Rent or Buy: What Works Best for You?

Date Created: 03.09.2014

According to 2010 data, millions of American homeowners received a foreclosure notice. Many of those who lost their homes will gravitate toward renting as a temporary option for shelter while they work to repair their credit. However, property owners have taken note of this growing trend and raised rent prices accordingly.  This has complicated the age-old debate of whether it’s better to rent rather than buy.

This is no different when relocating to a new state or even a new country. When deciding if renting is a better option than buying, it’s best to compare the numbers from a bigger picture perspective. Many renters believe that they are cutting costs by avoiding homeowner fees such as down payments, closing costs, and property taxes, but are often blind to the long list of homeowner benefits.

Benefits

While renting may serve as a good temporary option, buying a home is a better financial decision because the cumulative amount of money spent over the years could pay off your principal instead of your landlord.  You will also build equity in your home and earn the option to refinance to make home improvements or simply have extra cash in your pocket.

Relocating transferees and expatriates often overlook this option because of the surface simplicity and appeal renting may have, but in actuality these scenarios can be ideal for buying a home.

In today’s current economic climate, your long-term and short-term goals most likely include saving money.  By renting, you have a roof over your head but you are prolonging the financial freedom and benefits of owning a home that many Americans enjoy every day.  Some of the benefits of owning a home include:

·         Tax deductions – mortgage interest and property tax obligations are fully deductible for both federal and state income taxes.  Additionally, many closing cost and fees for your loan application and appraisal may be deductible immediately or when you decide to sell your home.  Also if you have a home office, your cable and phone bill can also be deducted come April 15 (the beginning of tax season).

·         Equity – Equity is the portion of property that you actually own.  Needless to say, you can’t build equity as a renter.  Moreover, there is a new trend in home owning called equity builders.  This group of innovative homeowners picks a short-term home loan (usually a 5- or 7-year ARM) and adds money to their monthly payment to decrease the principal balance at a faster pace.  Equity builders shorten the length of their home loan, lock in low-interest rates, and own their home faster.

·         Option to borrow – Equity can be used to secure a loan or obtain a line of credit.  Your increased buying power can lead to home improvements or even the purchase of an investment property, expanding your portfolio of assets.

·         Appreciation – While it’s hard to imagine right now, current record low home prices means you’re likely to sell your home in the future for more than what you paid for it today. For example, Harvard University’s Joint Center for Housing Studies suggests that a buyer who makes a 10 percent cash down payment with an annual home appreciation rate of 5 percent could expect a 225 percent return on the cash after five years and a 623 percent return on the cash after 10 years.

·         Freedom – Renters typically renew their lease every year.  This gives landlords the freedom to increase rent from year to year if they want to.  Buyers have exponentially more freedom to do everything from permanent décor decisions to locking in on low mortgage and interest rate prices.

Finally, the decision to rent or buy a home should be made with long-term goals in mind.  If you’re considering renting because of a foreclosure on your credit record, understand that renting is a temporary option that should be used as you repair your credit. Renting offers an alternative for people who are not yet in a position to buy.  If you use this alternative as a time to save, repair your credit, and position yourself for the future, the Dream of homeownership will be an attainable goal in no time!

 

Jonathan Slappen

Jonathan has a passion for journalism, sports, and cashmere sweaters. He lists playing basketball as a higher priority than eating food, and rumor has it he even sleeps with his basketball. When he’s not reading up on world news, and writing about politics or personal finance, Jonathan can be found cheering on the Lions at Ford Field or attempting to convince Cleveland Cavaliers owner Dan Gilbert to add him to the active roster.


 

 

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