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Rent or Own 5 Questions

Buy or Rent? Which is Better for You?

This guest post was contributed by Real Estate Experts, a leading real estate agency in the Chapel Hill market.

Buy or Rent?

Buying a home may seem like an enormous expense, but many renters are surprised to find just how much they can purchase with a mortgage payment of $1,000-$2,000 per month. Today, we’ll give you a rundown of five crucial questions to consider as you make your own decision about whether to buy or rent.

Cost Comparison

To research cost comparisons in more detail, you can find calculators at Zillow, Realtor.com, and the New York Times. We like the NYT’s version because it incorporates multiple values, from the amount of time you plan to stay to the amount you can spend on a down payment.

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Plugging in your rent can be illuminating – and tempting. For example, if you’re paying $1000 on your downtown studio, your funds could purchase a house worth $288,000 or more.

Sounds great, right? But before you tab over to Redfin, there are a few other factors to consider.

5 Crucial Questions

1. How long are you planning to stay in your new home?

Length of stay has a huge impact on whether it makes more sense to buy or rent. The buying process is pricey – moving costs, appraisal fees, title insurance, brokers’ fees, mortgage origination fee, and so on.

These fees vary widely, but they amount to at least a few thousand dollars up front. If you sell after just a few years of residence, your property value will likely not have appreciated enough to offset any of these add-ons.

You’ll also owe capital gains tax on your property if you sell it within two years. However, if you are planning to stay long term, you can recoup these costs.

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2. Can you assume that housing prices will always rise?

Home equity is based on the assumption that home prices will rise decade by decade – sometimes gradually, but always increasing. The collapse of the housing market in 2007 showed that this sense of constant dividends can be illusory – investments are unpredictable, and housing markets can suffer rapid reversals.

Nationwide, most housing markets were more resilient and less volatile than notorious bubbles like Miami and Las Vegas, but this past decade has been costly for many homeowners, forcing them to delay retirement or sell their homes at a loss.

Before you buy a home, think about what your finances would look like in the event of a catastrophic drop in home values. Remember, too, that market values are an aggregate measure – individual results may vary, and you can’t assume that your property will appreciate at the same rate as others in your area.

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On the other hand, you can rely on annual rent increases, and it’s wise to consider what rental payments in your neighborhood will be a decade into the future.

Own or Rent?

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3. Is paying rent “throwing money away?”

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The basic argument for buying vs. renting is that renting nets you nothing: you never earn any equity in your rental property, and your right to stay ends when your lease runs out. The truth may be a bit more nuanced.

If you focus on your monthly mortgage payment, you might be overlooking some additional, hidden costs of ownership. You need to budget for property taxes, homeowner’s insurance, and routine maintenance.

You may also have to shell out for unforeseen expenses, such as a burst pipe or a leaky roof. On the other hand, you will have much more control over your home than most renters, and you can also build equity through strategic renovation.

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4. How much will you really save on taxes?

Most home buyers assume that the additional costs of home ownership will be offset by the mortgage interest deduction. This isn’t always the case – multiple factors can reduce the savings you gain through tax rebates.

Homeowners must itemize their tax deductions in order to receive the mortgage interest deduction benefit. Your tax benefit may not remain steady over the years, either.

Most mortgage amortization schedules dedicates the majority of the monthly payment to interest in the first several years of the loan.  Over time, a larger percentage of the monthly payment is devoted to principal – meaning that you pay less interest and can claim a smaller deduction. Make sure you’ve factored this decrease into your home buying budget.

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5. Are you comparing big picture to big picture?

When you’re comparing renting and buying, you need to factor in the complete costs of home ownership. Which option would have the highest positive impact on your overall wealth and financial security?

For example, let’s say your mortgage were to cost $1800. You currently pay $1500 in rent. What if you took the $300 difference and invested it long-term? Would it compare to the equity you would build as a homeowner?

Some benefits are less tangible. You may feel more secure owning a property rather than renting. You may want to put down roots in a particular neighborhood. You may want the added independence and privacy offered by a home as opposed to an apartment in a crowded building.

You may just want a big backyard. All of these considerations are meaningful, and it helps to have a clear sense of your personal priorities as you evaluate the pros and cons of homeownership.

A home is a big responsibility in more ways than one, but it can pay off. Shop around for some property listings in your area, and see if you can’t find a better deal than your rental property. When you’re ready to transition to home ownership, you’ll have the knowledge base you need to make a sound real estate investment.

At Real Estate Experts, our clients are our priority. Visit us online at realestateexperts.net.

Getting Your Questions Answered

I would like to extend a special thank you to the folks at Real Estate Experts for this great article.  If you’re trying to buy or sell in the Chapel Hill area, I encourage you to contact them!

There are some amazing, and professional real estate and mortgage folks out there.  However, most visitors find this site because they’ve been researching solutions to challenges, and have been told 10 different things by 10 different loan officers.

We’ve created this resource to help you sift through the endless opinions and articles that may, or may not directly answer your question correctly.

There are several ways to ask questions, and get expert opinions on this website.

  • Submit a Question:  On the bottom of this page, you’ll see a prompt that allows you to ask questions.  These questions come directly to me and are answered very quickly.
  • Leave a Comment:  Below every article is the option to leave a comment or question.  We see these comments and questions in real-time and the always answered, usually pretty quickly.

In addition to researching your questions and providing you with expert advice, I can also introduce you to a lender friend that I know has experience with your specific situation and can help.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

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