Making the decision to rent or buy a home
Purchasing a home is often one of the largest financial decisions a person ever contemplates. There are often numerous considerations to be made, each of which may be encumbered with a cost. Given the commitment required, renting a home sometimes proves to be a better alternative than committing to a purchase. Buying a home can be complicated; however, renting, also presents its own unique challenges. There are advantages and disadvantages to both home ownership and renting. Prospective home buyers must thoroughly examine their readiness to make the financial and emotional commitment necessary. Although many aspire to own their own homes, sometimes renting, even for a short period of time, may prove beneficial.
Owning a home isn’t necessarily a one-size-fits-all proposition. Determining when, where and how to buy is truly a personal choice deserving careful thought and consideration. There are situations when it is logical to rent, just as there are situations when it is logical to buy. If a home buyer is undecided, short on funds, or uncertain about their future, renting may be preferable. Conversely, if a prospective home buyer has the financial means to maintain a home, is well established in their career, and desires an opportunity to experience the many benefits afforded through home ownership, making the decision to purchase may prove well-supported.
Home buyers and renters alike each have initial cost considerations that must be taken into account when searching for a home. When purchasing property, prospective home buyers must pay earnest money deposits, down payments, home inspections, appraisals, and other line items connected to the purchase transaction. But, when renting property, prospective renters must pay security deposits, first month rents and potentially other deposits. Either way, there are up-front costs incurred.
In addition, both homeowners and lessees also pay recurring costs while in possession of their homes. Recurring costs associated with home ownership typically include mortgage payments, property taxes, homeowner’s insurance, and private mortgage insurance (PMI). Recurring costs associated with a renting a home may include monthly rent, pet rent, and renter’s insurance.
Albeit the costs to purchase a home are usually greater than costs to rent; neither a homeowner nor renter is necessarily free from financial obligation. Yet, whether stipulated in a lease agreement or in a mortgage agreement, conditions of a property’s use are generally predetermined and contractually binding. Whether a property is owned or rented, the remittance of periodic payments are expected as consideration for the rights to reside within a home.
Still, there are other financial considerations that must also be taken into account when examining the viability of purchasing or renting a home. One of the greatest benefits afforded to homeowners is the potential to build equity. Admittedly, homeowners also run the risk of financial loss should the housing market experience a downturn. Although renters won’t reap the benefits from increased equity, they also won’t encumber the risk of owning a depreciating asset should the economy take a turn for the worse. Needless to say, there are a multitude of differing factors that can influence the appraised value of home over time. Good or bad, those factors will likely have a greater impact on a homeowner’s financial position as compared to that of a renter.
But home ownership also offers significant tax benefits as owners are afforded the ability to itemize their tax returns, deducting mortgage interest and property taxes from their federal tax obligations. However, unlike homeowners, renters are not permitted to deduct their rental obligations.
There are ongoing maintenance and repair costs associated with home ownership. When something needs to be fixed, repaired or replaced, the responsibility generally lies with a homeowner and not with a renting tenant. Given these circumstances there are undeniably benefits afforded to those who elect to rent their home instead of purchasing. But owning a home provides homeowners with a significantly greater degree of creative freedom to make changes to the home that otherwise aren’t typically granted to those bound by the terms of a lease.
It is important to note, a lease agreement almost always has a beginning and ending date and thus, renters aren’t afforded the ability of remaining in their homes indefinitely. During certain periods, aligning with a tenant’s lease agreement, the landlord may seek to retain possession of their home. However, homeowners are in control of their own destinies and therefore may remain in their homes indefinitely.
Prospective buyers should never buy a home based solely on market conditions. In real estate, successful homeowners purchase their homes when they are financially and emotionally ready to do so. Although owning a home is viewed as the American dream, today’s societal demands have evoked a need for greater flexibility than in years past.
Renters are afforded the opportunity to change their living arrangements far easier than those who own a home. But, once established, home ownership can be rewarding, giving homeowners an opportunity to set roots within their communities.
Consulting with a real estate professional often proves beneficial when determining whether the time is right to purchase a home.
Real estate agents well-versed in sales and rental options can help prospective buyers understand the advantages and disadvantages inherent in making the decision to rent or buy a home.
Sean and Aimee McDonald, realtors with RE/MAX North Lake Tahoe, can be reached at 775-250-8335 or mcdonaldrealestateteam @gmail.com.