Property

A Guide to Renting or Buying

When you need to acquire a home, most experts will recommend buying over renting for numerous reasons, but there are some times when renting will prevail. You just need to weigh the options. Here is what you need to know if you’re considering renting versus buying.

How to Decide to Rent or Buy

There are advantages and disadvantages to renting and buying, and it’s inevitable that one day most people will engage in one or the other of these processes. While some people are looking for rooms for rent in the classifieds because their credit is damaged or their funds are low, most people will choose to rent or buy. If this is your choice, here is what you need to know:

Advantages of Renting

If your rent is lower than average, and there is no chance for a rent increase, you may be better off renting than buying. You won’t have to worry about maintenance, taxes, or curb appeal of the home or property. You can simply occupy it and allow the rental company to take handle the details. This is a relief for many people who do not want the responsibility of the lawn, maintenance, and taxes. Though rental properties do require a deposit in most instances, it’s typically far less expensive than a down payment on a home. This is another advantage.

If you live in an expensive housing market, renting may be preferable. Honolulu is one of these areas where renting might more economical than buying a home. In general, if you can buy a home for less than your rent multiplied by 240, then it’s better than renting in the long term. In general, it takes approximately two years for buying to become a better deal than renting flats or apartments.

Disadvantages of Renting

Rental units require a never-ending payment. You will never own it, and it’s an expense that will never cease. This is not ideal because you can’t sell it, and in most situations, you cannot sublease it to another person to make money off of your investment.

Renting also is not ideal for the aging population because most older people eventually want to retire, and they cannot ever stop paying in a rental unit. Another disadvantage is that the units are also typically in more transient communities. People may stay a year, or they may stay for several years, but most people will move on and buy a property. People who are buying homes tend to stay and get to know their neighbors, and this is why homes are better.

Advantages of Buying

In 98 out of 100 of the largest metro areas, buying is preferable to renting. In general, you can get better than average return on investments, and your house will be larger than you would rent. Your house can become worth more than you paid for it. If you sell the home, you could make a profit on it. The best advantage of buying is that you own your home after you’re finished paying for it. All you’re responsible for is the property taxes and maintenance after the home is paid off. So, your expenses will go down immensely.

Another advantage of buying is the tax writeoff. You can write off the property taxes, a home office, and other home improvement type of expenses. These are only a few of the write offs that people can claim on their taxes to reduce the amount they owe.

Disadvantages of Buying

Your credit has to be near perfect to obtain a good loan, and you have to save at least 20 percent of the total cost of the home for a down payment. It may take several months or years to save a down payment for a home. Credit and down payments are the two primary impediments to most people buying a home. Most people can afford the monthly payments on houses, but they cannot afford the down payment nor do they have the credit to finance the house. This is a major disadvantage of buying.

Other disadvantages to buying include maintenance fees, repairs, taxes, homeowner’s associations fees, and countless other fees. Since you are no longer in the care of a rental agency, the fees to maintain the home may increase significantly. If the market tumbles, you may end up owing more on the home than it’s worth, which means if you need to sell, you would probably receive less than it’s worth. With an apartment, you can leave when the lease is up.

How to Determine if You Rent or Buy

Obtain one of the rent versus buy calculators online. Enter the values requested and determine what the calculator suggests. The best calculators should include sample values and generate a comparison immediately. Experts also suggest that the calculator should automatically calculate closing costs and taxes and insurance. The calculator should automatically recalculate when any value is changed.

The most convenient calculators will show the comparison values all on a single page. The results are also shown on an annual basis and may include a report for 40 years into the future. The reports may include multiple variables for each year. The help feature at every input is useful also.

Calculators are only as good as the assumptions used. Keep this in mind when entering amounts for apartments and houses. If you put in incorrect data, you’ll receive an inaccurate response. Be cognizant of what you enter into the calculator to ensure the assessment is accurate. If the appreciation rate is inaccurate, even by a small amount, it could make a huge difference in the bottom line.

Example of Renting Versus Buying

If you compare renting to buying over a seven year period, here is one scenario that may illuminate the benefits of buying over renting. A homeowner may buy a home for $110,000. After negotiating a mortgage, they may pay $1,000 per month with a fixed rate mortgage.

A renter, by contrast, may begin by renting a home for $800 per month with annual increases of five percent. By the end of the seven years, homeowners will pay less than the renter. In fact, if you factor in the tax breaks received for a home, the payment is less than the rental after three years. This is a good incentive to buy a home.

What You Need to Know About Buying and Renting

If you are renting, you can inquire with an apartment community or a private owner. If you are buying, you should consult a real estate agent or broker. Some real estate agents have leads for rental properties if a seller wants to rent the property while showing it.

Rentals require deposits and good credit, and houses require down payments and good credit. Both are an investment, but you’ll eventually own the home if you complete the terms of the loan. There’s nothing like having an asset that you can pass on to your loved ones or that you can use to become more profitable in your won life.

Review the Guide for Buying and Renting

There is no way for anyone to tell you which, renting or buying, is right for your budget. You should review the guide and make the best decision for you. When you make a decision, there are plenty of realtors and rental agents who will help you. Many can be researched online prior to an in-person visitation. After reading this review, soon you’ll be on your way to getting settled in your new home.

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