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Accommodation |
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| To know whether you should buy or rent a house |
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Is home ownership for you? That depends on a number of
factors, including your finances, your credit, and your lifestyle. In
this section, we help you compare the pros and cons of owning vs. renting
and explore issues such as finances, emotions and potential risks.
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| Rent
or Buy? |
That question is easy enough to answer, especially if you
take it literally:
A renter is someone who may someday want to own a home
but for the moment is quite happy paying rent on a lease.
A home buyer is someone who has actively made the decision
to buy a home, even if it means renting until he or she has saved up enough
money.
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| Are You
Better Off Being A Renter Or A Buyer? |
The answer to that question is more complicated. It
depends on a wide variety of factors, including whether your job requires
you to be transferred frequently, and where in the country you've chosen
to live. Deciding whether you really want to buy a home means taking a
long, hard look at both your finances and your feelings.
Financially, owning a home is often promoted as a better
choice than renting. Currently, there are significant federal and state
tax breaks: homeowners can claim deductions for real estate property taxes
and for the interest paid on their mortgage each year. In addition, long-term
homeowners build equity (the financial stake or investment you have in
a home)--and their personal wealth--both by paying down their mortgage
and when their home appreciates in value. Many savvy home buyers increase
their equity more quickly by buying homes that need aesthetic improvements
(such as decorating) rather than structural renovation (walls needing
moving). These minor improvements can significantly increase the value
of a home over a relatively short period of time with a modest investment.
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| Throwing
money out of the window |
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Paying rent, as the adage goes, is akin to throwing
money out of the window. There is no long-term benefit financially. As
a renter, you write a cheque each month to the landlord of your rental
unit, and say good-bye to your money as you drop the envelope in the mail.
A family living in Chicago has rented the same three-bedroom apartment
for nearly 30 years. Figuring an average rent of $1,300 per month, these
tenants have paid the landlord more than $450,000 in rent during the years
they've lived there. If they had bought the house 30 years ago, they might
have paid only $35,000 for a unit similar to the one they've occupied
all these years. By now, not only would their home be paid off (they might
have paid around $75,574 in principal and interest on a 30-year mortgage
at 10 percent), but they would also own a home worth at least $300,000,
and they would have been entitled to years of tax benefits.
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| Are
There Situations When Renting Makes Better Sense Than Buying? |
Definitely. If you're going to be in one place for only
a couple of years, buying a home can be a far more expensive choice than
paying rent for the same period of time, even factoring in the tax breaks.
For example, your home would have to be located in an area with extraordinary
appreciation just to recoup your costs when you sell: a brokerage commission;
city, county, and state transfer fees; title insurance; and a home warranty
for the buyer, among other costs. If you buy and sell within a short period
of time, you may well end up losing equity rather than building it.
Renting also makes good sense if you've identified the
general area in which you want to live but haven't made the final decision
as to the specific neighbourhood. Buying a home in a neighbourhood you
don't know well, is one of the top mistakes home buyers make. If you don't
know whether you'll feel comfortable in a particular neighbourhood, it
may be better to rent a house or an apartment there for 6 months or a
year, to get a feel for it. If you like living there and you like your
neighbours, you'll feel much more comfortable signing a purchase contract
and loan documents later on.
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| Look
At Your Financial Situation |
It's extremely important to review your personal finances
and determine what you can afford comfortably. It's also worthwhile to
explore your feelings about homeownership. There is a certain cachet to
owning a home. It immediately connects you to the community in a permanent
way. Unless you fail to pay your mortgage or your property taxes, you
will be able to stay in that home for as long as you like--perhaps even
for the rest of your life. And you, not the landlord, will benefit from
any improvements you make to the home through its increased appreciation.
You can paint your home any color you wish, expand or reconfigure it to
meet your needs, and add amenities to make yourself more comfortable.
Some renters, however, aren't quite ready to plant their
roots. Single people in their 20s and early 30s may prefer to rent near
other singles in a neighbourhood that offers a more active lifestyle.
People who are changing jobs or careers may not want the long-term financial
responsibility that comes with a mortgage and property taxes. Some renters
may prefer to have a landlord deal with maintenance problems.
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