All Aspects of Renting Vs. Buying a Home
The traditional advice has long been that owning a home is always a better financial decision than renting, and that almost everyone should try to save up a down payment and buy a home (and stop paying rent) as soon as possible. However, despite the general historical truth underlying this advice, the drop in home values following the real estate crisis of 2008 has made it very clear that there are times when buying a home is not a good decision.
Advantages of Buying
The obvious advantage to buying a home is that the money you were paying for rent is now used to pay for your investment rather than your landlord's investment. There are also significant tax deductions associated with owning a home, and of course there is the pride of home ownership and being part of a neighborhood.
Disadvantages of Buying
First, you have to save up for a down payment of at least 10 percent, with banks requiring 20 percent or more in some cases. Another big downside of owning a home is property taxes, which are out of your control and dependent on the local economy. Another disadvantage to owning is repairs and maintenance. Not only do you have to cough up the money for any repairs, you are also responsible for all maintenance, from changing the air conditioning filters to mowing the lawn. Another possible disadvantage to owning is if the real estate market crashes, your home may suddenly be worth 20 percent to 40 percent less than it was two years ago (but you still have to make the same payment).
Advantages of Renting
One of the greatest advantages of renting is the lack of long-term commitment. You can sign a lease for as long as you want and move at your discretion. Another related advantage of renting is not having to pay a significant down payment, borrow money and expose yourself to risk in the real estate market. Another big benefit of renting is that you are not responsible for repair costs (unless the repairs are made necessary by your negligence).
Disadvantages of Renting
Besides missing out on the significant financial benefits of home ownership, renters are essentially at the mercy of their landlords. There are legal remedies to egregious behaviors or lease violations, but they take time and in most states landlords hold the legal upper hand. Finding a place that will accept pets can also be a problem for a renter, while homeowners can bring home any legal pets they want.
Economic Cycles
The decision to make any investment, whether buying stocks, bonds or a home, should be made taking the current economic picture into consideration. You don't want to buy stocks -- or a home -- at the top of a bull run just before a downturn. The two main macroeconomic considerations in buying a home are interest rates and prices -- buy now if you think prices or rates are increasing, or wait if you think they are dropping. One strategy is to continue renting until you find just the right time at the bottom of an economic cycle when interest rates are still low, but just starting to move up (real estate prices tend to follow).
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