SHOULD I BUY OR RENT?
The decision to buy or rent will be based on a variety of parameters including finances, lifestyle, school district, feelings of self-worth, etc. Some of the questions people have when considering their options are: Will I be guaranteed a tax credit for owning my home? Will I be throwing money away by renting? Be sure to consult with a Certified Financial Planner™ Professional as he or she can provide you with the expertise to make educated financial decisions for all aspects of your life.
BUYING…PROS VS CONS
Buying a home is very meaningful to some people, and not just from an economic standpoint. Home ownership is part of the typical American dream, and therefore something that a lot of people strive for. It can provide us with a sense of security and success. As a return on investment (ROI), the value of the house can appreciate over time and provide us a profit when we go to sell. There may also be tax advantages (or not). The tax cuts and jobs act has put a limit on the amount of property taxes and state income taxes that you can deduct, so the advantages are not as significant as they once were. There is a standard deduction that the government has put into place, which means there is a set amount that we are able to deduct before arriving at our taxable income. If you itemize your deductions (property taxes, mortgage interest, charitable contributions, etc), that number may end up being higher or lower than the standard deduction amount. You have the option to choose whichever deduction is higher.
Owning a home provides a lot of freedom as far as making changes to your living space. For example, if you want to paint your walls purple and orange, you’re free to do that. Whereas if you’re renting, you may need to obtain permission from your landlord first to make such changes. Home ownership also allows you to leave something of value, both monetary and sentimental, to pass on to future generations.
On the flip side, home ownership can be very expensive. You need to come up with a sizeable down payment, compared to the deposit fee that is required when renting. For those that can’t afford it, working with a Certified Financial Planner™ Professional will help you to strategize a comprehensive plan to help achieve your home ownership goals. What if your home needs repairs or renovations? As the homeowner, it is your responsibility to ensure that crack in the sidewalk is repaired, the leaky roof is fixed, or the plumbing issue is addressed. There is no landlord or management company to address these issues for you as there would be with renting.
If you’re looking to move out of your house, it can get a little complicated at times. You can’t just pick up and leave at the drop of a hat. You have to put your house on the market and find a qualified buyer. If when you’re ready to move the market has gone down, you may end up losing some of your investment as we saw in 2008.
RENTING…PROS VS CONS
Renting can provide a lot of flexibility. There are short-term and long-term leases, furnished and unfurnished options. There are no large down payments that you have to come up with as compared to when purchasing a home. The money that you may save paying your monthly rent fee vs a monthly mortgage fee, can be contributed to your investment portfolio or emergency savings, depending on your financial situation. Is something broken in your apartment? Unless it’s due to negligence or abuse on the part of the renter, the landlord or management company should take care of any necessary repairs. If you’re looking to pay a fairly fixed fee, have almost everything taken care of for you, or like to move a lot, renting may be the right choice for you.
On the flip side, renting a home may come with some sacrifice. What if you want a pet, have a roommate move in, make a major change to the décor, or some other change that either goes against your lease or is not explicitly noted in the lease? You will have to obtain permission from your landlord first, and the answer may be no.
Breaking a lease can also be complicated and costly. I’ve known people who were able to break their lease without any penalty, and others who were forced to come up with thousands of dollars to cover the remaining months left on the lease. In my experience, private landlords tend to be a little more flexible in this respect vs management companies, but there are pros and cons to both as well (another podcast topic for a different day perhaps).
WHERE TO GO FROM HERE…
Unfortunately there’s no one right answer when it comes to deciding whether or not to rent or buy. Everyone will have different considerations, varying financial circumstances, and unique lifestyle preferences that will impact their choice. Take the time to think what will best serve you, economically and otherwise, before jumping in. Seeking the help of a Certified Financial Planner™ Professional can help immensely as it will save you a lot of time and stress when making this, and all other financial decisions.
As always, thank you for checking out my podcast and blog post! If there are any topics you would like to learn more about, or if you would like to schedule a free financial consultation with me, please email me at Luis@onmywaytowealth.com! I look forward to speaking with you soon!