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Housing Decisions – Deciding to Rent or Buy

Hands holding a  piggy bank and a house model




Housing is usually a significant part of a budget. The advantages of homeownership are security, privacy, peace of mind and pride of ownership. Some people also feel that a home is a better environment for raising children than an apartment.


Home ownership also has tax advantages because mortgage interest and property taxes paid on a home may be deductible expenses on the federal income tax return. In some states, homestead laws also protect a person’s home from certain creditors. A home can be a good inflation hedge because houses often appreciate as much as or more than inflation.


However, a home should be considered primarily as a place to live, rather than an investment asset. The big investment required in a house is often the most significant disadvantage of home ownership. Moreover, the investment is relatively illiquid. Another possible disadvantage of home ownership is that home values can decrease, as many homeowners discovered when the housing bubble burst several years ago. The time and money required to maintain a home can also be a disadvantage.


Renting may be advantageous if a person plans to move from a community soon. Renting can be less expensive than paying for closing costs, real estate agents’ fees and maintenance on a home. The problems and delays associated with selling a home can also be avoided. But if a person will remain in a community for some time, homeownership should be considered because the mortgage payment will remain fixed, while rent will generally increase with time.


The 5 Most Important Factors to Consider


In deciding whether to buy or to rent, a person should perform a financial analysis of the following factors:


1. Amount of the monthly rent versus the monthly mortgage payment.


2. Property taxes, the amount of mortgage interest and the individual’s tax bracket because taxes and mortgage interest are deductible.


3. Cost of insurance and maintenance.


4. Lost income on the money used as a down payment.


5. The increase in equity on a home, including reduction of the mortgage principal amount and the home’s appreciation.


Advice for Renting


For those who choose to rent, it is important to choose the rental unit with careful consideration and inspection. It can also be a challenge to objectively compare multiple rentals to each other. That’s especially true for students who may be renting for the first time.

To help with this process, we created a renter’s checklist. The checklist covers all the important elements of the renting process, starting with reviewing the terms of the lease. It also has a detailed section on inspecting an apartment, as well as factors to consider for the surrounding neighborhood. You can download and print this free checklist:  INTRO Guide Appendix A- Sample Renter’s Checklist