Housing...Inside and Out

January 14, 2000
Buy or Rent

A basic choice when selecting housing is whether to buy or rent. There are advantages and disadvantages to each choice.

When you buy your home, you have personal control of the use of the property and over time its value will probably increase. This is usually a good hedge against inflation. As you pay off the mortgage, you are building equity or ownership value in your property. You can also take mortgage related income tax deductions for the interest paid on your mortgage and for your property taxes.

There are also several disadvantages to consider before you buy a home. The initial investment cost, including down payment, settlement, closing and moving can be high as can tax and insurance expenses. You also will have future property maintenance and improvement expenses and not all of these will be monetary. Some will cost time and energy as well.

When you purchase a home and property, you must realize that in order to build equity you will have to remain committed to that location for an extended period of time. You also should consider the fact that the community or neighborhood may change and therefore affect your property's value.

When you rent a home, both the initial investment and the transaction costs are low. You are assuming a minimal financial risk because renting is not affected by mortgage availability. It is easier to plan a budget when you rent because monthly costs are predictable. The rental payments normally include repair and maintenance costs since these are the responsibility of the building owner or landlord. You will also be spending less time and energy on upkeep.

As a renter you may change housing frequently and with relative ease as your needs and resources change.

Among the many disadvantages of renting is the fact that you will need one month's rent and a security deposit when you sign a lease. Leases also usually last from one to two years and have differing renewal periods. You must also face the fact that rent can increase when you renew your lease, as well as the fact that your lease may not be renewed and you could be evicted.

By renting a home, you will not build equity and you cannot take any rental related income tax deductions. Your monthly rent will include the building owner's or landlord's overhead for maintenance, repairs, taxes, staff and services, whether or not you use them. You may also experience a long waiting time for maintenance and repairs. Finally, when you rent, you usually cannot alter the residence and your activities may be restricted.


Written by Dr. Francis Graham (Retired)

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