Most Americans work to obtain the coveted prize of home ownership. Owning a home signifies a level of accomplishment. Regardless of location, there are many benefits to owning a home. Yet, there are many who prefer to bypass ownership for the convenience of renting. Depending upon lifestyle, renting may prove to be the more prudent option. Each has its advantages and disadvantages. Below, we’re going to examine the benefits and drawbacks of buying vs renting.
Advantages of Home Ownership
Whether the home is a single family residence, condo, or townhome, ownership provides significant tax advantages. Homeowners can deduct interest and property taxes from their income. Owners can also deduct equity lines of credit taken against the home. In addition, ownership proves to be a solid investment. Even though markets fluctuate, home values ultimately increase. This provides owners with many financial options. Equity lines of credit can be taken out against the home to be used at the owner’s discretion.
Homeowners may also rent their property or a portion thereof to generate a passive income. Rental properties can generate significant incomes over time and have the potential to produce long term, financial independence.
Unrelated to finance, privacy and the pride of ownership fulfills the need for those content with their small piece of the “American Dream.” Neighbors can be disruptive at times and small children make demands at all hours of the night. Cigarette smoke and burned dinners can invade ventilation systems, filling adjacent dwellings with unwanted smells. Home ownership virtually eliminates these concerns and allows the homeowner to enjoy serenity in his or her private haven.
Disadvantages of Home Ownership
Purchasing a home is a serious financial commitment. Down payments are rather significant and upkeep can be costly. Insurance and repair may also be taxing at times. Deductibles are incurred costs the owner must pay prior to insurance contributions for catastrophic events. These costs tend to be much higher than the average homeowner has in savings.
The outcome of job loss or income reduction can also have adverse effects upon the homeowner’s credit. Inability to pay the mortgage will result in foreclosure or short sale. Foreclosure has a greater negative impact. Should this happen, the home is often sold below cost. The homeowner forfeits any potential profit.
Mobility is restricted by home ownership. Employment opportunities that require relocation may prove challenging to homeowners. Overall, housing markets increase. However, they may prove volatile at any given time. Selling a home during a down market may be the only option for many homeowners. This often results in a loss or minuscule financial gain.
Buying vs Renting: Fun Facts
- Only 8% of America’s largest cities are markets where renting is more affordable than buying a home.
- 20% of large American cities fall in a grey area where buying may be more financially sound though it is less expensive to rent.
- After the housing crash, it’s now more affordable to be a homeowner in 72% of major U.S. cities.
*Data & Source: Trulia.com
Advantages of Renting
Renting is often less expensive. Even though some renters have monthly obligations that rival mortgages, the overall expense of renting is much less than owning. There is no down payment of 10-20% of the property value. There are no property taxes or interest payments. There is very little maintenance obligation for the renter. Renters insurance is not a requirement, but is much less than homeowners insurance.
Renters also enjoy communities that offer additional conveniences at no extra cost. Swimming pools, barbecues, and full gymnasiums come standard with many apartment homes and are accessible nearly 24 hours per day. Some apartment homes may also include utility, cable, and internet services. Renters also enjoy the convenience of short term contracts and may be able to break lease commitments with no significant financial impact.
Disadvantages of Renting
Renters do not enjoy the financial benefit of ownership. Therefore, many view this form of housing as a waste. Money is spent month after month with no financial return. Renters also live in very close proximity to neighbors. Depending upon neighbors, this may prove to be a debilitating proposition. Unless renting a home, space is very limited and apartments may not include laundry facilities within the unit. The convenience of “in unit” laundry facilities goes unappreciated until it is not available. Other inconveniences include single or tandem parking spaces, dark garages, and potential water damage from overhead units.
Buying vs Renting
Renting or buying is a matter of lifestyle and value. However, one can never go wrong owning an asset that is capable of producing significant wealth.