BUYING VERSUS RENTING
Usually, if you can come up with a down payment then buying is your best option. However, this may not apply to everyone. Consider the following:Renters...
- Neither gain equity, nor lose it. Despite any improvements renters make to their homes -- and regardless of any outside influences that would cause the property value to increase -- renters will never gain equity.
- Renters put little money up front.
- Reap no tax advantages. Any and all tax breaks and other tax-associated advantages are enjoyed by landlords.
- Are often restricted from making modifications such as painting walls (some landlords will allow renters to paint their walls only if they paint them white again before they vacate their homes).
- Can merely pack up and leave upon the expiration of their leases. They don't face the hassle of finding a buyer and waiting until a sale takes place.
- Face much less work in maintaining their homes, inside and out. In many multifamily properties, they enjoy the convenience of a full-time maintenance staff to handle appliance repairs and other minor repairs.
Buyers...
- Often gain equity. However, they can also lose it. Their equity can also remain static.
- Must go through the process of selling their homes and finding a buyer, either with a Realtor's help or not, if they elect to move out of their homes.
- Must put down a greater of money (a substantial down payment) than a renter, who merely pays a security deposit and first/last month's rent.
- Are subject to variable costs in the absence of documentation that keeps costs fixed.
- Must either perform maintenance/repairs on their own or using the services of a professional whom they hire and pay themselves. Buyers are fully responsible for any and all repairs.
- Are free to paint, redecorate and remodel their homes as often as they wish.
- Enjoy the tax breaks and other tax advantages associated with homeownership.
- Eventually own their homes and are free of a monthly mortgage payment.
How does buying compare to renting?
Renting offers a lifestyle that's nearly maintenance-free. That may appeal to you, but consider that renting offers you no equity, no tax benefit, and most likely no protection against regular rent increases.
If your rent has averaged $700 a month for the last 10 years, you've spent $84,000 with nothing to show for it. Isn't it time you invested in yourself instead of your landlord?
Several financing options hold special advantages for first-time buyers or families with limited cash reserves. FHA-insured and VA-guaranteed mortgages can minimize or even eliminate your down payment. You may also consider a lease-purchase agreement, or borrow cash for a down payment from life insurance, profit-sharing or retirement account.
In addition to tax deductions you'll likely receive that can partially offset the cost of real estate taxes, insurance and home maintenance, your home may appreciate in value. Say you purchase a home that costs $100,000. If property increases in value a meager 2% each year, your potential appreciation in just two years is nearly $4,200. And thanks to recent changes to the tax code, but subject to certain restrictions up to 250K/500K if married filing jointly, the profit you make when you sell the house is tax free as long as you own the property for a minimum of 24 months.