Deciding whether to buy a home or rent a home is a huge financial decision. Yet, some of the factors that go into this decision are difficult to account for in dollar terms.
First, for whatever reason, rental prices may skyrocket in a particular place so to avoid escalating rental prices, buying a home is a way of “locking in an affordable place to live.” If you rent, there is always a chance that the region you live in will attract a flood of people and high-paying jobs, resulting in rent increases.
Second, another factor that makes a case for buying over renting is that buying a home forces you to save money. More specifically, when someone buys a home with a standard mortgage, he or she gradually pays off the balance and as time goes on, this person will have less debt. Assuming that the value of the home is stable or rising, once the home owner hits retirement age, he or she could have a nice pile of cash savings by either renting or selling the house and moving somewhere cheaper.
Third, buying a home can give you certain tax benefits. For example, if you had plenty of cash and were deciding whether to rent or buy a home, you may be tempted to rent and invest in stocks and bonds. When you invest money in financial assets, however, you have to pay taxes on the returns that they offer. On the other hand, when you buy a home, the return it pays you (giving you a place to live, not interest or dividend payments), is tax free. Economists refer to this as “imputed rent” and it is truly a subtle yet important advantage to buying.
There are also advantages to renting over buying. For example, a fourth factor to consider is that a renter will not have to worry about the unpredictable costs of maintaining a home. A renter pays a set monthly payment covering the costs of repairs and maintenance while homeowners are faced with much more unpredictability, ranging from an urgent $2000 air-conditioning repair bill to a $15,000 roof repair. Overall, when deciding whether to buy or rent a home, it is important to weigh these factors carefully. While one should compare numerical factors such as monthly mortgage payments, closing costs, etc., it is also essential to examine these four factors that cannot necessarily be plugged into a calculator. For more information, click on this link.
