Things Trump Might Say About Renting versus Buying a Home
No, not really! Trump would say buy a home, but here, guest blogger Derek Dawson of Dawson Property Management in Charlotte lays out a good case for you to consider. If you decide to buy a new home in Charlotte, then Roger Holloway is your guy. Here's Derek...
Deciding whether to buy or rent a home is a major decision. It affects your savings and lifestyle.
Every day, people buy homes when they would be better off financially by renting. This is because, for many people, owning a home brings a sense of freedom and pride that renting cannot match. Equally, people decide to rent because of the minimal responsibility and flexibility it offers. Some leases operate on a month-to-month basis, permitting a person the freedom to change places at their will.
Are you a homeowner interested in renting a home, or a renter interesting in buying a home? It’s time to evaluate the pros and cons of each option.
Pros of Renting Your First Home
Some utilities may be included. Many owners of multi-unit buildings cover utility costs. Although less common, the practice is still possible in smaller buildings such as single-family homes and duplexes.
On the contrary, depending on dwelling size and usage, homeowners must pay full utility costs.
The landlord is responsible for property repairs and maintenance. The landlord is responsible for the costs of repair and maintenance. As a tenant, you don’t have to call an expensive repair person if a pipe
Moving is easier. As a tenant, you have a certain level of flexibility. Relocating for work is potentially less costly and less time-consuming.
Even where you need to break your lease, you would still have several options to minimize the penalties. For example, you could negotiate with your landlord or you could sublet your apartment.
Selling a home, by contrast, isn’t easy. Credit requirements are less strict. Mortgage lenders usually have high credit standards. In many cases, credit scores of below 700 are considered subprime.
By contrast, you're likely to find a landlord willing to rent to you, if you don't have a checkered credit report that includes judgments and bankruptcies.
Cons of Renting Your First Home
Security for housing is limited. There is no law that entitles you to remain in your rental unit indefinitely. Such uncertainty isn’t faced by homeowners.
The price of the rent can go up. Your landlord can raise your rent unless you live in a rent-controlled municipality. Landlords can raise the price of rent for many reasons. For instance, to match rent increases elsewhere in the market or to compel tenants to leave.
You won’t enjoy rent-related federal tax credits or deductions. Renters don’t qualify for any housing-related federal tax credits or deductions. Homeowners, by contrast, can deduct property taxes and mortgage interest on their federal income tax returns.
You don’t build any equity. You can’t build equity in the property under a standard leased agreement no matter how exemplary a tenant you are or how long you remain in your rental unit. Every dollar you pay in rent is gone forever unless you’re a party to a rent-to-own agreement.
Pros of Buying Your First Home
You enjoy a sense of belonging. Homeowners are more likely to put down roots in their communities. This is because, unlike renters, they tend to stay in their homes for longer.
You can turn your home into a source of income. You have the option of turning your home into an investment property. Provided you follow all local rental property laws, the easiest way to do this is by renting out part or all the property.
You can enjoy tax benefits. Though not all homeowners qualify for all benefits, several tax benefits cater exclusively to homeowners. Federal tax deductions and homestead exemption are the most notable.
Boosts your home’s value. Through judicious investments in home improvement, you can boost your home' value. For instance, you could potentially boost your property's value by increasing the property's curb appeal and functionality.
Also, unlike tenants, homeowners build equity over time. A portion of each monthly payments, on most mortgages, goes toward the loan’s interest. The other portion goes towards its principal.
Cons of Buying Your First Home
You are responsible for repairs and maintenance. Expect to pay about 1% of your home’s value annually toward these expenses. That notwithstanding, your exact outlay is likely to vary from one year to the next.
Your property’s value could decrease. You risk financial loss when you sell your home if home values in your area remain flat or decrease during your tenure as a homeowner.
Upfront costs are high. You can expect to shell out no less than 5.5% of your home’s value prior to moving in. However, home buying costs vary greatly depending on the home’s value and the size of the down payment.
Ultimately, each decision has its pros and cons. When it comes down to it, select the option that best fits your budget and circumstance.
Guest Post by Derek Dawson of Dawson Property Management