Renting vs Buying: Weighing the Options
Real Estate is one of the oldest trades. As long as we have civilization, we will have property businesses and real estate commerce. A common debate is whether buying and owning property, or renting, is more cost effective. Often, people will repeat the casual conversations that they overhear real estate agents talking about, but never crunch numbers to find out the real answer for themselves.
There are five accepted methods to purchasing a home: 20% down/30 year fixed, 15 year fixed, FHA loan, private loan, or cash. Considering these paths to take, they all have one thing in common: a static interest rate. This means that the deal you get is the one that will stay with you until you fully own the house. That is especially valuable when you contrast steady mortgage rates with fluctuating, usually rising, rent costs. The National Rent Report declares that from October 2015 thru October 2016, rent prices have increased 2%. This may sound like a modest number, but that is just for one calendar year. It really starts to add up when you think about living in a place for more than one or two years.
The reason houses are often considered an investment is because, simply, they are. Despite the recent housing bubble, the real estate market is surprisingly stable. Real estate prices mimic inflation rates. Moderate inflation will always be present, it is the normal cycle of a healthy economy. This means that your home, provided it is upkept and maintained, will undoubtedly increase in value as well, but that is just the beginning. Since construction costs continually increase and the local population rises, real estate in any form will simply become more elusive and valuable as time goes on.
What about retirement? Judiciously investing in real estate can offer a reliable safety net as you approach your retirement years. Your property will remain until you choose to sell it; at which point it will probably have appreciated in value. This will do one of two things: allow you to downsize and pocket the surplus cash you just made, or, provide a rent-free home which drastically reduces retirement costs. It is simple; owning property will deliver a feasible retirement.
The glaring disadvantage of renting is that you will never see that money ever again. Every monthly check is gone with the wind. It may seem more alluring for renters to cut a small, or sometimes big, check every month and not have to worry about loans or interest, but unfortunately, it is not fiscally advantageous.
Renting does not generate equity. For every mortgage payment you make, that amount is returned by building home equity. When you sell your home, that equity is what leads a profit; remember, real estate appreciates, or goes up, in value. You have to make a monthly payment whether you rent or sell, why not have that go back into your own pockets instead of a landlord’s?
When purchasing a home, mortgage payments are authorized to be considered tax-deductible. If you are making a respectable payment, writing them off as tax deductions can save you an astonishing amount, since your taxable income is now less than it was. Similarly, home improvement projects or renovations can warrant tax benefits as well. However, renting does not allow you to do this.
The biggest deterrent to committing to buying a home is the down payment. Yes, the down payment is a big chunk of money and it can be difficult to muster, but it is absolutely worth it in the long run. Here is a sample calculation of real renting vs owning costs, with a home price of $250,000 versus a monthly rent of $1,880 in Austin, Texas. After just three years, the buying option becomes noticeably cheaper. After ten years, you will have saved $120,000, and after thirty years, you will have saved $700,000. This effect is magnified in metropolitan or areas with high tourism.
Buying a home is considered an investment. Predicting your financial future is impossible, and the market is levied on many uncontrollable factors. It is tough to foretell what the future holds, but the numbers tell us a clear message. That message is, if you plan on sticking around for more than two-to-three years, then the monetary advantage is huge. If investing in an ever-increasing home asset is desirable for you, explore what we have to offer at Marina Grande on the Halifax.