Whether you’re a young person looking to settle in a new city or an aging couple looking to downsize, the question of buying vs renting a home is a major financial decision. Many Americans dream of someday owning a home, but economic factors and lifestyle preferences may mean renting is the better option. Here is a look at some of the pros and cons of each.
Why you might want to own:
- Home Owners Build Equity: This is one of the biggest benefits of owning a home. Once you buy a house, that check you write the landlord each year doesn’t just disappear; it becomes an investment in new property. As you pay down your mortgage, you are gaining equity in a valuable asset, which has the potential to grow in value over time.
- There may be tax benefits: Being a homeowner can cut down your taxes each April, since homeowners can deduct property taxes and any interest on their mortgage. This is especially helpful if you are in a higher tax bracket. Some states even grant additional tax benefits to homeowners.
- You can become a landlord: Instead of paying rent every month, owning property can give the opportunity to become a landlord yourself. Whether you are renting the whole home or an extra room, the ability to turn an expense into an income stream is one of the greatest benefits of owning a home.
Why you might want to rent:
- Renting has less upfront costs: Despite the benefits, buying a home is expensive. The down payment, the mortgage, renovations, repairs and other costs can be a big financial burden, especially at the front end of the purchase. If you are not looking to spend a large amount of money upfront, or you need to save for other investments, it may be wiser to rent.
- Renters take less risk: Buying a house commits a large chunk of wealth to the real estate market. While this can be a great investment, it can also expose home owners to economic risks. If you are cautious about the real estate market, renting may be the safer choice.
- It’s easier to move: Switching houses is an ordeal. Finding a buyer, moving your goods, negotiating the price, dealing with the mortgage, all of this is a lot of work. If you know there is a possibility of a move in the near future, it might be better to rent.
There is a lot to consider when it comes to buying vs renting a home. Of course, there is more to a decision like this than just money. Your personal ambitions, lifestyle preferences and familial status will all play a role in your decision. Only you and your loved ones can decide which path is right for you.
Garland and Mason, LCC is a New Jersey business law firm specializing in real estate and bankruptcy law.