Why Owning Is (Generally) Better Than Renting
There really is no one-size-fits-all answer to the question of whether renting is better than buying or vice versa. If you like a no-strings-attached lifestyle and prefer to put your money in other long-term investments, renting might be the better option. Most financial experts, however, say that people should strive to own for the following reasons:
Home ownership is a great way to cut tax liability. With a mortgage, you may be able to deduct loan interest and property taxes from your taxable income. This cuts your income tax payment and may make home ownership cheaper then renting.
It's one of many ways to build personal wealth or pay off debt. As a mortgage loan is paid down and housing prices rise, homeowners build equity in what they have bought. This provides an ownership stake that can be used sparingly for a home-equity loan or line of credit. (However, home equity shouldn't be used like a bank account, an issue that is discussed throughout this book.) When the home is sold, the equity is translated into profit, which can be used to fund investment in a new home.
Ownership gives you more control over where you live. A landlord might sell a beloved apartment or rental home out from under you at any moment or raise the rent so high you can't afford to pay.
You put your money into improving something that's yours. Renters typically invest money in paint and other leave-behind decorating features — that's money they'll never get back. When you own, those improvements belong to you. Assuming they're valuable in the marketplace, they help you build equity in a property.
Real estate provides a worthwhile dimension to any diversified investment plan. A well-diversified portfolio always benefits from a slice of good real estate. Finding mortgages for rental or vacation properties can be a bit more complex, but investors who plan to live in the property while they fix it up can usually avoid those problems and make attractive money, no matter what the market.
While owning real estate is generally a solid move as part of a financial plan, renting may be best for an individual or family in certain circumstances. The following table illustrates some important issues you should consider when you're deciding whether to rent or buy.
Rent If … |
Buy If … |
You plan to live in this location for less than two years. |
You're planning to stay longer and you want to build equity and tax savings. |
You don't want to buy until you have at least some money for a down payment. |
You're willing to take on a loan with a low or no down payment, which could turn risky if the housing market declines. |
You have a better way to invest your money. |
You want to build equity in property as a way to build your overall assets. |
You don't want to put substantial money and effort into maintaining your own property. |
You enjoy the idea of properly maintaining and improving the value of a home. |
Your cash flow is too inconsistent to afford the regular monthly costs of home ownership. |
Your income can support a home without exceeding a limit of 40 percent of your gross income to do it. |
Some people who are perfectly comfortable renting their primary residence may become owners of vacation or investment property for the particular benefits those types of property provide. The bottom line is that ownership can be financially beneficial, but the responsibilities that come with it have to fit your lifestyle and budgetary needs as well.
