I recently came across an article in Forbes talking about how a previous homeowner would never, ever, ever, ever, own a home again.
It was just too much dang work!
Seriously, she did make a compelling argument for renting over buying. You can see her full article here. And this is not anything new that we are hearing. This debate has been beaten to death so many times that the horse is filing for a restraining order.
Also, the article was filled with so many. numbers (makes me woozy just thinking about it.)
In light of the recent developments and my aversion to numbers, I did what any blogger worth his skittles does, I took it to the boss and said “Splain, Lucy!”
We sat down and ran through some of the highlights of her article. So, sit back, relax, and prepare to receive some wisdom.
What is the first reason you think of when someone asks you whether they should rent or buy?
Joe: The first thing that crosses my mind is the amount of freedom that someone desires. Now this can go in either direction, homes limit you in ways that renting does not, but renting also has its limitations.
For example, when you purchase your own home it is your own canvas and you are free to do what you desire, whenever you desire. If you want to paint, you paint your colors, if you want to do landscaping you can choose what and how you do it. When you rent this is not your choice. The owner (landlord) can dictate terms of what you can do and not do. Your freedom and creativity is held hostage by the whims of the landlord.
Well, that’s a good point, but what about the increased responsibilities, such as repairs and upgrades, that don’t come with rental properties?
Joe: There are some truisms in the fact that owning your own home comes with responsibility and costs to update, upgrade, maintain and yes even repair as needed. These are considerations you take into account when making your purchase just as if you are purchasing a car. Should you buy new or old, what size is going to fit your family, are you planning to upgrade to a larger vehicle in the future or should you go big from the start, etc.
The difference is that most consumers know that when you purchase a vehicle your value is going to drop as soon as you leave the parking lot. When purchasing a home the idea is that the value will continue to rise and unlike a car if you purchase a little larger due to plans of an expanding family you can grow into your home as the value increases, whereas the vehicle will continue to drop in value.
What about increase in taxes? Won’t that eventually decrease your equity in a home, while as a renter you are protected?
Joe: As a landlord myself I always look at the where the rents are moving. Each year as the market shifts so do the rents. If my taxes or insurance go up, the rent I charge my tenants will increase accordingly. As a tenant, you do get away from the immediate pain of increasing payments that a homeowner will incur if the tax valuation increases, but typically it is passed on to the tenant at the renewal of each lease.
Ok, break down the numbers for us. Most of the points in her article feature tax incentives, interest payments over time, most of which is written in hieroglyphics. Simple question: do her numbers add up?
Joe: She makes some really solid points in her article, but the numbers that she presents don’t make perfect sense.
For example, if you take the numbers that she provides, even acting out the worst case scenario you are still ahead in the end. If you purchase a $200,000 home and it appreciates to $468,307, subtracting out the $156,307 interest you paid over the thirty years and add back in the tax savings of $40,000 you come out ahead $152,068.
But we can take that even further. Say that you do spend the $152,068, which we Realtors do not advise, in updates, upgrades, maintenance, and repairs over the thirty years when you sell and close, you walk away from the closing table dead even. If you take this from the rental viewpoint, when you walk away from the rental property, you have spent 30 years of payments with no appreciation. You did get out of spending money on any upgrades or repairs, but you still walk away with nothing.
So, who benefits?
Simple answer is the landlord of the rental property. The landlord gets back a paid off home thanks to your 30 years of payments and now places a new tenant in to start the process over again or sells the property and walks away with the $468,375 of his money that used to be yours.
In reality, you almost always walk away with some type of profit. I know this is contentious, especially with the recession that we’ve experienced the past several years. But if you have a knowledgeable Realtor who is experienced and is working with your best interests at heart, you will rarely find yourself in situation where your house actually depreciates on its own.
Sometimes renting is the best choice but overall long term purchasing I believe is always more advantageous.
Combine all of this solid advice with the fact that owning a home is close to 40% cheaper than renting in some areas and you’ve got a lot of solid reasons to seriously begin considering purchasing your own place.
One of my favorite things about my decision to buy a house is the fact that one day soon I will own my home completely. Right now, we’re on track to have it paid off in about 5 more years. In the meantime, we get to take advantage of tax advantages that save us money. For example, if you own your home and itemize your deductions, then you can deduct the amount of mortgage interest and real estate taxes you pay each tax year.