Renting Versus Buying: The Practical Truth There are many factors to consider when considering renting versus buying a home. Chief among these can be your desired mobility. Indeed, suppose you anticipate your residence in a place to be short-term. In that case, renting does afford a greater degree of flexibility. And yet, as the availability of housing continues to grow tighter, ownership becomes a more attractive and practical option. So consider these things as well: • The rising cost of rent • Limits on making a space your own • Home expenses only add value to your landlord, not you Add all of this up, and it may be time to take another look at homeownership. This article discusses the financial and practical differences and benefits between buying and renting. It is intended as a resource to guide you in planning for your near-term and long-term goals. Building Equity: Yours Or A Landlord’s? Most of us have a monthly housing payment regardless of whether we rent or buy. The question is, “who is gaining value from that payment?” If you are renting, the answer is that your landlord is building equity and value from the property. Renting gives you the flexibility of movement, but you will not produce any equity for yourself by spending your money building value for someone else. If you plan to stay in one place for more than a few years, why not invest in your future? Mortgage payments can be a way of paying yourself in long-term value. The equity you build today can be the profit you realize tomorrow. Your Monthly Expense Stays the Same Rental payments typically increase every year. And while many places limit how much rates can go up, you can be sure that your rates will continue to rise. With a mortgage payment, your monthly costs are set when you finalize the loan. Therefore, except for property tax increases, which generally do not occur yearly, you can be confident that your monthly expense will remain stable for years. Ownership allows you to build equity with the same fixed monthly payment rate. On the other hand, renting will almost certainly see your monthly expenses rise yearly, with that value going to your landlord. Imagine the difference in value you’ll see versus the increases in monthly payments throughout a 30-year loan! * Exceptions could be if you refinance to a shorter-term loan or choose an Adjustable Rate Mortgage, but your payment is set with a standard, fixed-rate loan. Building Your Net Worth Homeownership is an excellent move for your personal finances regardless of whether you stay in a home for a few years or forever. This is because every mortgage payment increases your equity in the house – the percent of the home you legally own. Your net worth increases as you own more and more of the home. Consistently paying off a large loan like a mortgage is excellent for maintaining a high credit score. Equity gives you power and options with your finances. You can take loans against the equity to increase the home’s value through renovations and updates. You can, in many cases, use your equity to make other investments. Equity is an asset that you can use to improve your net worth and financial health, and renting does not give you that benefit. The Freedom to Make Home Improvements Speaking of renovations: as a homeowner, you will be able to enjoy your house to the fullest. You can hang artwork using nails. You can repaint the walls or add an accent wall. You can remove walls and change the floorplan, finish the basement, and complete any repairs you need without asking a landlord or building manager first. Most of the time, those changes will boost the value of your home, increasing your potential for profit should you choose to sell. And if you decide to rent a house while purchasing another, your improvements can increase the rent you charge. House-Hunting: More Options With Better Service Finding a rental property usually leaves you on your own: scouring online listings, tracking down property managers or landlords, filling out multiple credit check forms, and those are the easy parts! However, when shopping for a house, you have the advantage of a real estate professional providing you with a lot of that work. Real estate agents are local house-hunting experts. An agent will listen to what you want, access everything available (including some properties that aren’t listed online), and bring you homes that meet your criteria. They do this like a recruiter that identifies the best resumes. Working with a real estate professional means you have a partner and an advocate in your search. Your agent often sends you links to 3D tours and books no-contact walkthroughs on your schedule. Realtors can also help you find gems within your budget, craft the strongest offer for sellers, and negotiate a beneficial purchasing contract. Or you can keep chasing down random landlords and property managers. The choice is yours:) Tax Benefits of Homeownership Being a homeowner comes with various ways to reduce your annual tax burden if you’re looking for tax deductions. Some of the potential tax benefits may include: Mortgage Interest Deduction Deduct the amount of interest you pay on the mortgage each year Up to $750,000 of mortgage debt Real Estate Taxes Deduct up to $10k from the state and local property taxes you pay each year. Mortgage Points Deducted the year you pay them, or your seller pays them. Private Mortgage Insurance (PMI) Deduct your payments until 20% equity when PMI is no longer necessary Includes VA loan funding fee, USDA loan guarantee fee, and FHA loan up-front mortgage insurance premiums Stops when adjusted gross income (AGI) passes $100,000/year Home Office Deduction In some cases you may be able to deduct a portion of real state taxes, mortgage interest, insurance premiums, depreciation, repairs, security systems, and utilities for the office. This deduction is for small business owners and self-employed people who regularly use a home office; this does not apply to employees working at home. Medically Necessary Home Improvements The cost of improvements for medical care and accessibility. Only deduct expenses that exceed 7.5% of AGI. Only applies to the medical portion of home improvement spending. When Selling A Home There is a capital gains tax exemption for a primary residence. You must have lived in the home for 2 of the last five years. No taxes on the first $250,000 profit from the home sale (single) or $500,000(married) Reduce capital gains by keeping a record of maintenance and improvement costs Moving Expenses For Armed Forces Members On active duty and have to move for a permanent change of station Does not apply to reimbursed expenses Can apply to the transportation and storage of household and personal items Travel and lodging costs from one home to the next Energy Efficiency Select energy efficiency tax credits are available state-by-state Mortgage Credit Certificate Bonus in your tax return when granted a Mortgage Credit Certificate on the year of your home purchase. Rollover non-refundable credit – can be applied over three years to reach the total amount. When applying these deductions, we recommend that you work with a tax professional to ensure that you comply with the latest tax laws and get the most significant benefit from your assets. Put Down Roots or Invest in a Stepping-Stone People often think that buying a home is putting down permanent roots. For many, that can be the case. If that’s your goal and you’ve found the right location and house, this is an excellent next step. But you don’t have to buy a home forever. Many people buy a home, enjoy it for a few years, and then sell it at a profit to purchase a different house. Some people buy a second house and rent the first. You don’t have to pick one place forever when purchasing a home because the housing market is constantly changing. Regardless of your long-term plans, ownership provides you with an asset that is yours. It offers you the flexibility to make the changes you want in your home and the equity to build a more stable future for yourself and your family. Finding Your First Home Contact us today to explore the benefits of buying a home to build value. We’re ready to help you craft a specific vision and plan to take you from renting to owning and creating value for yourself. JR Mortgage Group Inc. Click to Call or Text: (316) 247-9639 This entry has 0 replies Comments are closed.