Understanding the financial impact of renting can help you decide if you need to rent or buy a house. There are lots of great reasons to own a house. Here are six:
# 1: Equity
Your home serves as a vehicle to automate your retirement savings. When you make a monthly home mortgage payments, a part of that payment goes to the principal (the balance on the loan) and a portion goes to interest (the expense of obtaining the cash). At the initial starting point, just about 1/3 of the payment goes to principal. That might appear like it isn’t really very much. When you are paying rent, none of your rent payment goes toward anything that benefits you. It’s just lost cash. Understanding the financial effects of renting can help you decide if you should rent or buy a house.
By the way, I believe that buying a home and never selling it is a great strategy for financial health. Rather than selling your home when you are all set to move up into a bigger home, wait up until you have adequate financial cushion to buy a new house without selling the previous one (you can remortgage the first one and use the equity to help finance the second one). Then you can rent your first home and somebody else will pay your home mortgage for you as you continue to get equity and increasing value.
# 2: Tax Savings
In a lot of cases, the interest you pay on your home loan is tax deductible.
Usually, when you sell a financial investment and make a profit, you undergo a capital gains tax. However, when you sell property that is your primary house, you only pay capital gains tax on half of the profit.
# 3: Regular Monthly Expenses
And while, like all investments, increases in value do fluctuate, homeowners and renters are impacted in a different way by the fluctuations. When you own a home, if property values move up and down your home mortgage payment will stay the very same.
However when you are renting a home, the need for rental properties will likely increases. Landlords will raise rents in response to that increased need. And incomes frequently don’t keep up with increasing costs of living. Buying a house can help you smooth out your spending in reaction to the up and down nature of the marketplace.
# 4: More Affordable Than Renting
For quite a long time, low home prices and rates of interest have actually made it less expensive to buy a home than to rent one.
# 5: Stability
Life is unpredictable. There are lots of things out of our control and owning your home eliminates one of those variables.
When you rent a house, the monetary needs of the property owner adds another layer of unpredictability to your life. You have less control than you would if you were the house owner.
# 6: Your Home Ends Up Being an Extension of You
Changing the paint colour, planting some trees or flowers or changing those cabinet knobs or light fixtures with something that appeals to your individual tastes begin to create an area that is really, uniquely yours. In some cases this is possible in a rental property, with the owners permission. In many cases, property owners do not desire changes made to the residential or commercial property. The owner might permit you to make modifications. And your enhancements may increase the worth of the home. But those gains would go to the proprietor, not to the occupant.