Renting vs. Owning a Home

You’re young, ready, willing, and able to move into the housing market, but why haven’t you?  Perhaps it’s because you need money, but perhaps it’s because you’re scared. Owning your own home has some very distinct advantages especially for the long term home-buyer.

[Note well: Notice how I don’t use the term investor…that’s because owning a primary residence is NOT considered an investment.  That is, unless you have others paying your mortgage for you!]

Here are the top advantages to owning your own home (you might recognize some of them from my previous post):

  1. Mortgage interest is tax deductible–In other words, if you finance home with a mortgage, the interest you pay on the loan is tax deductible whereas the rent you pay each month to your landlord is not.

  2. Property taxes and and mortgage insurance are tax deductible–Similar to the reason one, property taxes and mortgage insurance are deductible for now.
  3. Leverage–Stocks allow you to borrow on margin, usually no more than around 50%.  Nowhere else can you put 3% cash down as a down payment and borrow 97% or the purchase price like you can with a mortgage.  Furthermore, you can actually borrow money for the down payment! Renting allows no such margin to control the property.
  4. Appreciation–Generally, home prices go up over time in value.  This means that if you buy at a certain price, you can generally assume to sell your home later for a profit. With renting, you don’t actually own anything so you won’t be able to sell anything.
  5. Cheap Money–First mortgage interest rates are in the 2.75% to 5% range as of right now.  Compare that to a low interest rate credit card of 12% and you’ll see that mortgage money is much cheaper than just about any type of money you can borrow. Furthermore, you can borrow against the property by refinancing.  A higher loan amount means greater interest tax deduction, cheap money to pay off high interest debt, and cash when you need it.
  6.  Pride of ownership–There’s this unbelievable feeling when you’re able to purchase your own property.

But, there are also a couple of drawbacks of buying a home vs. renting.

  1. Qualifying–Purchasing a home is a major process.  Loads of paperwork over the recent years has made it more difficult to qualify for a mortgage.

  2. Freedom–When you rent, you have the ability to pack up and move relatively quickly compared to when you’re a homeowner.
  3. Monthly Expenses–Many times your rent will cover your utilities where as when you own your own home, you pay utilities yourself.  Furthermore, the general before tax monthly rent payment will be less than that of a mortgage payment that includes principal, interest, taxes, and insurance.

If I were a young investor, I would purchase a home as soon as I could and rent it out to my friends.   That way, they would make most of the mortgage payment for me and I would reap all of the benefits of ownership. It’s actually something that I wish I had known about when I was in college.

Contact me for assistance in purchasing a home as soon as you possibly can.

Comments

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