SHOULD YOU RENT OR BUY AN HOUSE ?

The question of whether to rent or buy is a matter of individual choice. It is relatively easy to list the financial factors concerning renting and buying, but the non financial considerations are much more dif.cult to weigh. Housing decisions are extremely important from many viewpoints. The purchase of a home is probably the largest single expenditure that individuals make. For renters, rental expenses could account for up to 40 percent of their monthly budgets. However, the housing decision goes beyond expenditures because where you choose to live determines your commuting time to work, access to shopping, your neighborhood friends, your children’s friends, the school system, and so on. A tremendous amount of time and thought are invested in making housing decisions. In addition to financial reasons, some people rent because they may not want to be faced with the responsibilities of home ownership or they may expect to be in a location for only a short period of time.

There are several advantages to renting:

• You have greater mobility when you rent. When your lease expires, you can leave without having to sell the property. If mobility is important to you, do not tie yourself down with a long-term lease without an escape clause.

• You are not tying up your money (other than the amount of the security deposit), which means that you can invest your money or use it for other purposes of paying the debts using savings.

• Renting may result in reduced expenses for maintenance and repairs. Landlords are usually responsible for most, if not all, repairs.

The disadvantages of renting are:

• Your rental payments give you no ownership interest.

• You have no control over rental increases.

• If the property appreciates, you do not share in the appreciation.

• You cannot deduct your rental payments against your federal taxes (interest on a mortgage and real estate taxes are currently tax-deductible expenses).

• Your lease may restrict you from having pets or starting a family.

• You could have loud, messy neighbors or an ineffectual landlord.

Renting is much simpler and less time consuming than buying a house. For example, if you rent a house in a neighborhood that has poor schools or high crime, you can easily move out. If you have bought the house, the problem will be more time consuming to rectify, and probably more costly.
From a home owner’s point of view, there are several advantages to home ownership:

• Over long periods of time, most housing units appreciate in value and prices tend to keep pace with in.ation. Home ownership could be considered an investment as well as a hedge against inflation.

• Home ownership provides some tax relief in that the interest expense on the mortgage and the real estate taxes are deductible items from taxable income at the federal level. Interest expense on a mortgage is not subject to being added back to the computation of the alternative minimum tax (AMT).

• Over time, home owners increase their equity position in their homes if they had .nanced their purchase. A portion of each mortgage payment goes toward the repayment of the mortgage. Thus, over time, home owners owe less and their equity stake increases.

• Home owners who have suf.cient equity in their homes or who have seen price appreciation of their homes can use the buildup as a source to provide new loans, such as home equity loans.

• Home ownership provides more freedom than renting. There are no landlords and no restrictions concerning pets, children, and so on.

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