Ross Garcia featured in Forbes: To Rent Or Buy: Rethinking The American Dream

Owning your own home has been a staple of the American dream for as long as anyone can remember. There’s something quite satisfying that comes from knowing you’ve worked hard, remained disciplined and achieved a substantial goal of providing for you and your family’s security.

But the dream of owning your own home comes at a price, and as housing costs continue to increase, some people are now rethinking homeownership. In many cases, it still makes good sense to own, but the decision making process has become more complicated.

Reasons To Buy

Aside from the sense of achievement and a feeling of security that comes from owning a house or condo, there are several practical reasons why it makes good sense to buy. Owning your own home can be treated as an investment that allows you to build equity over time. Assuming you make payments in a timely manner, you’ll build a great credit profile that can translate to benefits in other areas of your life, as well. Being a homeowner means that you may enjoy certain tax benefits, too.

You will be your own landlord, and that means you can decide how to maintain and upgrade your home, whether it’s changing out the carpet, remodeling the kitchen or undertaking a full room addition. The flip side is that all those costs come out of your pocket, but if done the right way, they can add to the long-term value of your home.

Home ownership also traditionally means more stability, which can be especially important if you have school-age children. Outstanding schools, police and fire protection, and parks and recreation amenities are important benefits that can’t always be measured by a financial bottom line.

Reasons To Rent

If you’re young and just starting out, or your life is in flux for any reason (such as a divorce, job loss, etc.), then renting makes more sense in many cases. It costs a lot less to come up with the initial amount of money required to rent, and your monthly costs are generally going to be less, as well. The caveat here is that you’re at the mercy of a landlord who could choose to raise your rent, depending on the terms of your lease. And while overall expenses should be much lower, you also won’t be building equity like you would by owning a property instead.

If you’re not handy or don’t want the burden of maintaining a property, as a renter, your landlord is responsible for maintaining the property, which can be quite liberating when a dishwasher breaks down or the roof springs a leak.

If your landlord reports to credit bureaus, you can still enjoy the benefit of building a credit history. You won’t be weighed down by having to pay property taxes, which can be thousands of dollars a year.

Moving is a hassle under the best of circumstances, but when you rent, it’s a lot quicker and cleaner than trying to sell a home, even in a bull market. If you still have a sense of adventure about you and mobility matters, then renting could be much more suitable than buying until you’re ready to settle down.

The Time Factor

Buying is a more measured approach that provides significant benefits over a longer period of time. You build equity, and you have more of a say in increasing the value by making improvements to an asset you own. If you’re only going to stay in a place for a short period of time, then renting may be preferable because there are fewer out-of-pocket expenses. The key to maximizing that as a benefit is making wise decisions about the money you save when renting instead of owning. If you blow the difference on things that aren’t smart investments, then you’re doing yourself a disservice. But if you take the difference (assuming you have enough income to do so) and invest it wisely, you could reap benefits down the road, as well.

There’s also a misconception that homes always appreciate in value. That’s simply not the case. Housing bubbles can and do take place in overheated markets, causing prices to tumble until the market corrects. In some cases, putting too much of your savings into a single, leveraged investment could be riskier than a diversified portfolio of stocks and bonds.

The Tax Factor

If you are a homeowner, as long as you file form 1040 and itemize your deductions and your mortgage is a secured debt on a qualified home (a first or second home) you own, you will enjoy a major deduction when filing your tax return.

This deduction was modified as part of the Tax Cuts and Jobs Act, so make sure you’re up to date on the new interest deduction limit. Note: The new limit only applies to loans initiated after 2017, while pre-existing mortgage loans are grandfathered at the old limits.

Also, if you put less than 20% down on a home, you’re going to pay private mortgage insurance, as well. PMI is treated as interest for tax purposes.

The Bottom Line

You may have the necessary resources to buy a property instead of renting, but that doesn’t always mean you should jump right in to a purchase. Work out a budget, find your comfort zone, and consider the time and tax factors before moving forward either way.

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