Rent VS Buy
Which is better Renting or Buying a Home? Consider the following factors in making the decision to either Rent or Buy Home.
Examining Your Finances: determine whether or not you can afford to purchase a home – ability to make a down payment (between 5% and 20%), earnest money deposit , inspection expenses and closing costs.
Mortgage Payment: many financial experts suggest to use the formula 28%/36%. In accordance to that formula, your monthly payment should not exceed 28% of your gross monthly income and your total monthly debt payments not exceed 36% .
Factor in Home Maintenance: from carpet to window coverings, new appliances to a new roof, everything costs money and nothing lasts forever. In case of renting, if maintenance issues arise, the landlord pays for the repairs. Instead of spending your money on a new roof, you can invest it or spend it as you like.
Investment Analysis: the solid reasons to Buy instead of Rent
- Build Equity
- Tax breaks
- Investment Value
Weigh in all the positive and negative long-term realities of the equity, tax breaks and investment value associated with buying a home.
Do the Calculations.
The results provided by a calculator and the investment evaluations you make are only as good as the assumptions used to calculate them, and don’t forget to consider the cost of ongoing maintenance.
Always consult with professional financial adviser to help you determine all positives and negatives of your potential investment.
|Equity||Some of the money that you give to pay a mortgage goes directly toward building equity in your home. You will never again see any of the rent money that you pay. Home equity can serve as collateral for a loan, enabling you to convert the equity into cash.||Equity takes time to build, and payments made during the first few years of a mortgage go primarily toward interest on the loan. Should you move after living in a home for only a few years, you may have little or no equity in the property. And after the costs of selling the home, you could end up losing money.|
|Tax Breaks||Unlike money spent on rent, the mortgage interest and property taxes you pay are both deductible on your federal income-tax return. If you sell your primary residence at a profit, much of your gain is likely to be exempt from federal taxes. If you take out a home-equity loan, some or all of the interest on the loan may be deductible on your federal income tax return.||First, the tax breaks on interest and property taxes apply only when the amount of your itemized deductions is greater than the standard deduction amount. So you and your spouse have a standard deduction of $9,700 and itemized deductions of $8,000. You are better off taking the standard deduction because it\’s greater than the itemized amount. But you therefore receive no tax break on the mortgage interest you paid. Even when itemization provides a greater tax break than the standard deduction, you are allowed to deduct only a portion of your interest payments. For example, if you are in the 33% tax bracket, you get a $0.33 tax deduction for every $1.00 that you pay in interest on your mortgage. While some tax break is better than none, you need to ask yourself if it really makes sense to spend $1 in order to get a $0.33 tax break. The benefit of the tax break does not exceed the benefit of paying for the home in cash (if possible) and foregoing the tax break. Every dollar spent in interest adds to the amount above the purchase price of your home that you will need to make just to break even when you sell it. Owning a home means having to pay real-estate taxes every year. So even after your mortgage is paid off, you\’ll still have to keep making payments to someone to keep your home.|
|Investment||Real estate in the form of your primary residence is likely the single largest asset in your portfolio. Over the long term, price appreciation can be significant. Many homeowners downsize their primary residence when they retire; they sell at profit, purchase a less expensive home and use the profits to supplement their income.||While history shows it is likely that your home will appreciate over time, there are no guarantees. There are always areas of the country where homes have lost value, and owners are unable to sell them at a price equal to or greater than the purchase price.|