A.  Reasons to Rent:

(1)  Short-term time and expense of buying and selling.  Because of closing costs and the potential time involved in selling a property, it is often more advantageous to rent if you know you will be in a home a very short time (less than two or three years), and if you know you will have no future relocation assistance from your employer.

(2)  Maintenance and upkeep.  There are costs associated with maintaining a home.  These costs can often be amortized over a long period of time.  A roof, for example, while costly, will often last 20 years or more.  In the short run, however, these can be expensive.  When you rent, there are still maintenance costs, but they are typically paid by the landlord (and included in the monthly rent).

(3)  Inability to get a mortgage.  Despite your desire, you may not be able to qualify for the mortgage amount you need or want, or you may not have the required down payment.   Before you make the decision to rent vs. buy, ask your CENTURY 21 Kreuser and Seiler, Ltd. agent to put you in touch with a good mortgage company who, in a short phone conversation, can tell you how much of a mortgage (or monthly payment) you actually qualify for.  It may surprise you! Then you can decide if that payment is realistically within your budget.  Keep in mind that veterans may qualify for no-down-payment VA loans, and anyone may qualify for low-down-payment (3.5%) FHA loans.

B.  Reasons to Buy:

(1)  Equity build-up.  Part of your monthly mortgage payment typically goes toward loan (principal) reduction.  Over a period of time, you are paying off the debt and building equity (ownership value) in the property.  In many instances, the value of the equity in a person’s home is their largest single asset!

(2)  Appreciation.  The value of a home has a tendency to increase with inflation over long period of time.  (Ask any senior citizen what they paid for their first home!)  So, in addition to the equity build-up indicated in #1 above, there is often a substantial increase due to long term appreciation.  When you rent, this appreciation obviously goes to the landlord.

(3)  Tax advantages.  Federal tax codes (and many state codes) allow a tax deduction for mortgage interest and real estate taxes paid on a primary residence.  This can be very substantial and is realized on an annual basis.  Your accountant can provide all the details, but here is a brief example:

Assumptions:  A purchaser in the 25% tax bracket purchases a home for $250,000 with 10% ($25,000) down and gets a 30 year mortgage for $225,000 at 7% interest.  Annual real estate taxes and property insurance costs are $5000 and $600, respectively.

The buyer’s total monthly payment (principal, interest, taxes and insurance -- PITI) would be about $1964.  Of this amount, $1729 is interest and taxes (deductible expenses).  On an annual basis, this is a tax deduction of $20,750 which (multiplied by the 25% tax bracket) yields a tax savings of $5188 annually or $432 monthly. 

Put another way, the mortgage payment of $1964 minus the monthly tax savings of $432 is equivalent to a rent payment (no deductions) of $1532.   And this analysis does not take into account any appreciation (#3 above) nor equity build-up (#2 above).

Please note that the assumptions listed above will be different depending on various factors.  Your CENTURY 21 Kreuser and Seiler, Ltd. agent will be happy to work out a similar analysis based on your specific situation and current financing rates.

(4)     Freedom, security, liberty, pride of ownership.  All of these are certainly more abundant when you own your own home vs. rent someone else’s property.  Just one obvious example is that with a lease you have the right to live in the property until the end of that lease.  There is no guarantee that the lease will be renewed or, if so, at the same monthly rent.  With ownership, you can live in the property until you decide otherwise!

C.  Bottom Line:

If you are planning on being in your new home for a short period of time and don’t have relocation assistance, or if circumstances are such that you can’t presently qualify for a mortgage, it makes sense to rent.  In most other instances, it makes more sense to own your home, particularly over the long term.

Your CENTURY 21 Kreuser and Seiler, Ltd. agent will be happy to help you purchase or rent whatever home you choose or answer any questions you might have. Please call any agent you know in our office, or for an agent recommendation, click here.