Buying a Home Versus Renting a Home - Research Paper Example

Buying a Home versus Renting a Home Playing Monopoly as kids has been a reality for most kids. This has imbibed an early awareness of property and mortgages in everyone. Moreover, as time passes, almost all children move out of their parent’s home in search of new horizons. An imperative part of this search includes finding a nice, affordable place to live in. However, before finalizing any house, there is a greater issue that has to be decided upon: buying or renting a house. Buying a house requires a lot of responsibility and a lot of hard work. Ownership though very tempting, is not an easy task nor is renting out a place, but still there is a lot of difference between the two. Whether one decides to purchase or rent a place, a person has to be very smart to prevent any losses. However, if a person intends to stay for long, buying a house proves to be cheaper and better compared to renting a house. The issue of buying or renting a house is complex and there are many factors which affect ones choice and buying is a suitable option in cases where an individual wishes to stay for a long period at one place. Analyzing one’s current financial position and future prospects is perhaps the most important factor that impacts the decision of buying or renting a house. A person needs to think and act wisely before coming up with a conclusion. He must also know that whatever his decision is he should keep in mind the size of the place and the rent or cost which is asked for it. So, if he is looking forward to buying a house he will have to take mortgage into account and other expenditures which accompany it. When thinking about buying a place he should know that he is building equity. Furthermore, one should know what to do when property prices rise and when they lower. Hence, an awareness of the prevalent market rate is an excellent idea. And most importantly whether one rents or buys a place, he needs to keep in mind his financial situation and then make his decision (Quealy, and Archie np). Furthermore, other factors affecting the decision must also be considered. Some of these factors include how quickly the prices of houses rise and how fast the rents are going to rise in the future. Also one’s decision depends on how long he plans to stay in the house which he is willing to rent out. In order to make a decision, quite a lot depends on the customer comparing the prices of the rent and that of the cost of actually buying the house. Ideally, if he intends to stay in the same house for more than 6 years, it is advisable to buy a property instead of renting it (Quealy, and Archie np). When it comes to buying a house, the purchase cost is to be looked into. Now the purchase costs are the costs which have to be paid when closing the deal for a house. These include both the down payment and the typical closing costs. The yearly cost is another type of cost which has to be looked into. The yearly costs are the monthly or the yearly expenses which have to be paid for. These usually include the mortgage payments, the community living fees, the property taxes, renovation costs, maintenance costs and the homeowners insurance and many other costs like these. The mortgage payment is an amount which increases every year because of the terms of loan and because the tax credit shrinks every year as a portion of the interest payments which become smaller. The opportunity cost also has to be taken into account. These costs principally take into consideration the primary purchase costs as well as the annual costs which have to be invested in the down payment of the house. After this, the selling cost of the house is also considered. The selling cost is basically what has to be paid when finally closing a deal for a house. These costs consist of the brokers charges coupled with others (Fritschen 95-98). Moreover, experts opine that buying a house only considering that its value would appreciate is sheer foolishness. With the kind of economic variability, anything could be expected. The real reason why one should buy a house is to escape rent or instead of paying rent for the rest of the life, pay mortgage for a few years and save money the rest part of your life. Thus, having long term plans to utilize and live in this house should be a part of his plan. Because the longer one decides to stay in that house, the more the profitability. Other factors include travel costs. Another thing that must be taken into consideration is the schools or colleges located nearby if you have kids. Also, a job security would also help a lot in securing house loans (Murad np). Likewise, there are many things that need to be contemplated upon when renting a house. These include the initial costs, the yearly costs, the lost opportunity costs and the leaving behind the previous rental cost. The types of costs incurred must be the same as of when buying a house but their amount varies. Furthermore, it is imperative to consider the rate at which the rent is expected to increase (Griswold np ). According to many real estate dealers, buying a house is much more beneficial than renting a house. There are many advantages which come with buying a house. If a person has a stable job which pays well and a lot of cash, then buying a house is one of the best things to do. Some of the advantages of buying a house include tax deductions. This means that the mortgage payments as well as the property taxes are subtracted to a degree from the overall taxes. Thus, a person can save this additional money that he gets as a result of tax subsidy. However, there is a chance that the person has calculated his costs well but at times, these estimations can be faulty. If the 25 percent rule is applied, he might be better off living in a rented place and not buy a new house at all (Roth 26-27). Another benefit of purchasing a house is the payment price appreciation. Most people might not believe it but the prices of purchasing a house rise in the future and so do the rates of rents. So it is better to buy a house when it is convenient, as nobody knows what will happen to the financial situation in the coming days. It has been witnessed that prices of buying houses really do increase by looking at the way prices have augmented over the past years from 4 and 5 percent. Another reason to buy a house is because it helps a buyer in building his equity. This is very helpful later on especially if there is some sort of crisis or emergency. Also, with buying a house, there comes the sense of pride and accomplishment among the house buyers. It makes them feel comfortable and stable. These are the things which they would never feel with renting a house as there will always be the burden of paying the rent every month (Irwin 6). Another important factor that further corroborates the idea of buying a home instead of renting it is the low house prices and falling mortgage interest rates in this era. This is true of every place except for those living in Honolulu and San Francisco where the opposite applies. Where most people are not in a position to actually buy houses, if estimated, the amount of rent paid is more or less the same as the mortgage payments per month. Furthermore, rents are also expected to rise on a yearly basis. On the other hand, mortgage payments remain the same. However, the area where the customer wants to buy is another factor. The better and more prosperous the area, the higher the prices will be. Likewise, prices in slow-growing areas will remain consistent or increase very gradually (Christie np). Moreover, purchasing a house is way better than renting one but if someone cannot figure that out, then there is one way to find out what is good for them: the rent ratio. The rent ratio helps them find out what would be best for them: buying or selling. In this, the total cost of the house one plans to purchase and the annual cost which shall have to be paid while renting is considered. If the ratio is above 20, this means that one should consider buying a house but if it is below 20, renting would be the better option. This is not just the only thing by which one should make his decision about owning a house or renting it. A person should look at his own financial situation and then make his decision (Leonhardt B1 np). Homeownership is something every man dreams of. But people are always confused about whether they should buy a house or just rent it. There are many disadvantages of renting and many advantages which come with homeownership. One of the disadvantages of living on a rented property includes the inability to live the way one wants that is, there is no independence. The happiness of the landlord has to be considered all the time. One cannot even put more furniture without the permission of your landlord. If, for example, a renter wants to throw a party at his house, he cannot do so as long as the landlord does not approve of that. Also if he wants to buy a puppy but the landlord does not allow animals on the property even then he will have to just let go of his wish because he is living in a rented place. Moreover, even drilling a hole to hang pictures on the wall becomes a major decision just because the landlord would not like his property getting drilled. One would not have to worry about all these things when he has his very own house (Dugas np). Another disadvantage which comes with renting a property is that you have no equity. The rent that you pay is a big amount and you will never see that again. Moreover, in a very short period of time you will have to pay the same amount again. While you are living on a rented property, your landlord gets a lot of benefit. Whenever your lease runs up, the landlord is free to increase the amount of rent on the property and 99 percent of the landlords actually do increase the rent. They will increase it till the inflation rate is met here (Irwin 12). Furthermore, when living in rented property one cannot write off the payment of the rent which he can do in case of a mortgage. The only benefit he gets here is if he owns a business of rented houses that gets tax deduction. However, this tiny benefit is nothing compared to the benefits one gets otherwise from purchasing a property (Dugas np). If a person decides upon buying a home, there are many ways in which he can do that. A person might have enough on his own, some money saved for this purpose. Or, he might have enough for the down payment only. If this is the case, he always has the option of leasing a house. With a 10 percent down payment, anyone can lease the rest of the amount through banks or house leasing companies. This option unfortunately is not available if one wants to rent a property. The whole amount of the rent is the tenant’s problem and he cannot ask for a bank’s help in this (Irwin 15). When the advantages of actually buying a house are looked into, they are immense. There is the emotional satisfaction which is impossible to come with a rented property. There is the freedom to do whatever one wants. There is no need to be worried about the landlord getting mad for drilling a hole or anything like that, as it is a personally owned property and the owner can do anything he wants or likes with it. Another advantage which buying has over renting is that one does not have to be worried about paying rent which increases annually, as the mortgage payment will remain the same for most period of the loan. Apart from the payment, one feels secure in his own house which is the best thing about homeownership (Roth 6-12). Another advantage which buying has over renting is the benefit of taxes. There are some taxes, for instance interest on mortgage, property tax, etc. that are deductible. And the best advantage about having one’s own house is that one can do whatever he wants with it that is turn it into a barber shop, a boutique or anything else that he might like because he has complete control over it (Quealy and Archie np). The option of renting is not that bad either but it can work only if a few things are applied. However, these factors are rare and not everybody is that lucky. These factors include a situation in which the rent is lower than the average market rate. Another includes the situation when a person rents a place for a small time and then moves to another place after sometime. Moreover, in times when a person is getting better returns on his investment even then renting proves beneficial. In situations when the area of the house on rent is quite large and the rent is comparatively reasonable, it is beneficial to be living cheap (Irwin 14-15). But keeping all the above mentioned factors aside, buying is much cheaper than renting and hence more beneficial. However, everyone must plan sagaciously and according to his budget. The only reason some people buy a house is because they think renting a house means wasting money. However, what they actually do is get a home loan that is too big for them to pay from their usual budget. There are a lot of people who believe in this misconception and end up losing. At the same time, there are those lucky ones as well for whom a similar situation might work out too. “If a substantial gain occurs, owner-occupancy is generally cheaper than renting… Whether owning or renting is cheaper therefore depends mainly on the trend of prices and rents during the period in question.” (Shelton 59-72). Although the price factor of buying or renting a house may vary according to the ensuing economic conditions, purchasing a personal home comes with many advantages that renting a home deprives one from. In self-owned house, one is his own king however, in a rented home, there can be many restrictions ranging from the use of walls to the placement of furniture. Furthermore, one can get many financial facilities (leasing, mortgages, etc.) if he wants to buy a house. On the other hand, no such facility is available to pay rents. Through ownership, one also has the benefit of creating a good credit history and get savings in the form of equity. Thus, buying a home is preferable to renting one if one has the means and wants to live in peace. Works Cited Christie, Les. "Home buying much cheaper than renting." CNN Money. CNN Money. 21 Mar 2012. Web. 30 Jul. 2012. Dugas, Christine. "Should you rent or buy your own home?." USA Today. USA Today. 10 Aug 2010. Web. 30 Jul. 2012. Fritschen, Dan. Remodel or Move?: Make the Right Decision. Sunnyvale, Calif: ABCD Pub, 2005. 95-98. Print. Griswold, Robert. Property Management for Dummies. New York: Hungry Minds, 2001. Print. Irwin, Robert. Buy, Rent, and Sell: How to Profit by Investing in Residential Real Estate. New York: McGraw-Hill, 2007.12. Print. Leonhardt, David. "Rent or Buy, a Matter of Lifestyle." New York Times. New York Times. 10 May 2011, B1. Web. 30 Jul. 2012. Murad, Andrea. "Five Questions You Should Ask Before Buying a Home." Fox Business. Fox Business. 24 Jul 2012. Web. 28 Jul. 2012. Quealy, Kevin, and Archie Tse. "Is It Better to Buy or Rent?."New York Times. New York Times. n.d. Web. 30 Jul. 2012. Roth, Kenneth M. Everything You Need to Know Before Buying a Co-Op, Condo, or Townhouse. New York: AMACOM, 2006. 26-27. Print. Shelton, John P. "The Cost of Renting Versus Owning a Home." Land Economics. 44.1 (1968): 59-72. Print. Read More