The decision whether to buy a house or condo or rent a house or condo should be weighed carefully. If you are working for a company that is notorious for transferring employees every couple of years, or you plan to relocate to another town or state within the next year or two, renting a house or condo may be the way for you to go.
If you have recently relocated, and are unfamiliar with the new area, renting a house or condo for 6 months to a year is a much safer bet than taking a chance on purchasing a house or condo in an area that turns out not to be what you hoped for.
Another reason you may prefer renting a house or condo versus buying a house or condo is that if you don’t care for your neighbors or decide you’re not crazy about your neighborhood, you have not invested a great deal of money, and you can just give notice at the end of the lease period and move.
When you rent a house or a condo, the landlord is responsible for all repairs. If a pipe breaks, the furnace doesn’t work or a tree hits the roof, you don’t have to pay for the repairs, or make them yourself.
Renter’s have more flexibility if they decide to make a lifestyle change. For instance, if a couple who is renting a house or condo decides that one of the parent’s will stop working outside the house to stay house with the children, it is far easier to move to a less expensive rental property than it is to sell one’s house. When a homeowner sells a house or condo that is a primary residence and purchases a less expensive house or condo as a primary residence, they could be assessed a capital gains tax.
One of the primary advantages of buying a house or condo is receiving a tax deduction for interest (including closing points paid the first year). The interest you pay on the loan for purchase of a house or condo is 100% tax deductible. In some cases, if you borrow against any earned equity, the interest on that loan may be tax deductible as well.
Another advantage of buying a house or condo is that the house owner has the freedom to decorate and remodel your house or condo according to your personal taste. You don’t need to ask the landlord if it’s okay for you to paint the living room walls, pull up the carpet on the steps, or knock out the wall between the kitchen and dining room.
All things being equal, the most obvious consideration in deciding whether to buy or rent a house or condo is the availability of down payment money. The down payment for a house is ideally 20% of the sales price, the down payment amount which allows the house buyer to avoid Private Mortgage Insurance. So, to purchase a $200,000 house or condo, the down payment would ideally be about $24,000.
Using the scenario of approximately equal monthly rent and monthly mortgage payment:
Initial cash outlay:
Credit check $25
1st and last month’s rent $2,000
security deposit $250
Total upfront cash outlay: $2,275
Total monthly cash outlay: $1000 +renter’s insurance
Initial cash outlay:
Application Fee $255
Bank Legal Fees $500
Recording Fee $75
Bank Legal Fees $500
Other misc. fees $500
Total upfront cash outlay:$2,400+
Plus down-payment (20%=$24,000)
Total monthly cash outlay: ~$1,300 (principal, interest, taxes and insurance)
*cost estimates made using: mortgage.com and loanpage.com
The factors that figure into the decision whether to buy or rent a house or condo are as diverse and numerous and are the individuals making the decision. To make an informed decision, find out what options are available to you. Some houses may be purchased using a rent/purchase option if you don’t have enough for a down payment. Often in those situations the landlord/owner will compensate you for making repairs and improvements, or the costs you incur could be subtracted from the down payment amount.
Consider all possible scenarios when making the decision whether to buy or rent a house or condo. While it’s impossible to predict the future, most adults have a general plan looking down the road five to ten years. Ask yourself the questions addressed in this article, talk to family and friends. Set up an appointment with a financial advisor. Do whatever you feel you need to in order to make the best decision for your situation.