Buying vs Renting
The majority of Americans in this country own a home, but should you? That’s a question that everyone must ask themselves as they consider their first home purchase. There is no single answer for everyone – it depends on your special situation.
Financial Impact: The two biggest financial benefits to buying a home are:
- It’s an investment that historically has increased in value, building wealth for the homeowner. The U.S. average for real estate appreciation from 1963-2006 was 6.3%.
- You can save money on your taxes each year because the largest expenses that come with being a homeowner are usually tax deductible*, including property taxes, mortgage interest paid, and other miscellaneous expenses.
Average net worth of homeowners vs. renters
| Annual Income | Owners | Renters |
| $80,000 and up | $451,200 | $87,400 |
| $50,000 to $79,999 | $194,610 | $25,000 |
| $30,000 to $49,999 | $126,500 | $10,600 |
| $16,000 to $29,999 | $112,600 | $4,240 |
| Under $16,000 | $73,000 | $500 |
| Source: VIP Forum, Federal Reserve Board | ||
As you can see from the chart, when you pay rent, it does very little to build your net worth – you are actually helping your landlord build his wealth! In addition, you have no control over rent increases or the whim of a landlord. When you own a home, you have the option of locking in your monthly payment for 15 or 30 years, making it much easier to plan a budget.
However, the truth is that homes can be expensive to own and maintain. You simply may not be able to afford the cost of owning a home: property taxes, homeowner’s insurance, private mortgage insurance (PMI) for those with less than a 20% down payment, and annual maintenance costs and repairs. The bottom line? As a long-term investment, buying a home has proven to improve your financial situation.
Flexibility and Freedom: Both renting and owning give you flexibility and freedom, but in completely different ways. Owning a property gives you the right to make changes to your home, including decorating, landscaping, and remodeling. As a renter, you are very limited in what you can do – after all, it’s not your home! On the flip side, when you rent, it’s easy to move without the worry of selling. You are not tied to a home or a mortgage.
*Please consult with a tax advisor for your specific situation.