Each year, millions of dollars are funneled into home buying marketing campaigns. No doubt, you have heard that buying a home is more fiscally rewarding than renting will ever be. However, that might not always be the case.
Buying v. Renting
Renters are often told they are “throwing away their money” because they are not building equity; they are not investing in anything that will net a greater return over time. Even though many real estate professionals claim homeownership costs are fixed, this is not 100 percent accurate. Cost variations run the gamut from trifling to substantial with any home. There is not a “one size fits all” or “right” answer when it comes down to whether or not you should rent or buy, it is making the best choice for your finances and lifestyle.
There are five hidden costs to home ownership.
1) Mortgage payment
2) Mortgage interest
3) Property taxes
4) Homeowners Insurance
5) Annual maintenance and repair
In contrast, there are fewer cost variables for renters, and none of them hidden.
1) Monthly rent
2) Renter’s insurance
3) Security and/or pet deposit
Side by side comparison.
When renting, your monthly payment stays the same for the duration of your lease. Typically, rental increases are commensurate with property tax increases for the landlord.
A mortgage fluctuates each year based on its terms (if it is not a fixed rate), the assessed property taxes, home owners insurance rates and annual maintenance and repair. While it is true that homeowners can deduct property taxes and mortgage interest from federal tax returns, the savings may not always exceed annual maintenance and repair expenses. In fact, for certain income brackets the tax deduction offers little benefit.
Considerations
For some, homeownership is a kind of forced savings plan. The average homeowner can expect to see increases ranging from one to three percent annually in a healthy market, and they cannot cash out the investment until they are ready to move. For individuals who have a hard time sticking to a savings plan, a home could be just the thing – providing they know how to maximize their equity before they sell. The outcome of profit on a home sale, however, does not rest solely in the hands of the homeowner; there are external factors outside of his control. Like any other investment, a home is not a guarantee of return.
Before you buy a home, educate yourself on the hidden costs associated with homeownership and compare those costs against your budget and lifestyle. At the end of the day, the right answer comes down to your budget and a little basic math.