Friday, March 13, 2009

The First Steps Series-Making the Decision to Buy or Rent

Today we are going to talk about making the decision to Rent or Buy and highlight some of the Advantages and Disadvantages of buying a home.

One of the first decisions that you need to make if you are considering buying a piece of property, is whether buying a house instead of renting one is the right path for you. Many people assume it's always an advantage to purchase a home, and for most, it is. Buying real estate is one of the smartest financial decisions most people will ever make. However there are some serious factors you must take into consideration first to see how your situation will be affected by choosing to rent or buy. You have to ask yourself: Do I know what I want? Do I have the money? Are my finances in order?

I have outlined some of the most important advantages and disadvantages of Renting and Buying below.

Advantages of Renting:
  1. Renting does not require a large amount of cash up-front in terms of a deposit or downpayment. (we'll cover the costs of purchasing a home in a later Series)
  2. You know exactly how much rent you will be paying each month and it is constant throughout the life of the lease
  3. There is little or no responsibility for maintenance
  4. It's easier to move-when your lease is up, you just pack up and move on
  5. Even though you are not gaining equity, you're not losing it either
Disadvantages of Renting:
  1. You will never gain equity
  2. No tax advantages (those go to the owner of the property!)
  3. Many times you have limited or no ability to personalize your living space.
  4. You have no control over increases in rent
  5. There is always a possibility of eviction (particularly if the owner decides to sell)

Advantages of Buying:

  1. Property builds equity over time.
  2. Tax benefits
  3. Sense of community, stability, and security
  4. Free to change decor and landscaping
  5. Not dependent on landlord to maintain property

Disadvantages of Buying:

  1. You are responsible for maintenance of your property
  2. Must have the money for a down payment and closing costs-larger initial investment
  3. Your responsible for property taxes
  4. There's always the possibility of foreclosure and loss of equity
  5. If you want to move, you generally must sell your home

Before buying, you need to consider all the costs of homeownership

On average you need to add another 40-45% to your monthly mortgage in housing costs. You must consider maintenance, utilities, insurance, property taxes, etc...You also need to consider any immediate costs, which include home improvements (painting, landscaping, fixing cabinets, changing toilets, buying furniture, etc).

Happy House Hunting!

1 comment:

  1. Good post! You should do one on the advantages/disadvantages of purchasing a home/condo.

    ReplyDelete