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Has anyone ever said, you really need to just buy a home and stop throwing your money away on rent? Sometimes it does make sense to rent, but eventually the goal is to own your own home. Let’s explore when it makes sense to own a home verses renting.
So when does it really make sense to rent? What are the major monetary and tax benefits for owning a home?
First let’s examine when it may be better to rent than to jump into home ownership.
Reasons to Rent
Buying real estate is not cheap. And I’m not just referring to the price of the home. With the purchase of a $200,000 home, one should anticipate closing and transaction costs somewhere around $5,000.
New to the Area
I personally would not buy a home in an area that I have not lived in for at least 6 months. I’m sure there are exceptions, but its difficult to really know a city until you have lived there.
Some people would say that’s what Realtors are for. Well, a Realtor is not you, nor do they really know all your thoughts and wishes. A good Realtor would probably recommend that you really live and get to know an area before taking the step to purchase a home, especially if that home is also serving as an investment.
No Safety Net Savings
If you do not currently have at least 3 months worth of monthly expenses in savings, you may want to consider renting until you do. Like any other item, a home requires upkeep and will cost you additional money to fix and upgrade items that your landlord would be responsible for if you were renting
Reasons to Buy
Homes, unlike most other items you own, almost always appreciate in value over time. Do not let this statement fool you into thinking real estate cannot go down. Some Realtors will have you think that homes do not go down in value. Quite the contrary – look at Florida which has experienced a tremendous drop in home prices over the past couple years. With that said, a home can be a very nice investment!
If you itemize your taxes, you can deduct the interest portion of your mortgage payment. This means that if you pay 12,000 per year in interest (approximate interest on a 200k mortgage) and you are in the 25% tax bracket, you may be saving $3,000 in taxes.
There is nothing like owning your own home. It’s great to eat a meal in your own home, play basketball in your driveway, have a cold beverage in your own back yard. Being able to customize and decorate with your tastes in mind is great!
Choosing to rent or buy your next residence is a big decision and should not be taken lightly. Be thoughtful in considering the benefits and drawbacks to each. I find it’s best to take advice from someone who has nothing to gain from your decision to rent or own.
I’m a Financial Consultant and Personal Financial Representative with experience in financial analysis, strategic planning, presenting, & financial advisory services.