Is Renting Or Buying The Right Choice For You?

Is Renting Or Buying The Right Choice For You?

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Renting Or Buying: Which Is Right For You?

Every little kid used to dream of growing up to own a home, but recent economic circumstances have begun to redefine the American Dream. The amount of Americans renting has climbed over the last 50 years. In financially turbulent times, many people are wary of the investment that owning a house requires. Sometimes, it just makes more sense to rent than to buy. If you’re starting to wonder which is right for you, you might want to ask yourself a few things:

  1. Is this your forever home?

Regardless of whether you’re renting or buying, timing will play a big role in your financial choices. The goal isn’t only to find an affordable home but to later reap financial rewards from home owning. This means that how long you keep the property matters. Let’s assume that, like most Americans, you have two options: you can pay 20% of a home’s value in the form of a down payment or rent and anticipate a 5% increase in the price of renting every year. Owning a home would become the better option only after at least 2 years.

Turning a profit on homes is harder than ever. Two-thirds of homeowners in the U.S. are waiting till 2025 to cash out since (according to a report from Trulia) their homes still haven’t returned to what they were worth before the recession. Having debt is risky, and the freedom of a 12-month lease means that you can move and make changes according to your changing income and needs. Buying a house, unfortunately, doesn’t allow you to do this.

  1. Have you looked at hidden costs?

Both buying and renting come with secret costs that may not be immediately apparent. If you’re a renter, you won’t be accruing home equity. And unlike your home owning pals, you will be ineligible for homeowner tax breaks. If you do choose to own a home, you might qualify for as much as $3,585 in tax breaks every year (if you were within a 28% income tax bracket, and had a mortgage of $200,000 with an interest rate just higher than 4%). Unfortunately, you’ll have to pay for things that renters don’t have to worry about, like:

  • Homeowner’s Insurance: Generally, you should divide the value of your home by 1,000 and multiply that by $3.50 to understand what you’ll likely pay per year for home insurance. If your home cost $200,000, you’d pay about $58 per month. Renters, meanwhile, generally pay less than $20 every month.
  • Private Mortgage Insurance: If you own less than 2-% of your home’s equity, you’ll pay a PMI between 1% and 1.2% of the value of your loan. On a $200,000 mortgage, that would be $200 dollars every month in PMI.
  • Property Taxes: Most homeowners pay an average of $2,127 every year in property taxes. Taxing generally depends on where your home is located, and what your community offers.
  • Maintenance: Homeowners pay about $170 every month to keep their homes well-maintained. Big-ticket items, like an HVAC system or repainting or a new a roof usually cost a few thousand dollars more. Our hypothetical $200,000 home will likely cost about $7267 per year in maintenance expenses, which is twice the amount that homeowners would save in taxes. Renters aren’t
    responsible for home maintenance, and often have some portion of their utilities paid for by the landlord.
  1. Is renting “throwing money away?”

Having a home of your own is a good way to build your investments, and your money will grow as your home equity does. Unfortunately, on a monthly basis, buying and maintaining a home is more expensive than renting everywhere in the US. Most of us have less than $5000 in our savings account. Couples who are nearing retirement only have about $125,000 put away. Spending money unnecessarily on a house can drain one’s resources, making it more difficult to accumulate savings for your retirement. Lower monthly costs allow you to put money into 401k’s and IRA contributions. If you were able to save $500 per month on your housing costs starting when you were 50 and invested it for a return at 7%, you’d have nearly $169,000 more in your account when you reached 66.

In the long run, home owning is likely to be a great investment. But if you worry about not being able to stay abreast of the costs, or if you feel that you’re having trouble saving for your future, renting might be a good choice.

Hopefully, this information helped you. Want more? Just contact us. Our mission is to turn ugly houses into beautiful homes, linking wonderful people and amazing properties. We provide more than real estate: we provide real estate solutions. Whether you need help buying or selling, we’re here to provide you with friendly and efficient customer service.

Don’t be shy! Contact us, and let us help you find the right solution to your real estate situation.

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