Homeownership has its perks. Resolving to buy rather than to keep renting can be an excellent financial decision. Here, we take a look at five top benefits of going from renter to owner—and a few key things to consider before you make the move.
1. Pride of Ownership
This is not the benefit most people put first, but it’s likely the biggest. The shift from renting a living space to owning a property begins in the mind. Among the top psychological benefits is the sense of having achieved a milestone in life. Homeowners have more control than renters have—over their lives, and the way their space looks and feels.
Of course, the rent-or-buy question must take into account many factors. Some factors are individual, and some have to do with timing. Maybe your lease is just about up and the prospect of renewing it or signing another lease has zero appeal, while the perfect condo is available a mile up the road.
It makes sense to prepare for that kind of moment. Find the right home, and you’ll have the good feelings that come from finding a comfortable place to live, at the right price, in a safe, friendly community.
2. The Value for Money
A renter pays rent, and the money’s gone. A homeowner, by paying off the mortgage each month, acquires more and more of the home’s value. So, the shift is likely to bear fruit—especially if you can pay the same or similar amount for the monthly mortgage on a small home or condo as you pay now to live in an apartment.
What’s more, real estate tends to appreciate in value. Does that mean buying a home should be viewed as an investment? Yes and no:
- Yes, because the value of real estate generally rises over time, even accounting for inflation. When you run a search for your address on the real estate sites, seeing your home’s market value rise is unquestionably a good feeling.
- No, because you’re probably not going to approach homeownership as you’d treat the stock market, buying when prices are low and aiming to sell high. People buy houses to fit their circumstances in life, and sell when their situations change—not when their home values reach the perfect peak.
Bottom line: Unless you’re buying the house to rent it out, look at a real estate purchase as the simple act of getting yourself a place you’ll be proud to call home.
3. Home Equity: The Value You Get to Keep
Equity is a home’s market value, minus the balance the owner still has to pay on the mortgage loan. Gaining home equity is widely considered one of the most important ways people can build wealth.
This takes years. Most people who sell in five years or less wind up spending their equity on closing and related costs when they make the move. For people likely to be moving within the next five years or so, renting may be the best lifestyle option.
As a general rule, the longer you can expect to live in a home after you buy it, the better off you’ll be financially in the long term.
4. The Tax Deductions
Consider several key deductions available for homeowners:
- The IRS allows you to deduct mortgage interest among the itemized deductions on your income tax return.
- You may also be able to claim state and local tax deductions and exemptions.
- Homeowners who live in their homes—defined as owning and inhabiting the home at least two years of the past five years—pay zero tax on the profit they make when selling their homes (unless their profit exceeds a high threshold).
Yet you might find you’re be better off taking the allowable standard deduction, which has recently risen. Meet with an accountant to get a sense of the differences between (a) what you are paying in income taxes as a renter, and (b) what you’d pay with a given mortgage loan.
Pro tip: Whether you rent or own, you can claim the area you exclusively use for work as a home office expense.
5. The Mortgage as “Good Debt”
Debt is never a “good” thing. But to buy real estate, borrowing is probably necessary. And a mortgage loan for a qualified buyer, with its low interest rate, is one debt that does make sense. To the extent that it offers you a stepping stone to financial improvement and happiness, it might be a great investment for you.
That said, if the home needs renovations, has high property taxes, or holds you back from exploring vital opportunities, then real estate ownership can become financially debilitating. While it can be a practical move to buy a home that’s totally affordable, in a spot where you are completely willing to put down roots for the better part of a decade or more, and where property values are likely to rise, is that situation in sight? As with any investment, rushing to buy because of FOMO—the fear of missing out—may lead to buyer’s remorse in the future.
Finally, you might be a renter in a city where renting is substantially cheaper than taking on mortgage debt. If so, rent on!
What to Consider Before Making the Move
Ownership is costly. Unless you share financial responsibilities with another person or people, or unless you buy, say, a modestly priced condo, ownership translates into time and money in a big way. You’ll have the mortgage specialist’s fees, the home inspector’s fee, the appraiser’s fee, closing costs, and possibly higher insurance costs. You’ll need to budget for home improvements or at least a few appliance repairs. If you buy a house and a pipe bursts or a tree falls, you’ll have to fix the issue. You’ll have landscaping bills for a house, or homeowners’ association fees for a condo. You’ll be paying professional consultants all over again when you refinance or sell your home. If you’re not quite sure you’re ready, then renting could be your best option for now. The right decision is a well-informed decision, so take every opportunity to hear out what your mortgage consultant and real estate agent have to say, and ask them plenty of questions. If you’re ready financially, and you find the right deal, homeownership is beneficial at any life stage. Buying is expensive, yet the feelings of autonomy and stability that come with owning your home are priceless.