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The Advantages Of Buying VS Renting
The most important housing decision that most consumers face is whether to rent or to buy. While some people want the security of homeownership, others want the footloose freedom that comes with renting a place. Deciding to buy, or continue renting is a personal decision that involves a strong emotional component as well as a financial one. The better choice for you depends on your circumstances and overall objectives.
Other factors to think about is the current rental and housing market. Right now, housing is more affordable than ever with incentives like low-interest rates and the newly expanded tax credit while the rental market continues to offer very little benefits other than it’s a short-term commitment.
If you know your situation will be relatively unchanged for at least a minimum of 3-5 years and you have a stable job, a family or planning on starting one, then you should consider buying a home.
The Current Rental Market:
If you’ve spent any time in the last few years searching for a rental in the United States, you’ve likely come to the conclusion that current prices are, in a word, unprecedented. The state of rental markets in major cities has been fueled by increased demand, stunted Millennial homeownership rates, and the slow pace of new construction. Rent has risen throughout the US on a steady and consistent basis since 2012 and Atlanta rank No 16th in the country among the top 50 U.S. rental markets when it comes to pricey rent.
While higher rental prices are a drain on households, they are a boon for the owners of apartments and homes for rent. Increasingly, institutional investors are among the homeowners/landlords benefiting from these sky-high yields. Following the housing crisis, large financial institutions scooped up distressed properties at bargain prices. Since then, they have fought to turn single-family rentals into a sustainable business and asset class, much like multi-family rentals which are a mainstay in the urban housing landscape and real estate investment market.
The Benefits Of Homeownership:
Buying a home typically comes with a number of advantages. Below are a few benefits to consider when deciding whether you should take the plunge into homeownership.
Forced Savings & Wealth Building
The so-called "forced savings" argument is a widely-held one. Month by month, you pay down your mortgage and increase your equity, essentially creating a forced savings account. For example, in five years with a $1,800 monthly mortgage payment, you will have paid $29,331 of the principal on your mortgage loan. If you sell your home, there's a good chance that you will make a profit. How much of a profit you will walk away with depends on the amount of money you can sell the house for minus what you still owe on it. Renting will never provide you the opportunity to make any money at the end of your lease no matter how long you have lived in the property. Over time, home ownership helps you build wealth by creating an opportunity to make money.
Tax Savings (Federal & State)
Under Section 163 of the IRS code, interest on loans used to acquire, construct or improve real estate is deductible on up to a $1,000,000 mortgage.
Interest on loans tied to real estate for any reason is deductible on up to a $100,000 mortgage. Let’s say you make $100,000 per year and rent a home for $1,800 per month. You would have to pay taxes on your entire income of $100,000 when you are renting that home. If you purchase a home with a monthly payment of $1,800, you only have to pay taxes on $78,400 of your annual income because the interest you paid on your mortgage can be used as a tax deduction.
Unlike with a 401(k) or IRA, when you invest in a home you can live in it while the investment grows. Owning a home over an extended period of time is usually more lucrative than renting. With good planning and execution, you can learn to minimize the cost of homeownership and maximize the ability to create real wealth.
Buying A Home Costs Less Than Renting Over Time
Buying is the cheaper alternative over the long term. While your mortgage payment may initially be more than you'd pay in rent, you'll spend less over the life of the loan if you buy. Also, given the tax benefits of home ownership, your true out-of-pocket costs from day one can be less than if you rent.
When you factor in the possibility that real estate values often go up over the years and the fact that rental rates often rise over time. home ownership looks even better. The cherry on top is that when your mortgage is paid off, you will no longer make payments and you, of course, get to keep the house and/or sell it for a potential profit.
Paying A Fixed Mortgage Stabilizes Your Budget
As anyone who has rented a home knows, rent hikes are the norm and often out of your control. If you're in an area without rent control, the landlord can raise the rent whenever they like. Even with rent control, there are exceptions and you still can't count on your rent remaining stable.
If you buy a home and take out a fixed rate mortgage, your house payment stays the same for the life of the loan, whether it's 15 or 30 years.
No Landlord Can Kick You Out
Renters can face an unexpected eviction or notice to move out if their landlord suddenly decides to sell the home, rent to someone else, or end the lease.
You Can Customize Your Space
Owning the home, you live in means you have the freedom to change anything without worrying about losing your security deposit or possibly being sued by the landlord for changing the space.
Regardless of how ideal the market may seem and the incentives that come with homeownership, it’s still a good idea to sit down with your real estate agent and discuss your situation and overall goals.