#2 Discussion of Rent vs. Buy – The Pros and Cons
In this Rent vs. Buy decision for the First-time homebuyer, we have already addressed whether you are financially able to be a Homeowner. (Click here to see this post)
Today we are going to try to answer the question of: After weighing the Pros and Cons of Homeownership, do you still want to be a Homeowner?
Should you rent or buy
I am going to present both the pros and cons as a list with minimal commentary. This link goes to the full article that discusses each point in much more detail and provides reference links where available.
- Predictability. Fixed Mortgage Payment vs Rents.
- Financial leverage
- Leverage – You are able to use a small down payment to acquire a high value asset (Your Home).
- Real Estate is a low risk investment because…
Your home is always marketable as long as you allow enough time and exposure. - The ability to use your Home’s Equity
- Appreciation – Almost always in the long term
- The total amount of Homeownership equity in America is thousands of times greater than the total of all other sources of wealth for the great majority of Americans.
Owning a home is one of the few times you get favorable treatment by the Internal Revenue Service.
1-You get some minor deductions when you buy your home.
2- The “Home Equity Loan” is deductible unlike the higher rate of interest you pay on credit cards or any other type of loan.
3- The best financial benefit to homeownership is when you sell your home.
- If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 profit on the sale of the home for married tax payers, and$250,000 for single tax payers, and you will pay no federal income tax whatsoever.
- And, you can do this as often as every two years for the rest of your life.
After all this, the time has come to discuss the disadvantages of homeownership, and why owning your own home can be a challenge.
- Down Payment & Closing Costs – You need a source of cash
- Repairs and Maintenance You are now the landlord.
You to do or pay for all repairs, maintenance and replacement of everything. - Being a homeowner is usually more costly than renting.
Because of the mortgage payments plus added costs of repairs and maintenance. - Buying a home may cause a substantial strain on your finances.
- Property values can drop.
They will generally return over time, but if you have to sell the home during a depressed market you may have a serious problem. - Don’t buy a home for tax benefits.
The benefits in the short term are minimal. It is only long term upon sale that you get a major tax benefit. - Don’t buy a home because it is a good investment.
Other investments have a higher rate of return than Homeownership in the short term, but this is only true if you have the discipline to save and invest.
CONCLUSION
If you don’t have financial stability, and you think the disadvantages of home ownership outweigh the benefits, then you are probably better off remaining a renter — at least for now.
BUT if you have the financial stability, and you think the benefits of homeownership are the things you desire in life then it is time to buy a home.
Click here for a more detailed discussion about all of these issues we have raised about homeownership’s benefits and risks.
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