Renting Versus Owning
There are some important differences between renting and owning a home.
When you rent, you are not as tied to your home, or at least you are not tied in the same way that you are when you own it. You leave choices about your home up to your landlord. It's easier to move to another neighborhood or town on short notice because all you have to do is wait until your lease is up (or break it). The dollar value of your home may increase — if you paint it (with your landlord's permission), for example — but it doesn't benefit you, it benefits the person from whom you're renting.
Owning a home gives you choices that you do not have as a renter. You are the one who chooses what new carpeting or flooring should go in when you need it. You choose when to water the lawn. You choose when it's time to replace the old dishwasher. And with all of those choices comes the responsibility of dealing with problems when they arise — there is no land-lord to complain to when the water heater breaks.
Table 1.1 Rent Versus Owning Comparison
Advantages of Buying |
Considerations for Buying |
Property builds equity |
Responsible for maintenance |
Sense of community, stability, security |
Responsible for property taxes |
Free to change decor and landscaping |
Possibility of foreclosure and loss of equity |
Not dependant on landlord to maintain property |
Less mobility than renting |
Advantages of Renting |
Considerations for Renting |
Little or no responsibility for maintenance |
No tax benefits |
Easier to move |
No equity is built up No control over rent increases Possibility of eviction |
Source:
Owning can also make you feel more tied to a community than renting does. You are more “settled” there, even if you plan to stay only a few years. The value and appreciation of your home depends a lot on the neighborhood it is located in, as you will read in Chapter 11. Therefore, it will be very important to you financially to take a strong interest in what's happening around you.
The financial difference between renting and owning is also significant. When you rent, your monthly housing cost goes out the door and doesn't benefit you (other than keeping you from being kicked out, of course!). When you move from your current rental, you'll have nothing more (financially speaking) than you started with. When you own a home, each monthly mortgage payment builds equity (or, in other words, increases the amount of the property you own), increasing your net worth. Your home is likely to appreciate — increase in value — over time, so when you are ready to move, you will be able to sell it for more than you bought it for. This is, of course, a great benefit to you financially.
The tax benefits of owning are also worth considering. You can deduct the cost of interest that you pay on a mortgage from your income taxes each year. And because, especially early on in a mortgage, the majority of the monthly payment is going toward interest, that means a substantial portion of your monthly housing payment can be deducted, reducing the amount of tax you owe by quite a bit. Renters can't deduct any of their rent, so they end up paying more in taxes than they would if they owned their residence.
