Friday, October 18, 2013

Guest Blog: Which is smarter: renting or buying a house?




After watching what their parents experienced during the economic crisis of the last 5 years in terms of job loss, foreclosures, and/or a short sale (owing more on their home than what it is worth) many Millennials or Generation Y’s might think it makes more sense to rent rather than buy a home. 

Over the years I’ve often thought it was better to buy a house than to rent one
in most cases, but not in every case. Comparing buying to renting is actually a fairly complicated endeavor. However, there are a few easy guidelines you can use to aid you in your decision. 

Buying a house is usually more beneficial than renting except when:

  • ·         You intend to move within a few years

  • ·         Your rent is very low

  • ·         Job stability is questionable

Building equity vs. “throwing your money away”
Certain expenses that accompany buying a house do not build equity and may actually contribute to the argument for renting instead of buying. These expenses  would include:

  • ·         Property Insurance
  • ·         Private Mortgage Insurance (if your down payment is less than 20%)
  • ·         Maintenance
  • ·         Closing costs
  • ·         Interest on your mortgage
  • ·         Property taxes

Advantages to buying vs. renting can outweigh the expense

  • ·         You lock in your monthly payment for 15 or 30 years. (If you kept renting you’d pay more each year.)
  • ·         Normally your house gets more valuable over time, however that is no longer a guarantee. 
  • Tax Advantage - Your real estate taxes and the interest on your mortgage are deductible from your income tax. 
  • Security - A feeling of security that comes from owning a home and the knowledge that your home is a safeguard against inflation. 
  • Environment - Your children grow up in the neighborhood of your choice 
  • Satisfaction - Home ownership offers special advantages that make life more enjoyable - backyard barbecues, large family gatherings during holidays, a home workshop, a chance to enjoy your family's companionship in the privacy of your own home. 
  •  Investment - Payments on your mortgage loan mean you are acquiring a major possession; instead of rent, you own more and more. The garden you plant, the permanent improvements you make - all enhance your way of living as well as the value of your home.

Tax advantages could change soon with the legislation being introduced in Washington D.C.  Home Buyers today need to look at owning a home as a lifestyle decision that requires a large commitment - and investment - on your part. 

With interest rates at historical lows, and home prices at reasonable levels, this could be an opportune time to buy a home provided you have job stability, a reasonable down payment and qualify for the monthly principle, interest, taxes and insurance. Talk to a REALTOR to determine which route is best for you.

Mike Bowler is an Associate Broker for Coldwell Banker Hubbell BriarWood Real Estate Company and has serviced the Greater Lansing Area for over 30 years. He can be reached at 517-492-3400 or Mike@MikeBowler.com.

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