May 27, 2016
Learn the advantages and disadvantages of renting vs. owning a home, how to decide what's right for you and the ONE thing that should be the deciding factor.
Advantages of Home Ownership:
Forced savings in the form of equity
Tax benefits (interest deduction)
In control
You own the property
Can do what you want to it
Benefit from prices rising
Disadvantages of Home Ownership:
Mortgage interest to pay and mostly interest at first
Debt around your neck
Can be foreclosed
Pay for repairs, maintenance, insurance, yard
Property tax
Advantages of Renting:
No real responsibilities other than rent
No cost of repair or maintenance
No Taxes or insurance
Might be less expensive than buying
No down payment
Opportunity cost of down payment
Flexibility to move, change neighborhoods or states
Disadvantages of Renting:
All the money goes out the door
Opportunity cost of down payment - could earn $$ or 0
Can’t personalize the rental to your liking or make upgrades
At end of 30 years, own nothing
You have a landlord
Owner is in control - can raise rent, be a bad landlord
Owner benefits from price rising
You are paying for owner’s house
Financial Example
Rental Own
$1,000/mo. $300,000 purchase price
x 20% down = $60k
$240,000 loan
@4.5% interest
$1,000/mo. vs. $1,216 (tax deductible)
$800 after tax
+insurance
+maintenance
+repairs
$1,000 vs. = $1,000 est.
Consider:
How long you plan to live there
Moving is bad - commission, moving costs, remodeling, furniture
Overpaying for a home - have to pay off more than it’s worth
Bubble?
One expert stopped here…at $1k vs. $1k Noooo!
At end of 30 years, $0 vs. $300,000 (possibly more)!
The forced savings is the critical element to consider!