Purchasing a home is one of the largest financial decisions one ever contemplates. When buying a home, there are a multitude of financial considerations that must be made. Given the commitment required, renting sometimes proves a viable alternative to purchasing. Yet, while buying a home can be complicated, renting, also presents its own unique challenges; there are advantages and disadvantages to both. Prospective homebuyers are encouraged to examine their readiness to make the financial and emotional commitment required. While many aspire to own, sometimes renting, even for a brief period, can prove advantageous.
Owning a home isn’t necessarily a one-size-fits-all proposition. Determining when, where and how to buy is 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 prospective homebuyer is undecided, short on funds, or uncertain about their immediate future, renting may prove preferable. Conversely, if a homebuyer has the financial means to maintain a home, is well-established in their career, and desires an opportunity to experience the benefits afforded in home ownership, making the decision to purchase is well-supported.
Buyers and renters alike each possess initial cost considerations when searching for a home. When purchasing, homebuyers must pay earnest money deposits, down payments, home inspections, appraisals, and other line items connected to the purchase transaction. When renting, renters must pay security deposits, first month rents and potentially other deposits. In either case, there are upfront costs incurred.
Additionally, owners and renters must also pay recurring costs. Perpetual costs associated with home ownership include mortgage payments, property taxes, homeowner’s insurance, and private mortgage insurance (PMI). Recurring costs associated with renting may include monthly rent, pet rent, and renter’s insurance.
So, while the financial encumbrances to purchase a home are usually greater than the costs to rent; neither a homeowner nor a renter is necessarily free from financial obligation. Whether stipulated in a lease agreement or outlined a mortgage contract, conditions of a property’s use are most always predetermined and binding. Regardless, whether a property is owned or rented, the remittance of periodic payments is customarily expected as consideration for the rights to reside within the property.
Yet, there are other financial considerations that must also be considered when examining the viability of purchasing or renting a home. One of the greatest benefits afforded to homeowners is the potential to build equity. However, homeowners also run the risk of pecuniary 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 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.
Home ownership generally 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 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 specific circumstances there are undeniably benefits afforded to those who elect to rent their homes instead of purchasing. But, owning a home, also provides homeowners with a significantly greater degree of creative freedom to make changes to the property 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, successfully positioned 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.
The principles of supply and demand play an ever-present role in the home sale and rental markets. When rental inventories are low, purchasing oftentimes becomes more palatable. Yet, the reverse also holds true; when inventories of homes for sale are low, but rental vacancies are high, renting in turn may prove more desirable.
Consulting with a real estate professional oftentimes proves beneficial when determining whether the time is right to purchase or rent a home. Real estate practitioners well-versed in sales and rental options can help home seekers understand the advantages and disadvantages inherent in either renting or purchasing property.
Written by Sean and Aimee McDonald