Renting Versus Buying Considerations

Should We Rent -Vs- Should We Buy

Serious thoughts to ponder

FIRST - NO ONE SHOULD EVER BUY A HOME IN AN AREA OR TOWN THEY ARE NOT FAMILIAR WITH.

Should you plan to pay rent as opposed to paying a mortgage? I am sure you have been informed by more than one well-meaning friend, relative or real estate agent that renting is a bad idea that it is the equivalent of ”throwing your money in the street” and there are far more advantages to buying and becoming a homeowner as soon as possible.

But as they say in the old song "that ain’t necessarily so." Yes, there can be some tax benefits involved in owning a home. But when you’re young and mobile it’s often smarter to rent than to buy.

CONSIDER THESE ADVANTAGES OF RENTING:

YOU CAN GET MORE FOR YOUR MONEY.

You can usually rent a home for less than the monthly cost of buying it, and you don’t have to come up with a down payment for closing costs.

YOU ARE FREER TO MOVE.

You have no long-term financial investment to consider, so when you need or want to move, you can go. There’s no waiting (except for the term of the rental agreement) to sell, and no agonizing about the local housing market or at your destination.

YOU WORRY LESS ABOUT PROPERTY VALUES.

If housing values decline, the worst that can happen is that you pay too much rent until your lease expires. Then you can either ask for a rent reduction or move to where rental rates are cheaper.

YOU CAN AVOID THE COST OF HOME IMPROVEMENTS.

Home improvement is a huge business because homeowners must maintain their properties. A renter, on the other hand, may spend money only on personal furnishings.

YOU MIGHT HAVE MORE MONEY TO INVEST ELSEWHERE.

Down payments and mortgage payments make it difficult for many homeowners to start or maintain savings and investment programs for vacations, retirement, etc.

CONSIDER THESE ADVANTAGES OF OWNING:

THE FINANCIAL ARGUMENTS FOR OWNERSHIPARE HARD TO DISPUTE.

First, federal tax rules favor homeowners. Mortgage interest and property tax deductions alone constitute an enormous benefit. (The interest on the mortgage on your home is fully deductible, as are property taxes.)

Second, you can borrow against the equity in your home (assuming there is equity when you need money) By either a second mortgage or a home-equity line of credit -- and deduct all the interest you pay on up to $100,000 of such loans, regardless of how you use the money.

Third, you get “leverage.” Most people buy a home with a little of their own money (the down payment) and a lot of other people’s money- (OPM or the Mortgage or Deed of Trust). That use of borrowed money means you can profit from inflation (If there is any) or price increases on property you haven’t even paid for yet.

Unfortunately, making the Rent-vs-Buy decision involves a lot more than simply comparing your monthly rent payment with the monthly mortgage you would pay as homeowners. Many other factors must be taken into consideration, including how long you plan to own and live in the your home, how much you think the home will increase in value, or appreciate, (“OR" will it appreciate in value?) the tax benefits you will receive from buying, the fees you will have to pay when you buy, and the rate of return you could get by investing the cash you would save by not buying.

Beth Kobliner, author of “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” offers the following tips on making the Rent-vs-Buy decision. "Our lives change so much when we are in our twenties and thirties that buying is not always the smart thing to do. This is important to keep in mind.

IF YOU WILL NOT BE STAYING IN THE SAME AREA FOR SEVERAL YEARS, YOU SHOULD PROBABLY NOT BUY.

Consider the thousands of dollars in down payment, settlement fees, closing costs and maintenance expenses you will pay when you buy a home. Then when you sell, you can expect to pay thousands of dollars more in settlement fees and real estate commissions. If you stay in a home for many years, these costs may not make much difference. The hope is that your home’s value and selling price will increase by more than enough to cover them. But if you move after a couple of years and your home’s value didn’t appreciate significantly, you may not be able to sell your home for the price you paid or for profit that would cover these costs. You may have to pay extra monies out of your pocket to sell your home.

NEVER ASSUME YOU WILL ALWAYS GET A TAX BREAK FOR BUYING.

True, buying a home can be one of the best tax breaks around; because you can deduct the mortgage interest and taxes you pay. If you’re buying a lower-priced home, the tax break may be worth very little or nothing at all. The "TAX LAWS" change yearly, if not daily and you know you cannot put any trust in what those people in Washington D.C or in Maryland will say or do to us tomorrow. Everyday is a NEW TAX day for them.

WHEN YOU GET A GOOD RENTAL, YOU CAN INVEST THE SAVINGS.

You can probably find a good rental home for less money than a mortgage payment. The owner will pay the taxes, insurance and take care of the maintenance. AND, you may be better off holding on to your money and putting what you save into a retirement plan or some other investment.