Does it make more sense to rent or buy? Several components go into the decision. If you don’t plan to be in a home long enough to at least break even on the investment, renting may be a better choice. Here are three other factors that can impact this important housing decision.
A Home’s Location
The market you’re in has a lot to do with whether buying or renting is better. Some cities, like San Francisco, have such high list prices, taxes and closing costs, a homeowner would need to live in the space for more than 14 years before breaking even. In this case, it’s usually better to rent. Other urban areas with a lower cost of living might make more sense for homeownership, like Denver, which has a 5.6-year breakeven point.
Short- and Long-Term Goals
Owning a home usually requires paying property taxes and mortgage interest. While both are deductible, you have to ask yourself if it’s worth it. Are you concerned about quality public schools? Then yes, buying might be better for you, as taxes and interest are generally less than shelling out big bucks for private school. Are you child-free and love to travel? If so, the freedom that comes with renting and less maintenance may better support your lifestyle.
Homeowners need a financial cushion to help pay for unexpected expenses, such as a broken heating or cooling system. If you still owe a hefty amount in student loans or don’t have much money saved after making a down payment, homeownership may be more difficult.
On the other hand, if you are debt-free and find a property in an area that’s expected to appreciate, purchasing could be a smart investment and a chance to build equity. This interactive calculator may help you determine which decision makes the most economic sense for you.
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