Almost all people in the past would have unanimously agreed that buying a house is a much better alternative than renting. However, the subprime crisis and economic downturn of the past decade have shaken this wisdom to the very foundation. Now, again the real estate market seems to be reviving and showing a lot of promise. Here are some points that are worth considering in the present scenario, when you want to decide between buying and renting a house.
Is Buying a House a Marvelous Investment
Housing normally shows decent appreciation (besides the housing crisis in 2008), especially since 1975, and the average appreciation has been about four percent per year. Housing is normally a sound investment during robust economies, since it is leveraged highly. Consider when you are making a down payment of 20% of the cost; a mere increase of 3% in the price will yield increase of 15% to the equity of a homeowner.
However, the same is true in reverse when the economy goes bad. A 20% fall in price will wipe out the homeowner’s equity. Such a decline is not a stretch of the imagination; since these things have happened during the housing bust. Hence, the economic situation has a big role to play, when you are considering housing as an investment.
Considering Deductions on Mortgage Payments
Since, interest that you pay on your home mortgage is deductible; many people consider this an advantage. However, this is actually overrated, as you are paying someone and it is your expense. Secondly, the benefits from deductions will vary between families, and you need to check with your accountant to see if you are benefitting.
Rent vs. Mortgage Payments
When you have bought a house on mortgage, the biggest advantage is that you can live in it without paying rent. However, you need to see if the money you are investing in mortgage offsets rent, which you would be paying for a similar rented house. Secondly, you also need to consider the expenses that a landlord would normally pick up such as insurance, taxes, cost of maintenance, and so on, which you would normally would not pay as a renter. When you are buying a house, you will be having all these expenses, but you will have much more control over them, as you can decide about the most necessary things that need to be done.
Moving vs. Long Term Stay
If you were going to move frequently, a rented house would be a better alternative, since it is not easy to sell a house and it is expensive as well. Real estate agents could take a hefty six percent commission on the selling price, and selling the house by you involves a lot of work. You will need to consider all these expenses, and see if the value of your real estate property has increased to offset such costs.
However, when you are renting you should realize that you do not have any control over how long you can stay in that house, and it depends on the whims of the landlord.
Posted by on
Leave A Comment