Sometimes it seems that everyone owns their own home. Your friends, colleagues, supervisors, relatives… they all seem to have a pride in ownership that you want to have. But is it really right for you? Despite what some people say, sometimes the right decision is to rent, rather than buy. That was certainly the right decision a couple of years ago when the Las Vegas housing market hit its peak.

But now that things have changed and housing prices are falling faster than a stripper’s G-string, is it the right decision?

Consider the following pros and cons of buying versus renting:

Advantages of Owning a Home
There’s an old saying: “Your home is your castle.” There’s nothing more satisfying to many people than living in a house they own and control. It’s a little ethereal, but it’s a main reason for many people buying their first home.

It gives you the feeling of permanence and community involvement. It gives you more freedom than you may have as a renter to change your home to suit your individual taste and needs.

But the big reasons to own a house are the financial advantages that come along with it.

• Savings Assistance: A home is a little like a huge “piggy bank.” As a homeowner, your monthly mortgage payments serve as a type of savings plan. Over time you will accumulate what lenders call “equity,” an ownership interest in your house that you may be able to borrow against or convert to cash by selling the house. On the other hand, renters continually pay rent to a landlord for as long as they rent without the opportunity to build up equity.

In addition, long-term home ownership can provide beneficial retirement security through the growth of equity.

• Stable Housing Costs: Renters always have to worry about increasing costs of rent. Sometimes rent increases year after year, but the principal and interest portion of most mortgage payments remains unchanged for the entire repayment period. Over the years, because of the effect of inflation, you pay the same amount with ever “cheaper” dollars.

• Increased Value: While the current housing slump is the exception that proves the rule, houses typically increase in value over time. It’s not unusual for a house you bought 15 years ago to be much more valuable today. This increase in value is as good as money in the bank to you, the homeowner.

• Tax Benefits: Homeowners are eligible for significant tax advantages that are not available to renters. Most important, the interest paid on your home mortgage usually is tax deductible giving you a substantial savings each year in federal income taxes.

• Credit Upgrade: If you’re considering becoming a real estate investor, you first need to prove you can pay for a property on a timely basis. So if that’s your goal, owning a house and paying the mortgage fully and on time can increase the value of your credit score very quickly.

The Downside of Home Ownership
In addition to the money you need upfront in most cases, owning a home also requires a significant investment in time and energy. Along with a concern about finances if you’re living from paycheck to paycheck, you also need to think about your free time, because as a homeowner, you’ll need to make time for maintenance and other things that will enhance your property. Consider the following if you’re trying to decide whether to buy.

• High Costs: Usually you can expect to pay more for housing as a homeowner than you did as a renter, especially for the first few years, and certainly during a depressed housing market. Even if your mortgage payments are less than your previous rent payments, as a homeowner you must also pay property taxes, homeowner’s insurance, all utilities, and upkeep expenses.

• Decreased Mobility: As a homeowner you cannot move as easily as a renter by simply giving the required notice to the landlord. If you’re career is on the move, and you anticipate relocating within the next year or two, this might not be the ideal time to buy a house.

• Repair and Maintenance: Responsibilities such as mowing the lawn and taking care of needed repairs come along with home ownership. The promise of getting the advantages of home ownership without the accompanying repair and maintenance responsibilities, however, is a major factor in the popularity of condominiums (see “Meet in the Middle” on page 30).

• Financial Risk: If you have an adjustable rate mortgage, your mortgage payments could increase if market rates go up. If real estate values erode, your investment may decline in value (although many experts believe they won’t go much lower than they are now).

• Possibility of Foreclosure: If you fail to keep up your payments, the lender may sell the mortgaged property. This is called foreclosure and can result in the loss of not only your house but also your investment and good credit rating.

Most people consider buying a home at some point in their lives, while others prefer or choose to remain renters. Renters enjoy the worry-free aspects of renting and don’t have the responsibilities that go along with owning a home. Others don’t pursue home ownership because they’re not sure if they can afford it. Only you can decide what your personal preference is, but should you decide to go forward with a home purchase, proceed with care and pay heed to the points mentioned in this article.

By Patrick Roberts

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