Ah, the age-old question—should I rent or should I own? We live in a culture that still highly prizes homeownership and can often be a status symbol of “making it” financially. And yet, Americans rent each month, either by choice or necessity. Either way its sure to be an exciting process for you!
There will be so many different factors that influence your decision to rent or own a home. Location, family situation, income, lifestyle—these are just some factors that should be taken into consideration. And, at the end of the day, you need to make a choice for yourself, and not just follow the crowd or what other people are telling you to do. So, let’s dive into the topic:
Renting vs. Owning.
Like most things in life, there are pros and cons to both of these options and so it’s important to look at them in-depth before making any decisions. Consider this a non-exhaustive list, but hits some of the main considerations to keep in mind.
Flexible and easy to move when needed.
No responsibility to maintain the home or property.
May be cheaper, depending on a variety of factors.
Landlord can increase rents or evict you without much notice.
You are not building any equity.
Limitations on what you are allowed to do (i.e., restrictions on pets, smoking, décor).
Building equity and future wealth.
Freedom to do what you want with renovations, decoration, pet ownership, or smoking.
Potential tax benefits.
Privacy within your own home and property.
Responsibility for maintenance and upkeep.
Inflexible; it can take time to sell a home if you need or want to move somewhere else.
Risk associated with investing, as the price of your value fluctuates with the market.
Property taxes may increase.
Unexpected expenses such as replacing the roof, utilities, etc.
A lot of people assume that it is always more expensive to own than to rent. When looking on a monthly level, this leans more true—if you were to research that you would find that renting tends to be cheaper than owning on a monthly basis. And while homeownership can be expensive, from the initial down payment to the ongoing maintenance costs or unexpected expenses, there are some instances in which is it more expensive to rent.
Even if renting is cheaper each month, it is an expense that continues in perpetuity—you will always have to pay it. Whereas with buying, eventually you will pay your mortgage off and be done. Often times people aren’t too worried about retirement when they first venture out in owning or renting, but over time when you plan to retire having your monthly payment no longer needed can be an incredible achievement.
The second thing to consider is the appreciation of a home. When renting, you cannot capture any of the increase in value when the home appreciates. As a homeowner, though, you can often sell at a higher price which will ultimately make you wealthier.
You’ve weighed the pros and cons, looked at the real cost of renting, and decided homeownership is the direction you want to go. Before getting the keys to your new home and settling in, there are a few steps to take towards homeownership. They are these and a few more depending on your objectives:
Applying for a loan with the financial institution and see what amount you are pre-approved for.
Research the real estate market you want to purchase in and see if there are options available in your price range (the pre-approved amount).
Hire a real estate agent to help you find the home.
Visit open houses to see what kind of home you want to purchase.
If you’re interested in a house, put in an offer, contingent on an inspection to make sure it is in good condition.
Close on the deal, get the keys, and move in!
A real estate agent will be able to help you with all the important paperwork and information you need to purchase a home. They are also able to negotiate the price with the seller’s real estate agent so you can land on a price to purchase. Remember that you want your realtor to really negotiate the asking price and often you can leverage that based on the needs of the home, maybe its in need of repairs or a dozen other things that allow the price to be adjusted.
There are so many factors to consider when looking at whether you should rent or buy. Consider the pros and cons carefully before making the leap into homeownership. The flip side to this from an investor perspective is really looking at generating monthly passive income from the rental property you have. Be sure to check out Legacy’s Building Wealth Club content focused on Cashflow investing.
Big picture takeaway points
Self-reflection questions to think more about the content
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