BetterTrades

What is a better trade-off, Renting vs. Owning - To Rent or Own?

Congratulations. You've got a new job in a new town. You've secured a good position with a nice salary. It looks like it's going to be a good career move for you. Now you face a very important question: Should you rent a house or an apartment or take the plunge and buy? It's a good question, one faced by a lot of people in a lot of places, and one that doesn't have a clear-cut answer. What's the better trade tradeoff?

The conventional wisdom is that it's better to buy a home rather than rent. That's because when you buy a home you should be building equity in the home. On the other hand you will also be paying for things that don't build equity, like closing costs, interest on your mortgage, property taxes, property insurance, private mortgage insurance, and maintenance on your property.

Ask yourself these questions and it will help make you make a more informed decision:

Do you plan to stay in the same place for a long time? If so, it makes more sense to buy the house. If you purchase a home, you should lock in a monthly payment for an extended amount of time, typically 15 or 30 years. Your payment will vary only if the property taxes go up or down. Freezing the monthly payment is really where it makes the option of buying instead of renting pay dividends.

How low is your rent? If the rent for your apartment is two-thirds of what your monthly mortgage payments would be (including taxes and insurance), it probably makes sense to rent. You won't be able to use the tax benefits of home ownership to make up the difference.

Do you change jobs often or does your job force you to relocate on a regular basis? If you don't have a chance to establish roots, it really makes more sense to rent. There are so many expenses involved with selling a home that make it a lot of trouble if you are a frequent mover. Those real estate commissions and closing costs can add up in a hurry. And in today's market it is the seller who bears the brunt of most of the closing costs.

If you do decide to rent rather than buy, you should definitely take the savings and invest them. A good investment will reap many dividends over the years. Before long you'll be looking for a way to sink some of your investment into a solid foundation. That could turn out to eventually be a house.

When you rent a home, you pay for rent and, if you choose, renter's insurance. If you own, you have a one-time down payment and any closing costs, then you have a monthly payment through the life of the loan, and taxes, insurance and maintenance for as long as you live in the house.

When you rent, you have no tax advantages. When you own, you can deduct interest on the mortgage and any property taxes, if you itemize on the Schedule A. If it's rental property you can also deduct insurance and maintenance, whether or not you itemize. If it's a duplex and you live in half and rent the other half, you can deduct half the costs.

You can build an investment by renting if you take the money you would have spent on a down payment and invest the money. You can build an investment through owning by expecting the home to increase in value. (This has not been the case the last couple of years, with the current housing trouble. But home prices have historically risen about 3 percent a year.)

There are ways to mess up. The biggest problem for renters is the failure to properly invest the money somewhere else. For home owners it can be paying more than the house is worth, buying a house you really can't afford, or paying too much in interest.

If you would prefer to see the numbers crunched, there are plenty of sites on the Internet that provide a rent vs. buy calculator. Just be careful that the calculators are accurate and take into account all the facts. Remember, there are a lot of factors that enter into the decision to buy or rent. It's up to each individual to determine whether or not the tradeoff is fair and accurate, and then make their own call.

• 401K vs IRA
• Broker or Online
• Fundamental or Technical
• Investing or paying down debt?
• Renting vs. Owning
• Savings vs. Credit Union