When it comes to the topic of renting vs. buying a home, one thing is likely—if you ask around, most of your friends and family are bound to have pretty strong opinions on it. You may know people who say, “Don’t take out a mortgage; you will just get trapped and find yourself underwater in a few years.” But you may know other people who say, “Paying rent is just like throwing money down a black hole.”
Which of these perspectives is valid? How do you decide whether to rent or to buy?
The reality is that both of these perspectives are far too narrow to help you make a decision. You need to consider your personal situation and priorities. This is something I will delve into in the third installment in this series. In the meantime, I want to share some of the basic pros and cons that go with both renting and buying. As this is a big topic, I will split it across a couple of blog posts. Let’s start by talking about the pros and cons of buying a home.
Pros of Buying a Home:
- If you are paying on a mortgage and you are able to keep up with your payments, eventually you will actually end up owning your home. This is a great feeling as it can give you a sense of stability. In fact, even before your mortgage is paid off you will own equity in your home, and that can be a solid investment.
- If you are thinking ahead of future generations, a home has great value for your children and makes for a wonderful inheritance.
- Living in a home of your own, you generally have a far greater degree of control over your basic day-to-day life. You might think you can get that from renting a house (as opposed to an apartment), but that isn’t entirely the case. If you rent a home, you need to get permission for every change you want to make. If you buy a house, you can make any improvements you want.
Cons of Buying a Home:
- As far as assets go, homes are quite illiquid. If you want to sell your home, it may take months or even years to finalize. Homes can lose value too, so you can actually lose on your investment.
- Buying a home actually carries a surprising number of “money down a black hole costs.” You may not be paying rent, but you will pay as much or more in property taxes. You may also need to pay for trash, water, and sewer services as well as homeowner’s insurance. Additionally, if something needs repair, you will have to pay the price to fix it. To top it off, there is the interest on your mortgage. Yes, there is the tax deduction if you are itemizing, but that is not nearly enough to offset these costs.
- If you buy a home with an adjustable mortgage, you never know when your rates could balloon out of affordability (you can of course avoid this with a fixed mortgage).
Now you know some of the advantages and drawbacks that come with buying your own home. Ready to learn the pros and cons of renting? I will be covering that topic in my next post, Renting vs. Buying, Part 2.