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Rent or Own - Which is Better

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By : Jacob Pettit    99 or more times read
Common wisdom used to dictate that owning a home was better than renting. Home ownership was always the dream, until the mid-2000 housing crisis burst that bubble. People who did not really qualify for expensive homes were convinced that they should purchase a home without full disclosure of the financial risks. Many people ended up in foreclosure and with ruined credit ratings. Now they are renting again until they can truly afford a home.

The Decision to Buy or Rent

The decision to rent a home or buy a home requires some financial calculations and economic awareness. The housing crisis of the 2000’s resulted in lower home prices and the depressed economy pushed interest rates on mortgages to a low level. Anyone with the financial means to purchase a home could benefit from bank-sales and foreclosed homes. Some of the homes needed work, but there were bargains on the home sales front.

However, before that crisis home prices were inflated beyond the reach of many first-time home buyers. They were forced into rental situations until they could afford the down payments and inflated mortgages. So, owning a home vs. renting is often a decision based on the economic climate as well as personal finances.

Financial Considerations in Home Ownership

There are renting vs. buying calculators that can assist a person in making a financial decision on which option is better for them. The concept is simple. If a person is paying $900 a month for rent they could purchase a home for $110,000 and assume a mortgage of around $1,000 a month if they have the required down payment and money to cover closing costs. There are legitimate programs for first-time homebuyers that assist them in financing a home. It may seem like buying a home is a good deal if the difference is only $100 per month. But, there are other expenses to home ownership.

  • Insurance

  • Property taxes

  • Routine maintenance

These are expenses that a person who is renting does not have to pay. If the homeowner buys a condominium or lives in a community that has association fees, that monthly expense also has to be added. People who live in homes become part of the community and are not as easily transient as renters.

What are the Benefits of Home Ownership

A person that is renting will have to deal with rent increases annually, to the point where the rent becomes more than the mortgage payments would be. Plus, renters never build equity in the property, and never realize the tax returns on the interest portion of the mortgage payments. Home owners will eventually pay off the mortgage and own the home. Then they are only paying insurance and taxes, so when they are older their income may reduce but so will their living expenses.

Benefits of Renting

Renters never have to worry about maintenance. If the plumbing breaks, for example, they can call the property maintenance and go on to work. Very often the outside of the property is maintained, while homeowners have to do the mowing and shoveling themselves. Many renters enjoy the freedom of not having to perform maintenance tasks around the property. They do not have to budget for roof repairs or broken refrigerators.

Owning vs. Renting

It is often said that renters are throwing their money away. Yet, homeowners pay interest on a home for the first few years equaling approximately 75 percent of the mortgage payment. That is money they will never see again and does not go towards the actual principal cost of the home. Home insurance and property taxes are also part of monthly expenses that does not go towards paying down the principal of the home.

People often look at a home as wealth. A home is the largest purchase a person will make, and if they are looking at the home to build wealth they would be better investing the money in the stock market or financial vehicles that produce a higher rate of return.

Home ownership does result in a person being invested in the community where they live. Renters tend to move more often so never have a stake in the political and social climate of the community. This may be a preference for some, but families will want to become very involved in issues that will affect their community and homes such as local politics, school issues, taxes and levies, and community improvement.
Jacob Pettit is a residential property manager and a loving father. After getting his degree he started working with movers in Melbourne advising them on how to do the job better and provide more professional service to become the best removalists in Melbourne.

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