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Advantages of buying a house instead of renting

Are you deciding between renting or buying a home? Here are the advantages of buying:

  • Over time you will build equity - assuming that you include principal in your payments on your mortgage as opposed to making interest-only payments. If the house appreciates in value you build equity faster. (Contrary, if home values are falling, they wipe out a part of your equity.)
  • Buying is usually cheaper in the long run. In the first few years renting may be cheaper but over time the interest part of your payment should be lower than comparable rent.
  • As an owner you can modify the house to make it fit your taste and needs. No need to ask for permission to paint the childrens' rooms in blue or pink. And even if your landlord would give you permission to install a new kitchen or bigger bath tub, would you want to invest in his property?
  • in the USA, home owner ship is heavily sponsored by the tax code. Interest paid on an owner-occupied home is tax-deductible, meaning you pay the interest with pre-tax Dollars. Same applies for the annual property tax bill (which a renter would not have, of course!). There is currently a limit of $1,000,000 that you can deduct in mortgage interest per year. There is a discussion to lower this limit. If you sell the house with a profit, then the profit up to $250,000 is not taxed assuming that you lived for at least 2 years in the property. (But part of the profit is going to be eaten by the transaction cost like real estate commission, title company paper work, repairs to get the house ready to sell)
  • in California property tax is limited, so you may want to buy rather earlier than later to lock in at low prices and low property taxes
  • in an emergency you can get a second loan on your house until your situation has improved (imagine an unexpected doctor's bill in the 5-figure range)
  • Leverage: you can buy a house nowadays with as little as 5% down. This is not possible with many other types of investment. Imagine you buy a house for $600,000 with 5% = $30,000 down payment. If the house appreciates in one year by only 5% (current inflation) = $30,000 then you now have increased your equity by 100%. Of course leverage works the same way against you - if the house loses 5% in value then you just lost all your equity. This can be a little like playing roulette. Do not believe anyone who tells you that a certain property is guaranteed to go up in value. If that was so, why does this person not buy it himself/ herself?
    I do not recommend buying a home as a short-term investment as in "less than 10 years".

Generated 8:00:55 on Oct 21, 2020