Issue 32Living Smart
A New Home: Renting vs. Buying
Many of us may be comfortable with our current living arrangements. However, when the time comes, people may want to explore other options. Each individual or family has to weigh their current life situation to determine if it would be better for them to rent a home or if they can settle down and buy a home. Below, we will explore both options:
Depending on your life situation, you might find renting to be more beneficial. Renting, in general, will offer you more flexibility. If you are unsure about living in a specific neighborhood, renting allows you to explore an area further before committing to living there for a long term and becoming a homeowner.
Renting is a good route to take if you are unsure about your current career path or income as well, as you’ll have the ability to re-locate if the right job opportunity or income arises. Renting is nice as there are generally no maintenance expenses. If you have a pipe that leaks, or an issue with the flooring or major appliances such as the refrigerator or stove, call the landlord. It is his/her responsibility to have it fixed or repaired. One other benefit to renting is that you won’t have to worry about owning a depreciating asset in the event your home loses value.
Of course, there are disadvantages too to renting a home. Your rental costs may increase, and that could get adjusted as soon as your lease ends. In addition, you will not build equity in your home since you do not own it. Homeowners also have the ability to receive tax benefits through deductions involving their home, but as a tenant in a rental those tax benefits aren’t available. Last but not least, you wouldn’t be able to make any remodeling changes or paint without the approval of the landlord.
One major benefit of owning a home is the ability to build equity in it. As you pay off a home mortgage, you slowly begin to increase your degree of ownership in the home. This is a substantial value that helps with either taking out another loan (a home equity loan, for example) on the property. As you build more equity into the home as well, you can always explore re-financing your mortgage for a better rate to further save more money in the long run.
As a homeowner, you have the ability to claim certain tax deductions for your home. Owning a home allows you to do what you want with your home in terms of re-modeling or painting, within town/city laws and regulations. Owning a home also allows you to decide how you want to make maintenance decisions. If a pipe breaks, do you want to fix it yourself, or hire a plumber? You get to decide. If you live in a condo or a homeowners’ association though, you might pay a monthly fee to have it covered by the association’s contractors. If the value of your property appreciates in value, you would directly benefit from it if you sell your home.
While owning a home gives you these freedoms, there are also a few that it doesn’t give you. Owning a home is a big investment, potentially worth hundreds of thousands of dollars. You also wouldn’t have the ability to re-locate as easily if your income or job situation changes. Also, if the value of the property depreciates, it can hurt you in the long run. You would also be responsible for paying the property taxes, and homeowner’s insurance is mandatory if you have a mortgage. Also, you would need to use up your savings as a down payment on the home, which could potentially be a large sum of your savings.