Which is a better option, renting or buying a home? This question is difficult to answer and depends on one’s current financial situation. However, it is important to note that homeownership does come with major financial rewards that are not applicable to renters.
1.) A Leveraged Investment
Owning a home allows a homeowner to increase any appreciation on the value of their home by a leveraging factor. Even a substantial 20% down payment results in a leveraging factor of 5 so that every percentage point in the value of the home is a 5% return on the equity. With the average buyer putting 10% or less down, their leveraging factor is 10 or more. Every month the mortgage is paid, the reduction from the mortgage increases the amount of equity. Plus with equity from your home, you would be able to pay for college, retirement or other major life events.
2.) Rent or own, you are still paying
It makes a lot more sense to invest your money in something you own, than it does to pay a landlord. Homeowners pay financial institutions to reduce their own principal, while renters pay to reduce the principal for their landlord.
3.) “Forced Savings”
Owning a home tends to change the perspective many people have on saving money…spend now, save later. Owning a home means more financial responsibility, which encourages smarter saving and spending habits.
4.) Tax benefits of owning
As a homeowner, you will be able to deduct mortgage interest and property taxes from your annual income taxes. Plus capital gains (up to $250k for single filers and $500k for married couples) are excluded if you sell your home for a gain.
5.) Owning protects from inflation
Housing costs and rents tend to increase over time at a faster pace than the rate of inflation. This makes owning a home a more attractive option.
6.) Mortgage Rates
Over the past 30 years, mortgage rates have been decreasing, which means a decrease in your monthly payment.
Local real estate markets, your financial status, as well as personal needs and goals will all affect your housing decision. Homeownership makes sense for many people due to an assortment of personal and social reasons, but it also makes sense financially. Consult a local real estate professional to help guide you to happy and responsible living.