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In Today’s Economy - Should You Buy Or Rent Your Home?
By Alexandria P. Anderson | November 22, 2008
Those of us who are conscious of the current economic conditions would say that choosing between owning and renting a house at this time poses quite a challenge. It is very easy to fall prey to others whose opinion seemingly sound “good.” However, we cannot deny that this requires expertise on the part of the information source. In so doing, we can possibly avoid costly or unnecessary mistakes. Preferring the right information source with reference to owning or renting also affords us the chance to anchor our decisions from an authority on the matter.
A meticulous knowledge on your personal situation, as well as his solid experience and work background are just some of the qualities you must look after a good adviser! Your circumstance after all, might be entirely different from that of the others. Usually, the most practical way to evaluate the pros and cons of buying or renting is through a financial standpoint. According to Russell Gray (co - author of the book “Equity Happens”), “Do the math!”
Intelligent decision arises when you do careful examination of both buying and renting. Having said that, I will spell out some considerations here, which you might find useful. Moreover, since I am not aware of your current financial condition - I will not belabor you with countless rhetoric anymore. In renting, all you need to add up are the costs of your rent, some additional fees, and other utilities.
For ownership expenses it’s a little trickier. You must add together more items and might need the help of professionals to determine what the expenses will be. The main expenses are commonly abbreviated with the acronym PITI. This stands for Principal (the amount of money you pay toward the principal of your loan), Interest (the amount you pay toward the interest of the loan), Taxes (property taxes you must pay), and Insurance (both property insurance and mortgage insurance, if applicable).
An easy way to see the difference between buying and renting is to compare their monthly monetary expenses. Aside from the PITI costs, owning a house comes with utility expenses and other maintenance costs such as lawn care, appliance, occasional new shingles, etc. that are usually not present in renting. With the latter, you shell out only the exact amount of money every month. Nonetheless, it is imperative to pay attention not just with the monthly operating cost but the long-term financial benefits as well.
If you are the type of person who favors long-standing gains over the immediate, then buying a house is for you.
Renting will perhaps save you some of the costs apparent to the other but after several years of paying, you still do not have a title to call your own. In addition, your monthly rental becomes higher as time goes by. On one hand, the cost we pay to home ownership remains constant through the years except for some expense that inflation affects (i.e. utilities, insurance, etc.). What’s more exciting here is the promise of equity from all the payments you made towards your owning a home!
Buying your own home boosts your morale and gives you more freedom in making changes with it. There is a feeling of pride here aside from the fact that you do not have to ask permission whenever you want something done like painting the walls with the color you wish for. You also derive satisfaction in terms of enjoying the benefits home ownership provides. However, your decision might have a turnabout since renting requires minimal maintenance as opposed to the other.
The math is very important to look at, however, and often will put in perspective the subjective feelings you have. For example, maybe you won’t think not having to worry about replacing your refrigerator in a rented apartment is a big issue anymore when you see how much extra you are paying to rent instead of own. Or it could go the other way and maybe the benefit of choosing your own paint color in your owned home seems minor when considering the outrageous property taxes and lack of appreciating home values that come along with the area you want to live in. The numbers usually don’t lie and choosing the best option for your personal finances usually outweighs your subjective considerations.
There are two main points you should take out of this article. First, always enlist the help of a professional to help you weigh all the options and do the math. Second, don’t simply look at the monthly expenses of owning vs. renting. The gains of ownership often appear over the long-haul and will not be immediately apparent on a monthly cost comparison. Remember that we are currently in a buyer’s market and this will often favor ownership over renting.
Topics: Investing |
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