Why Rent When You Can Buy

21 07 2006

Are you unsure about becoming a HOMEOWNER? Thinking that you can’t afford to BUY a home? Are you worried about whether homebuying is a good INVESTMENT? Too often, renters look at their current monthly rent payment, compare it to the cost of owning a home, and decide the latter is “something I can’t afford.” But the financial advantage of homeownership, from property appreciation to income tax deductions, makes renting more expensive.

According to the National Association of Realtors®, renting can cost seven times more annually than owning. Buying a first home can be an intimidating process. But the first step is making those first decisions; I want to own my own home makes sense for me financially and emotionally. If you are still struggling with those first decisions, here are some facts that might help you make that first step towards becoming a homeowner.

Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year. That means that an apartment or home renting for $1,000 per month will cost more than $1,300 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $137,567, with no wealth accumulation!

Tax Advantage of Owning a Home Result in Savings

None of that $137,567 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. Unlike your monthly rent, part of your monthly mortgage payment “comes back to you” in tax savings.

Homeownership is a Good Investment

For the majority of Americans, their home is their larges financial asset and a major player in their investment portfolio. It’s a good thing, too, since stock market value has declined since 1998, while home price appreciation has increased. The National Association of REALTORS estimates that home value rises, on average, by 4.5 percent a year. That’s a steady return on investment; one’s own homes is a much less volatile asset than stocks, bonds or mutual funds.

The Federal Reserve Board estimates that homeowners have a net worth nearly 36 times more than renters. For example, a $210,000 home purchased today with a downpayment of $10,000 and a 20-year fixed rate mortgage at 6.5 percent would cost a steady $1,100 per month and yield a net worth of $138,521 after 10 years, assuming an historic 4.5 percent annual appreciation rate.

Source: National Association of REALTORS

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