Does the Home Ownership Make Cents?

rent-vs-buyThe American Dream has evolved over time from the right to liberty and pursuit of happiness to the ownership of material items, one of them being a home to call your very own. However, after paying a recent property tax bill for my home, I don’t know if this is a dream I want to be living! As a renter, I could live in the same town, have my children attend schools in the same district, and completely avoid the HUGE property tax payment each year. Ouch!!  Do you think owning a home is still the American Dream?

Advantages of Renting:

1. Flexibility to move. There are many reasons that people would rather live somewhere else and they can easily do so once their lease ends.

2. No Maintenance Is Required. If the garbage disposal breaks or you need a plumber, maintenance is only a phone call away.

3. Amenities. Depending on where you live, you may have access to nice amenities such as a pool, or workout facility.

4. Avoid the down payment. No need to come up with a down payment = 20% of the home value. That is quite a lot of money!

5. No need for an extra large emergency fund. Consider the future repairs or updates your home may need. (roof, water heater, A/C, carpet, etc., etc.)

6. No risk of home depreciation

7. Potentially cheaper than a mortgage. 

8. Saving the best for last: NO PROPERTY TAXES!

Alternative:

Take the money that you would have used for a down payment, maintenance and the annual property tax bill and invest.  This could potentially grow at a faster rate than the equity would if you put it toward buying a home.

Disadvantages of Renting:

1. Your Monthly Payment Can Increase. Rent have been rising in many cities, so you may be facing an increase in your monthly housing payment as soon as your current lease ends.

2. You Don’t Build Equity. When you rent, your housing payment provides you with a place to live, but will not provide you with an asset to sell when you are ready to move.

3. You Don’t Receive Tax Benefits. Homeowners can deduct their mortgage interest payments and their property taxes from their federal income tax, which reduces the final cost of home ownership. Renters cannot deduct any of their housing expenses.

4. You Can’t Paint or Remodel Without the Owner’s Approval. While some landlords are kind enough to let you paint your apartment, you’ll have to get their permission and consult on the color. If you want to make other changes or upgrade an appliance you’ll have to put in a request with your landlord or apartment manager.

5. Your payments never stop. You have to keep renting if you don’t own the property outright.

6.You are at the mercy of the property owner decisions.  Of course, you can always move if you’re not happy.

From a financial perspective only, the biggest wildcard is the timing of your purchase and the appreciation of the home which varies greatly by location and luck if you are buying at a good time.  In Glen Ellyn, my negative feeling about home ownership is inflated compared to many parts of the country due to our ridiculously high property taxes.

If you or your children are in a state of flux, and are debating between buying and renting, check out Charles Schwab’s Rent vs. Buy Calculator. It’s a nice tool that gives you an idea of the cost difference of buying vs. renting.

Of course, there are other factors in the decision. The stability of knowing where you will live compared to your ability to easily move.  Then, there are the never ending repairs of the house, new appliances, etc. Many people think of their house as a money pit.  There is very real cost of home ownership and the idea of renting and investing the savings (down payment, maintenance, improvements, and property tax cost) may be a better “financial” decision.

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What’s your opinion on this issue?

 

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