Rent vs Buy is a Difficult Housing Decision
Here are some ways to decide which is right for you:
Many people are trying to decide whether they should continue to rent or buy a home, instead. It can be a difficult decision, and there are many things you will need to consider. Your rent vs. buy decision will be influenced by your financial situation, your job stability, and where you are in life. A young couple with a growing family has different needs from a single person who travels a lot, or an older couple whose children are grown. Here is some information that will help you while making up your mind whether it is better for you to rent or buy.Credit: www.morguefile.com
How Long Will You Live in One Place?
Do you work for a company that could move you every two or three years? Do you change jobs or locations frequently? Are you anticipating a major lifestyle change? If you answered yes to any of these questions, then renting may work best for you, even if you can afford to buy.
Real estate was a devastating investment for many people a few years ago. However, things have begun to turn around recently. If you are going to be in a house for quite a while, it could be a good investment. Remember, though, that even in a good real estate market there are many areas of the country where home values only increase 1% to 2% a year. If you need to sell your home sometime in the future, you are most likely to be successful if you hire a Realtor, which will cost 5% to 6% of the sales price. Even if you do not use a Realtor, you could spend 3% or more of the sales price on closing costs and other sales related expenses, such as repairs. This information means that you will need to live in your home at least three or four years just to break even when you sell. Anyone who does not plan to live in the same location more than three or four years is probably better off preserving their assets and renting a home.
On the other hand, you may be more like Warren Buffet. He has lived in the same home for most of his adult life. If you believe that this is the last home you may ever own, then go ahead and buy it, especially during a bad real estate market. You could get a great deal and won't have to worry about what happens to home prices in the short run.
If you do decide to buy a house, you will want to have as much knowledge about the transaction as possible. You may want to purchase a real estate book or two to educate yourself, especially if you have never purchased a home before.
In addition to the real estate books you will find on Amazon, you will want to think about these issues too:
Will Your Mortgage Income Tax Deduction Exceed the Standard Deduction?
Many Realtors will emphasize the tax benefits of owning a home rather than renting one. If you are going to be paying a lot for the property, and expect the amount of interest and taxes you pay to be significant, then there will certainly be a tax benefit to you in owning. However, you should consult with a tax professional first, if that is your primary reason for buying. If you normally take the standard deduction when you file your income taxes, you may find that nothing will change when you buy a house, especially if you find a really good deal on one. You will only get a noticeable tax break if the amount of property taxes and insurance, as well as your other deductions, are significantly greater than the amount of the standard deduction.
How Much Debt Are You Willing to Take On?
There are many expenses involved in home ownership, including the mortgage, property taxes, insurance and maintenance. You may also have homeowner's association dues. Total up the real cost of buying a home, and compare it to the cost of renting a home of a similar size. If you can save $500 a month or more by renting, you will have to give that careful consideration. You may be better off putting that extra $6000 a year into your IRA, 401K or other investments. For example, I have seen $300,000 homes rent for about $1600 a month; the payments on the same homes would cost about $2800 a month, including the homeowner's association fees. Renters can save about $1200 a month. If they invest the money wisely, they may be as well off as the property owners in 20 years. During that time, $1200 a month would amount to about $288,000 in principal, plus any interest or dividends that were earned. Of course, rents might go up during that time ... but so would the cost of home ownership, including property taxes, homeowner's dues, and maintenance costs. It is certainly at least something to consider. You have to know yourself, too. Are you sure that you will actually save the money, or will you waste it?
There are other things you need to consider, too.Credit: www.morguefile.com
Do You Like to Paint and Decorate?
Some people love to decorate their homes. They look forward to the opportunity to explore their own creative ideas. They may want to paint the interior with strong colors, change the flooring, and add a porch onto the back. None of these actions are usually allowed if you rent a home. When you buy a home, you can make your own decisions about how to decorate and whether or not you want to have pets. You can also decide to put a swimming pool or garden in the back yard. When you own your own home you have many more opportunities to make your own decisions about how you will live ... subject, of course, to local ordinances and your homeowner's association.
As you can see, there are no easy answers to the question "Should I rent or buy?" A lot depends on how long you plan to stay in one place, how effective you think you will be in investing the money you will save by renting, and your personal lifestyle. A single person may decide that they do not want to hassle with a yard, making home repairs, or feeling tied to one place. Renting is the best option for them. A young couple, however, may discover a community where they want to settle down and raise their family. Buying a home and holding on to it will be a wise decision for them. An older couple, with grown children, may decide that caring for a home is too much work for them. Now may be the right time for them to sell, invest the money, and live in a cheap retirement community or in assisted living where other people will care for them. Each of these is the right decision for those people. Only you know what the right decision is for you.
If you are a homeowner, you may also be interested in reading some of these articles:
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