ATLANTA - It’s the eternal dilemma! Should you rent a house or an apartment or should you take the plunge into homeownership and buy a house? The reality is this - there is no simple answer!
What’s right for your buddy may not be right for you! So, here to help us sort out the issue is real estate expert John Adams:
Q: John, how can we know when it’s best to rent and when its best to buy a house or a condo?
A: Before we get started, I need to make a full disclosure. Over the last 40 years, I have made a boatload of money OWNING real estate of all sorts. I admit it - I am prejudiced toward ownership of real estate, especially in Georgia, primarily because it has done so well for so many over most of the years I’ve been in practice.
Q: OK, with that being said, how can we know when it’s best to rent and when it’s best to buy a house or a condo?
A: Well, my feeling is this: If you have to ask that question, it’s probably best to rent. The decision to buy a house is typically motivated by common sense financial analysis, and if you haven’t yet reached that point, keep renting.
Q: Well, if you are so ANTI-RENTING, are there ANY reasons to rent?
A: I didn’t say I was ANTI-RENTING. In fact, there are a number of good reasons to rent your home:
- FINANCIAL: renting may provide you with more leftover cash each month, allowing you to build your savings to a level you prefer before making a large cash commitment to buying real estate.
- FLEXIBILITY: while renting, you retain the ability to make a change in your living situation easily and without major cost. At the end of your lease, you can move to another community or another city!
- CREDIT BUILDING: if your credit has been damaged, making ON TIME rental payments can actually work to build and improve your credit score, allowing you to eventually qualify for a lower cost borrowing experience.
- REPAIRS: In almost every case, your landlord is responsible for making repairs, freeing you from the financial drain of a new roof, a burned out water heater, or a faulty furnace or air conditioner. These expenses are real and they are major. Building them into your rent can save you cash!
Q: So you are saying that it's usually best to rent your house or apartment?
A: Not really. In fact, there are a number of compelling reasons to consider buying a house or condo right now. Here are some of the best:
- EQUITY. When you pay rent, you are paying your landlord's mortgage or adding equity to his or her bank account. However, when you have a home mortgage, you increase your degree of ownership in your home with every payment. A general rule is that if you intend to stay in your property for at least five to seven years, the costs of purchasing the home are more likely to be offset by accrued equity and increased housing value. In the event that equity in the home grows to more than a 20-to-80 percent loan-to-value ratio, you will be able to borrow against your equity in the home. This can be cautiously used should you need capital to pay for major purchases. If interest rates drop, you can refinance your mortgage at more favorable rates, or, once you've paid the entire mortgage off, borrow against the equity in your home to fund major purchases such as a second home or your child's education.
- TAX DEDUCTIONS. You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. You can keep the first $250,000 in profit you make when selling the home if you're single, or the first $500,000 if married. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
- CREATIVE CONTROL. You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Go ahead and paint them mango! Wish you had another room? Go ahead and add one.
- MAINTENANCE CHOICES. If you live in a house, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a condominium or homeowners' association, you may pay a monthly fee to have maintenance work covered by the association's contractors.
- FINALLY, you HAVE to live somewhere. That being the case, you might as well pay yourself to live in your house as pay your landlord.
The bottom line is that there is no PERFECT choice. Only YOU can decide what’s right for you.
"But I am convinced, from personal experience, that FOR MOST FOLKS, the best investment they ever make is in their OWN HOME," Adams says.