Should I buy or should I rent? Renting vs buying. Buy a house. Why buying is better than renting
Should I rent or should I buy? Owning a home is an American dream and that’s one of the most common questions we get from consumers or buyers or potential buyers. Is it better to rent or is it better to buy?
Let’s take a look at two or three reasons why you may want to rent versus what you may want to buy or vice versa.
WANT TO BUY VERSUS YOU MAY WANT TO RENT
One thing that happens when you rent is your fixed monthly cost is not fixed, because every year your rent may go up unless you have a two or three-year contract. So if you are renting, your fixed-cost, monthly fixed cost is not fixed. And if you compare that with buying a home, and let’s say you bought a home, you just bought a home, then one thing is for sure. For the next 15 years or the next 30 years, your fixed monthly payment is going to be fixed every month. You’re going to have a $ 3,000-a-month mortgage payment for the next 15 to 30 years. So you have peace of mind. Other costs are increasing, your car payments, your gas payments, your food cost. But your mortgage payment is going to be stable when you are renting. Statistically, at least in Orange County and nationwide, right now, rents have gone up 4% to 5% a year. So every year when you rent, your fixed cost is going up every month. So that’s not a benefit. That’s one reason you may want to buy versus you may want to rent.
The second point I wanted to make, is when you rent, there is no financial stability or there is no financial benefit, or what kind of benefits am I talking about? Well, let’s look at if you’re owning a house and you have fixed mortgage payments, every time you make a payment, a portion of the payment, what we call the principal because the payment has a principal and interest other than taxes and insurance. So when you own a home, every time you make a payment, a portion of your payments goes towards your equity. So in the 30 years, your house will be paid off and if you’re renting, then all the portion is nondeductible. That’s a tax issue and you don’t get any benefits. By the way, who gets a benefit when you are renting? Well, every time you make a mortgage payment. Technically, every time you make a rent payment, you are making the mortgage payment for the landlord. And if you heard this story over again, the way to become financially free or increase your equity or increase your profits is to become a homeowner. And a lot of the homeowners that already have homes buy second homes and rent them out to renters and make the renters pay their mortgage. So they’re getting wealthy and financially free with your rental payments. So it’s something you may want to consider. The other benefit of buying a house when you make the mortgage payments is that you are building equity every month, not only when you make a payment, but also historically. Home prices have gone up nationwide for the last 78 years on an average of 4% per year. Of course, in the 2008 and nine recessions, prices went down 20%, and in homes, values went down 2% in the decade of the 1990s. But overall in the last seven or eight years, prices have gone up 40%. So if you look at the average, if you buy, let’s say, a million dollar home, and if it goes up 4%a year, every year, you’re making $40,000 of savings on paper. So that’s a big benefit. By owning a home, you build equity not only by your mortgage payments but by appreciation. So if you have patience and if you keep the home for a long term, you’re guaranteed to have equity and what we call money in your account.
The third point I wanted to make is that when you are renting and we know for sure statistically and historically that your rent prices are going up, two things are happening. Number one, as rents go up every year and they are sure to go up, it’s putting you under a burden, assuming that your salary is going up too. But when food prices, home prices, gas prices, everything is going up and your rent is going up. And if your salary goes up, you’re pretty much stuck on the same payment ratios. And the major thing that’s happening is if you are considering buying and if you’re renting, then every time you make a payment in Orange County, an average two bedroom, two bath will cost you $2,500.A decent area or a single-family home will cost you $3,000.So assuming you’re paying $3,000 a month renting Orange County in one year, that’s $36,000.In three years, that’s almost $100,000 that you’ve gone up in vapors. That means that by renting for three years you’ve lost $100,000, which you could have used for the down payment. So it’s a tough situation, tough call. But renting is tough in the sense that it’s not as good as buying.
Let’s look at the benefit. If you own a home, as I mentioned earlier that you grow equity by appreciation every month because of your equity payments and every year because of the appreciation of your home historically. But the other benefits that you have is, let’s say you’re renting for 3000 a month and you bought a condo and your payment is $3,000 a month. Mortgage payment, principal interest tax, insurance,$3,000 rent payment, $3,000 mortgage payment. With the mortgage payment, what’s happening is you also get a tax benefit. You have a homestead exemption, you have interest rate deductions, and you have property tax deductions. So at the end of the year, you will get rentback or what we call a refund because you own a home. So if you look at it, if you have the same three payments, $3,000 rent and $3,000 mortgages, essentially you’re not paying $3,000 a month rent or mortgage because you’re getting tax benefits of $100, $200,$300, $400 a month, depending on your income