Most people dream about getting their first home. If you’re one those people, you might be facing a serious decision whether to rent or buy that piece of real estate.
There's no room for black-and-white thinking. You should be exploring the gray areas and making your own decision in the end. In this post by Young Management, we'll take a look at some of the major pros and cons of renting and buying your first home.
Why should you rent a home?
Does your lifestyle or work create the need for potentially relocating on a short notice? Short-term rental leases might be your solution. Usually, the leasing period is for a year or less and that makes the relocation process a whole lot easier. And even breaking a lease isn't an end of the world: subleasing and paying penalties are both viable options.
Homeowners have many more responsibilities compared to renters, including pest control, trash collecting, maintenance, unexpected repairs, and tree trimming. As a renter, your main responsibility is to pay the rent on time while not creating any damage or mess on the property.
As a homeowner, you need to make some serious investments to upgrade your amenities. Personal gyms and swimming pools are great examples of luxurious amenities that developers include. These are usually included as part of your rent. This allows you to enjoy these facilities without the significant costs of installing and maintaining them.
Why shouldn't you rent a home?
Your landlord picks every song on the jukebox. You don’t get the freedom to decorate, renovate, or get creative in your home. Also, aside from the restricted freedom, other factors may have an impact on renewing your lease. For example, your landlord might decide to sell the property and you can't really do anything about it.
Sure, rentals cost less than buying a home, but you'll still have to pay up-front quite a lot. Typical leases include the first and last months' rent along with a significant security deposit. In other words, paying $2000 per month for a house means handing over around $6000 up-front.
No investments and credit gain
Don't forget that renting won't improve your credit score and you can't claim relevant tax breaks when you are renting instead of a being homeowner. Renting isn't really investing. When you leave your home behind, there's nothing to potentially hand off to your children or is there anything to sell for quick profits.
Why should you buy a home?
As a homeowner, you’d like to customize and design your home to your preference. You can redecorate, move stuff around, and just feel like a boss in your own home. If you get tired of the paint, you can always a fresh, new coat without having to ask permission from anyone. As long as you don't break any legal rules, anything goes!
Equity and tax deductions
Buying a home leads to you to owning equity. As long as your house's value is increasing, you might be able to use the equity by funding shares or investing in a managed fund. And some of the home ownership costs can be helped by using federal tax deductions.
Potential passive income
Rental investment properties allow you to earn passive income. Always do plenty of research and calculations first before buying a property for rental purposes. You need to be sure that your investments will pay off in the long term.
Why shouldn't you buy a home?
Maintenance and mortgage
Maintenance and mortgage are two huge expenses. Typically, down payments range between 5% and 25%. Depending on the total home price, this could mean quite a huge chunk out of your finances. And once you are living in your new home, maintenance and repair jobs are going to be part of your yearly budget. It’s wise to plan accordingly!
What if your new home starts to lose value? A decrease in your home's appraised value is a serious concern. You'll lose money when you sell the property. But if you don't sell it, you'll still be owning a depreciating asset.
Bottom line: Renting vs. buying your first home
Deciding between renting and buying your first home isn't easy. Renting a home makes relocating smoother and you'll bear fewer responsibilities compared to a homeowner.
Less freedom and not making investments might be a big concern for some renters. Buying a home does mean owning equity, having a chance to earn passive income, and gaining more freedom.
But that freedom comes at the risk of financial loss and raised interest rates alongside the guaranteed expenses of maintenance and mortgage. Take your time and weigh the options carefully.
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