As We Have all Heard Growing up “Buying a House is the Biggest Decision That the Typical Person Will Make in Their Lifetime.”
Advantages of Buying
1. Building Equity Over Time
Unlike renters, homeowners can build equity over time. On a typical mortgage, a portion of each monthly payment goes toward the loan’s interest with the majority payment reflecting interest in the beginning and the principal that grows during the mortgage term with the .majority of the payment reflecting principal.
2. Tax Benefits
Several tax benefits cater exclusively to homeowners, though not all homeowners qualify for all benefits. These are the most notable:
- Homestead Exemption. If you bought a home last year, the dead line to file for homestead exemption is March 1st. Every person who owns and resides on real property in Florida on January 1 and makes the property his or her permanent residence can file an application for a homestead exemption and may receive an additional property tax exemption up to $50,000. The first $25,000 applies to all property taxes. The added $25,000 applies to assessed value over $50,000 and only to non-school taxes. Please note that there are also other exceptions.
- Federal Tax Deductions. If you itemize your federal income taxes, you can deduct your property taxes and the interest paid on your mortgage, reducing your overall income tax burden (often substantially). This particularly benefits those in higher tax brackets.
These benefits aren’t available to renters.
3. Potential for Rental Income
Even if you don’t initially think of your home as an investment property, you can turn it into a source of income. This can partially or totally offset your mortgage, tax, and insurance payments on it, and still make cash flow (money) on your former home.
4. Ability to change
As a homeowner, the majority (if not all) of the property is available to customize your home (i.e. painting the walls, adding new bathroom/kitchen fixtures, updating your kitchen, or building a patio or deck with or without a swimming pool, etc.) as long as the homeowner provided they don’t break local building codes or violate homeowners’ association rules.
Any radical changes to the home is typically not available to renters.
5. Sense of Belonging and Community
Since homeowners tend to stay in their homes for longer than renters, they’re more likely to put down roots in their communities. This manifests in many ways (i.e. your kids forming friends)
Disadvantages of Buying
1. Potential for Financial Loss
Although home ownership builds equity over time, equity doesn’t equate to automatic profit. If home values in your area decrease or remain flat during your tenure as a homeowner, dragging down the appraised value of your home, you risk a financial loss when you sell. However, homes tend to appreciate over the long term. While renting doesn’t build equity, it also doesn’t involve the risk of owning a depreciating asset.
2. Responsibility for Maintenance and Repairs
As a homeowner, you’re responsible for covering the cost of maintenance and repair work on your home. Though your exact outlay is likely to vary from one year to the next, you can expect to pay toward these expenses.
3. Most Homes Aren’t Sold Furnished
While this concept is lovely, it’s far from commonplace, particularly in single family homes. Some homes include appliances such as refrigerators and washer/dryers. Unless your previous residence was similarly sized and fully furnished, you need to spend time, money, and energy furnishing your newly purchased home.
By contrast, many rentals come furnished. Even if their decorations don’t quite match your tastes, furnished spaces save resources and sanity on the front end of your tenure.
4. High Upfront Costs
Though upfront home buying costs vary greatly depending on the size of the down payment and the value of the home, you can expect to shell out no less than 3.5% FHA Requires a 3.5% Loan to Value Ratio as a down payment and should include seller paid some of the buyers’ prepaids, closing costs, and non-allowables. FHA rules do allow sellers to give up to 6 percent of the home’s purchase price for closing costs.) of your home’s value (for an FHA loan and relatively low closing costs) before moving in. You could spend well over 20% of the purchase price.
Advantages of Renting
1. No Responsibility for Maintenance or Repairs
As a renter, you’re not responsible for home maintenance or repair costs. If the roof leaks, a toilet backs up, or an appliance stops working, you don’t have to call an expensive repair person, but rather you just have to call your landlord or property manager.
2. Relocating Is Easier
When you rent, it is easy to relocate. although a sudden move may require you to break your rental lease or pay negotiated penalty with your landlord.
By contrast, selling a home takes time and effort. A quick sale of your home may force the homeowner to accept a lower price and potentially take a loss on your investment.
3. No Exposure to Real Estate Market
Home values fluctuate in response to changing economic conditions, and can decline over time. If you’re a renter, that’s not your problem as a renter, but rather the landlord’s problem as a property owner.
4. Credit Requirements Generally Less Strict
Although most landlords require prospective renters to undergo a credit check, this is typically a zero-sum proposition. It is not typical that your application is either approved or denied based solely on your credit score. As long as you don’t have a checkered credit report that includes bankruptcies and judgments, you’re likely to find a landlord willing to rent to you.
By contrast, mortgage lenders typically have high credit standards, with credit scores below 680 or 700 considered subprime in many cases. Even small changes to your credit score can significantly affect your mortgage rates (and qualification), potentially adding thousands of dollars in interest over your loan term.
5. Some Utilities May Be Included
The cost of most or all utilities, including non-essentials such as cable television is less common, but definitely still possible for single family homes. By contrast, homeowners have to pay full utility costs, sometimes several hundred dollars per month, depending on dwelling size and usage.
Disadvantages of Renting
1. No Equity Building
Unless you’re party to a rent-to-own agreement, every dollar you pay in rent is gone forever. No matter how long you remain in your rental unit or how exemplary a tenant you are, you can’t build equity in the property under a typical lease agreement. If you plan on staying in the same location for more than a few years, buying may be a smarter financial choice than renting. Initial costs include the rent security deposit and, if applicable, the broker’s fee. Recurring costs include the monthly rent and the cost of renter’s insurance.
2. No Federal Tax Benefits
While homeowners can deduct property taxes and mortgage interest on their federal income tax returns, renters aren’t eligible for any housing-related federal tax credits or deductions and local real estate taxes. Depending on your property tax and mortgage interest burden, this shortcoming can raise your federal tax liability by several hundred dollars per year.
3. Limited Control Over Ongoing Housing Costs
Unless you live in a municipality with rent control laws (not common in my market), your landlord has the ability to raise your rent once your current lease expires. Rental property owners raise rents to match rent increases elsewhere in the rental market.
4. Limited Housing Security
While most jurisdictions have generous renter protection laws that prohibit landlords from evicting without cause and require adequate notice (typically 30 or 60 days) that tenants won’t be given an option to renew their leases, and to remain in your rental unit indefinitely. Homeowners don’t face such uncertainty. They can remain in their homes as long as they stay current on their mortgage payments and real estate taxes.
Thinking of buying or selling real estate?
You should consider using a realtor. If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida 33511). As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota. The Keller Williams offices of ”Suburban Tampa” include the offices in Brandon, Plant City, Lithia (Fishhawk Ranch), and our newest office in Valrico. My email address is firstname.lastname@example.org, or call me at 813.205.9280. If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.