Here are some reasons to consider when you want to be an owner or the renter.
Reasons to rent
- Flexibility.Renting allows you to explore an area before making the longer-term commitment to homeownership. Unless you are certain about a specific neighborhood, renting allows time for research and discovery.
- Career uncertainty. If you are not settled into your career or could have an opportunity torelocate in the near future, it is much easier to switch to a month-to-month lease or sublet than it is to sell your home.
- Income uncertainty. If you expect a pay hike or cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.
- Bad credit. Creating a history of on-time rental payments can help you build the sort of credit you’ll need to qualify for a mortgage.
- No Maintenance Is Required. If the garbage disposal breaks or you need a plumber, getting maintenance is as easy as calling the superintendent.
- Utilities (sometimes) included. In some instances, the landlord may pay for many utilities such as water, sewer, garbage, and, in some cases, even heat and hot water.
Reasons to buy
- Equity. Historically, homes rise in value anywhere from 4% to 6% per year. Even if your home doesn’t increase in value, though, you’ll be building equity as you pay down your mortgage as long as your home maintains its value.
- Tax deductions. Homeowners can deduct their mortgage interest payments and property taxes when they itemize their federal income taxes. These deductions offset the cost of your housing.
- Creative control. One of the joys of homeownership is the ability to change your environment to suit your tastes. Of course, if you live within a development with a homeowners’ association you may have a little less freedom with your home’s exterior, but you can still paint your kitchen purple if you like.
- Maintenance choices. If you live in a house, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a condominium or homeowners’ association, you may pay a monthly fee to have maintenance work covered by the association’s contractors.
Is renting cheaper?
Housing prices don’t need to decline as severely as they did during the financial crisis to cost homeowners significant sums, if they need to sell during a downturn. Modest declines in home prices are common.
Even people who want to own a home at some point can benefit from renting for a while to save up for a larger down payment. If the available inventory is thin, they can rent while they wait for a wider variety of homes to be listed for sale.
One way to tell whether it’s better to rent or buy is by checking the price-to-rent ratio (or P/R ratio). This number gives you a rough ideawhether homes in your area are fairly priced. Figuring a P/R ratio isn’t tough. All you do is:
1. Find two similar houses (or condos or apartments), one for sale and one for rent.
2. Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.