Own or Rent – The Ads and Disads of Home Ownership Today

Should You Buy or Rent a Home?

Even though the image of owning our own home, complete with a white fence, seems to always stay with us, nobody can disregard the news of how home ownership has meant financial disaster for many American families in the past several months.  Most of us, over 50, probably always assumed we would own our own residence by middle age. And many of us have bought a house or two.  How has that worked out for you?

For many families, home ownership has been great. The family home has provide security and pride. For others, the home has become a burden which ended up costing a lot of money without much real return in the end.

Costs of Home Ownership

Let us take a quick glance at some of the costs of home ownership. Consider these, and then try to determine if owning will give you a real advantage. Understand that this is not about what is good for your coworkers, friends, or Aunt Jane. This is all about what is good for you.

• Homeownership as an investment – I think we have all realized that most of us should not purchase a home because it is an investment. We should just buy a home because we want a place to live, and because it is a sensible part of our plans.  Some professional real estate investment experts make a lot of money. Some lose money. It is always a gamble, and most of us are not professional real estate experts.  In general, people do bettter if they stay in their houses for awhile. If you think you may need to move in the next couple of  years, think long and hard before you buy.
• Down Payments – These days, most borrowers will need a substantial down payment. How long will it take before your home is worth enough to get that back? Many families would be better off if they just continued to rent and stashed that down payment money in a secure investment and emergency fund.
• Mortgage Interest – Most of us also pay interest on our mortgages. You may be able to deduct that interest, but many homeowners cannot because their payments are not higher than the standard deduction everybody gets anyway. Even if you can deduct your mortgage interest and property taxes, you are still probably spending a dollar in order to save a quarter. Or more likely, spending hundreds of thousands of dollars in the long run to save tens of thousands of dollars.
• Repairs – You will not be able to complain to the landlord when your heater goes out in December or your air shuts off in August. Now you must call a repair person. You will also have to pay him.  Beyond large repairs, you will have to pay for day to day upkeep.
• Property Taxes and Homeowners Association Fees – We already mentioned the property tax deduction. You may, or may not, be able to deduct it from your income taxes. But many people get in trouble when those taxes are not included in an escrow on their mortgage and they have to come up with a few thousand dollars at the end of the year. Different neighborhoods have different homeowners association fees, but believe me, things can get ugly if they don’t get paid.
• Homeowners Insurance – Mortgage companies will require homeowners insurance. Even if you are lucky enough to own your home without a loan, you will probably still want to protect your largest asset. You can shop around for the best homeowners insurance rates, but renter’s contents insurance is much cheaper!

Advantages of Homeownership

Do not mistake me. I do own a home. I have also downsized quite a bit, and I currently own a home that is much smaller than the one I owned a few years ago. I guess I saw this as a way to get the advantages of home ownership while not dumping every spare penny into it.  I do not regret that decision at all.  I traded down for a lower mortgage, quicker pay off schedule, lower utility and insurance bills, and many other reasons. So if you are sure you want to own a home, you might ask yourself if you need to own the biggest home on the block.

A home can be a great source of family security, pride, and community. You can decorate and improve your home the way you want to without having to get a landlord’s permission. You also do not have to worry about your lease being terminated, forcing you to leave your home before you are ready. You will also have more privacy, and you do not need to be concerned that your landlord will want to drop in for a visit at some inconvenient or embarassing time.

Advantages of Renting

But many people also enjoy renting. I have a friend who had to move her family because of a job transfer. They rented, after owning a home for several years. She was nervous about buying another home because she was not sure if she would be up for another transfer soon.

And she actually enjoyed many things about renting. The complex was family friendly and provided quite a few amenities that her family took advantage of. She liked the convenience of a shared pool (that she did not have to take care of) right outside her front door. She said it was fun, like living in a hotel. 

And while she understood that the rent money did not grow any equity, she was experienced enough to understand that there is always a “rent” built into any sort of living arrangement.  When you consider repairs, taxes, insurance, etc., you have to come to understand that not every dollar you spend is building equities. When you further consider an uncertain real estate market, well that’s where owning is a gamble.

Should You Rent or Own?

There is no way to give one answer that will be right for everybody.  You have really think about your options, consider the pros and cons, and then make a decision. That is not to say that emotions cannot be considered. It is great to buy a home that you will be proud of, but only if that decision is a good one for your family.

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