your property, or loss due to theft. Damage from an earthquake, flooding, or other natural disasters are not covered by a home insurance policy unless you pay extra for the coverage. Natural disaster coverage is sponsored by government agencies and can double the cost of homeowners insurance.
- Rent – Renters are not responsible for obtaining home insurance. However, this doesn’t mean that you don’t need insurance as a renter. Renters can experience loss in natural disasters and theft too. Think about all of the stuff you own and how much it would cost to replace it if damaged or stolen. The only way to protect yourself from this type of loss is to obtain renters insurance. It doesn’t cost much and protects you in the case of property loss from a vehicle (auto insurance does not cover property loss from a vehicle) as well.
- Buy – Owning a home comes with many conveniences. You won’t need quarters to do laundry. You can own nice appliances. And, you can have a yard with a garden. You can even customize your home to your liking. Just remember to factor in these costs when buying. You don’t want to go into more debt because you don’t have a washing machine or a refrigerator right after placing a large down payment on a house.
- Rent – As a renter, you may have access to appliances if the landlord is nice enough to leave them for your use. However, you’re most likely going to have to get your own or deal with shared appliances if you’re an apartment dweller.
Maintenance and Repairs
- Buy – Homes can sometimes feel like a money pit. You’re on your own when it comes to repairs. Trust me, you’re going to be constantly fixing things. It can range from simple things like a broken sprinkler head, to expensive repairs like a leaky roof. And if you don’t want, or don’t have the time, to dedicate to landscaping and pest control; you’re going to have to fork over the cash to hire someone to do it for you.
- Rent – The beautiful thing about renting, is that repairs and maintenance aren’t your problem. You have the convenient option of just notifying the landlord that something is broken and it’s up to them to fix it. Just remember though, smart landlords have already built in the cost of maintenance and repair into your rent.
Buy a home when you’re ready to put down roots (and start a family tree) and are fiscally prepared. Rent when you’re young and if you have open prospects for jobs. Of all the considerations between buying or renting, you should place the most emphasis on mobility.
- Buy – The biggest downside to being a homeowner is that you lose mobility. Real estate is not a very liquid investment. If you were offered a fantastic job opportunity that was not local, you would have to mull over renting or selling before you moved. Would you be upside down? Could you afford to pay for a new place while you’re trying to sell the old one? There are so many questions to be answered if you needed to suddenly uproot and move.
- Rent – The biggest upside to renting is mobility. As a renter, you have the ability to change and adapt to new places. If you don’t like your current neighbors, you can move. If you get an awesome new job in another state, you can move. If you need a bigger place to live because you’re going to start a family, you can move. Being able to move rapidly is a valuable asset.
- Buy – If you buy a home, the neighbors around you will tend to be around for a long time. This is awesome if you have great neighbors. But if you have bad neighbors, it can be painful to live next to them for years on end.
- Rent – If you rent a single family residence, you can be in the same boat as a homeowner. However, if you rent an apartment, your complaints of a bad neighbor can lead to their eviction. On the bright side, once your lease is up, you can always move away from a bad neighborhood.
- Buy – Being able to park in your own garage or driveway is an important perk of home ownership. However, if you live in a condo complex or a house located near apartment buildings, you might have to deal with permit parking or careless drivers blocking your driveway. Generally though, owning a home makes it easier when people come to visit.
- Rent – Renters don’t usually get to enjoy preferential parking. Be prepared to deal with assigned parking spaces, permit parking on the street, or a free for all parking situation. It’s quite common for cars to be towed away from rental communities and the rules can make it hard for visitors to find a place to park.
- Buy – New homeowners should expect to receive a supplemental tax bill in the mail shortly after closing. The supplemental tax bill covers the difference between what the property was valued at and what you paid. Homeowners have to pay property taxes yearly. You’re on your own to budget appropriately for it, or you can pay monthly via an impound account. If you decide to buy in a new development, you may have to pay Mello-Roos. Mello-Roos is a special type of property tax that is levied on top of the normal property tax. The funds are used to pay back bonds that were obtained to pay for new infrastructure and services.
- Rent – If you rent, you won’t be responsible for paying any property taxes. However, you should realize that when you pay rent, you’re indirectly paying property taxes. The landlord has already built in the expense into your rent.
- Buy – If you buy a home, you will have to comply with local zoning laws and regulations, but you are generally free to do as you please. This may be different if you live in a community with an HOA. Overzealous HOA committees are common and complaints over simple things like flying a flag, or building a swing set are not rare.
- Rent – You and your landlord will be under the authority of local fair housing civil codes. These allow the landlord to enter the rental unit in cases of emergency, or for various reasons following a verbal or written notice. As such, it can be hard to maintain privacy when you have a difficult landlord or invasive neighbors. Rules can also restrict pet ownership or activities during certain hours.
- Buy – Homeowners that carry a mortgage can deduct the interest expense on their tax returns. Since mortgages are amortized, you pay more interest than principal in the early term of the loan. This means that you get the most tax benefit in the first half of your mortgage term. Just remember that the tax deduction for mortgage interest will only help you if you make enough money to itemize on your tax return. Since it is a tax deduction and not a tax credit, it also only matters if the deduction helps lower your marginal tax bracket.
- Rent – Renters will not benefit from mortgage interest deductions. Some states offer a renter’s credit, but it usually doesn’t amount to much. You will have to decide whether or not you will be better off renting with no tax deduction, or buying a home to get a tax deduction.
- Buy – Homeowners are responsible for all of the utilities and services they require. Electric, gas, garbage, and water will be your basic expenses. Then, you must decide if you want telephone service, internet, and cable. All of which can add hundreds to your monthly budget.
- Rent – Some rental communities advertise that you will receive free utilities, or even free cable TV. You should ignore these so-called perks when looking for a rental, because you will ultimately pay for them anyway. These offers can be tempting, but if you are a light user, you might be able to save money by paying your own utility bills.
When it comes to making a decision of whether to buy or rent, you have to carefully consider all the factors mentioned above. There is no right answer, but I firmly believe that you should put the most emphasis on your mobility. If you’re starting a family, have a stable career, and are financially prepared; go ahead – buy a house. On the other hand, if you’re single and have potential jobs in different locales, or want to remain flexible for career travel opportunities – you should rent.Posted by Long