Throughout the 20th century the American dream included the purchase of a home and many “experts” recommended that people buy their own home if they could.
The US government was so sold on the idea it provided various financing aids including the GI Bill after WWII and then various mortgage entities.
The burst of the housing bubble in 2007 and the changes in American lifestyles and financial arrangements has cast some doubt on the universality of this advice today. For some buying makes sense, for others renting is far better.
Libby Kane and Skye Gould wrote a recent post on the Business Insider blog about what you should consider in deciding to rent or own a home.
They provide a flow chart and then links to some financial experts who explain some of the flow chart items. It is a good analysis and relatively thorough, though each person’s situation is unique and it would be wise to look at more than one source of information before making such an important decision.
In my book, Your Financial Success, I discuss this at some length and offer this table of considerations to compare the advantages and disadvantages of buying and renting:
|Mobility||Allows you to move more often and quickly.||Requires a longer term commitment to one location.|
|Maintenance||Frees you from the work and expense of home maintenance.||Requires more time and money to maintain.|
|Taxes||There are few tax advantages to renting.||There can be a number of tax advantages to buying including the deduction of mortgage interest.|
|Return on investment||In times when home values are increasing you miss out on that return. In times when values are flat or dropping you avoid the loss.||In times when values are increasing you build equity. In times when values are flat or dropping you lose equity.|
|Security||Your possession is at the whim of your landlord. You can be evicted at any time.||Unless you lose your home to foreclosure it is a more secure investment if you buy.|
|Capital||Renting requires little investment leaving your cash for other purposes and investments.||It takes a lot of capital to make a down payment, pay for maintenance and pay mortgage payments. This money is not available for other investments.|
You can read more in my book available on Kindle.
Before you decide to rent or to buy educate yourself and evaluate the pros and cons as they relate to your lifestyle and financial situation.Wishing you well,
Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.