To rent or buy a home is a debate many people find themselves in quite often. Well, we see many families opting to buy a house whereas they would be better off renting. However, home buying comes with an opportunity cost. This is in the form of earning on tax deductions, while at the same time, home buying means an investment that can grow over time. Similarly, renting comes with minimal responsibilities and extra flexibility.
Of the two options, home buying is a solid decision compared to home rentals. In fact, homeownership is the American dream!
Here are important points to bear in mind when it comes to Renting vs. Buying endless debate!
In this post, we examine what it means to rent or to buy a home.
Home Buying Vs Home Rentals
Owning a home and renting a home comes with different risks alongside several obvious benefits. Before you have settled on buying a home, you want to decide whether it is the right time to take that bold step.
If you are tired of the endless home rentals and looking for motivating factors to get started with homeownership, here you go!
1. Home buying Comes with Stable Monthly Payments
A majority of first-time buyers obtain a mortgage to finance their homeownership dream. Chances are that the mortgage is based on fixed-rate monthly repayments. After all, the fixed-rate mortgage is the most popular right now. Therefore, the monthly payments will be predictable for a period of years. The stable monthly payments make home buying such a convenient option compared to renting
On the other side, we have home rentals where the monthly repayments can change from year to another. Under most circumstances, the landlord will set the monthly rent and serve the tenants with a new bill. This is mostly when renewing the lease agreements.
Stable monthly repayments come with a peace of mind. This is because one can come up with a long-term budget, which is important for personal financial planning. However, some monthly payments like property tax can change, but with a very small margin which is sometimes negligible.
2. Homeownership comes with an Opportunity to Build Equity
When it comes to homeownership, property equity is what comes into mind. In real estate, property equity refers to the current value of the property minus the total property ownership cost. Consider that property ownership cost takes into consideration things like a mortgage, and property maintenance costs. The value of a property will increase over time, and chances are that property maintenance cost gets lower. In the end, as the property value increases, the owner is left with larger equity.
However, getting stuck on monthly rent cycles means you are helping the landlord repay the mortgage. In other words, the landlord is using your monthly rent payments to build property equity.
3. Homeownership comes with Tax Advantages
Not many people enjoy paying taxes. Unfortunately, paying taxes remains necessary for all of us. Getting tax relief is a cause to celebrate. Did you know that homeownership comes with some tax relief benefits?
Well, owning a property comes with the option to deduct the paid monthly interest from the tax returns. This means that as you pay interest on the mortgage, you are deducting some amount from the tax payments account. The tax deduction is a huge saving for those who borrow a mortgage to purchase a property.
If you are still living on a rental, tax relief based on the monthly rent is not foreseeable.
4. Freedom to Make Changes
One of the major factors you need to consider when deciding to rent or buy a home is the ability to make changes when need be. For instance, you may want to add a room or even repaint the living room. The terms under the lease agreement will not allow a tenant to make the changes without express permission from the landlord. However, homeowners enjoy the ability to make changes whenever they like. This means that if you are inviting the in-laws to live with you, or you want to accommodate your grandchildren, you can opt for a room addition without having to answer questions to anyone other than applying for the relevant home renovation permits with local authorities.
5. Buying a Property is Cheaper Overtime
Buying a home comes with a host of payments. The costs include down payments, appraisal fees, homeownership cost, interest on a mortgage, and other hidden costs. These costs could feel a huge amount at first. Over time, the interest on a mortgage will be paid in full, no more appraisal fee and cost of property maintenance could come down. On the other side, rent repayments will in most cases increase as you renew the lease agreement or when renting a new property. This shows that cost of homeownership is considerably cheaper than the cost of home rentals.
Buying Vs renting feels like a tough decision to make. However, if the items raised here are taken into perspective, home buying is the best decision you could make today.