8 Reasons You Should Buy Instead Of Rent

8 Reasons You Should Buy Instead Of Rent

1. It’s YOURS!

One of the best reasons why owning a home is great is that at the end of the day, it’s yours to do with what you wish. Sure, you may have to take out a great big loan, but with every monthly mortgage payment you’re getting one step closer to total ownership, and you’re building equity, too.

With your own home, you can have pets, plant a perennial garden, have a garage sale, host Thanksgiving dinner—the opportunities are endless. Nothing compares to the personalization and privacy that comes with owning your own home.

Simple things like hanging a picture on your wall, installing shelving, or mounting your television might not be allowed in a rental unit. Once you have your place, you can make it all your own.

2. Remodeling Has Its Benefits (Get Those Solar Panels, Too)

Improving the condition of your home will not only make your life more enjoyable, but it can also increase your home’s value and make it worth more.

Some renovations that will definitely increase the value of your home are additions, landscaping, central air, appliances, and insulation.

You can also get tax deductions by making some pretty specific home improvements (for example, although painting is fun and easy, the cost of paint isn’t deductible). You can get an energy-efficient federal tax credit of 30 percent of the cost of qualifying energy-generating systems, like solar panels, solar water heaters, and small wind turbines.

Plus, think of all the future savings on your electric bill!

3. When You Renovate, You Can Save When You Sell

If you purchase a starter home, years later you may realize you need a bigger place or want to move to another city. When it comes time to sell, the improvements you made can get you a tax break and save you some serious cash.

If you make significant improvements to your home that allow you to sell it for a lot more than you bought it for, you can save on the taxes you have to pay on your capital gains.

Think of capital gains as a profit—it’s the sale price of your home, minus the cost basis. Think of it this way:

  • Capital gains = sale price + cost basis (purchase price + improvements)

If you live in your home for at least two years before you sell, you can avoid capital gains taxes on up to $500,000 (or $250,000 if single or filing separately) of the profit you make.

For example:

  • You buy a home for $300,000
  • You put $50,000 of renovations in, making the total amount you put into your house (cost basis) $350,000
  • After two years of living there, you sell it for $500,000
  • You make a profit of $150,000 and won’t have to pay capital gains taxes on it
  • Sweet deal!

In short, improvements raise your cost basis and can reduce capital gains tax when you sell.

4. Plain And Simple, Equity Is Awesome

Owning a home is a good way to increase your personal wealth. Little by little, as you pay off the principal on your loan, you build equity. All that monthly rent you’re paying definitely doesn’t accrue equity—in fact, you’ll never see it again.

Equity is the difference between the market value of your home and the outstanding balance on your loan, or in simpler terms, the value your house builds over time.

For example, say you bought your home for $400,000. You paid $20,000 as a down payment and took out a loan of $380,000 to cover the rest. So your down payment is your equity.

Have a look:

  • Home purchase price ($400,000) – the amount owed ($380,000) = equity ($20,000)

Say after five years of making your monthly mortgage payments, you’ve paid down $25,000, making what you now owe $355,000. But then, you have your home appraised and find out that it’s increased in value, and it’s now worth $500,000. Awesome! Now your equity is:

  • Home’s current appraised value ($600,000) – the amount owed ($355,000) = equity ($245,000)

Since your home increased in value and you were making monthly payments, your equity has grown. You can take out a home equity loan or line of credit using your gains for cash to pay for a whole lot of major costs, like medical bills, home improvements, college tuition for your children, or a car.

5. Your Cost Of Living Is Locked In

Remember the time you rented that amazing apartment you loved so much, and just as you were ready to renew your lease, you got a letter saying the rent was increasing? Not having a rent-controlled living arrangement can really cost you.

Since the U.S. housing bust, annual rent increases typically outpace inflation, due to the huge rental demand.

Census Bureau

In 2013, rent went up by an average of 4.6 percent (inflation in 2013 was 1.5 percent). In high-demand cities like San Francisco or New York, rent can increase a lot higher than the national average.

Because of this, owning your own home instead of renting acts as a hedge against inflation. When you have a fixed-rate mortgage, your monthly payment stays the same every year, even if interest rates are skyrocketing around you. No surprises here.

6. You Can Increase Your Disposable Income

Since owning your own home locks in your cost of living, paying down a fixed-rate mortgage (with the same payments every month) can actually increase your disposable income if you get a small raise at work each year.

For example:

  • Say that $20 of every $100 you make is disposable income
  • Now say you get a 3 percent raise
  • Your disposable income goes up $3 for every $100 because, unlike rent, your mortgage payment doesn’t increase

Now that’s money in the bank.

7. Mortgage Interest Deductions Are Pretty Great

Yet another thing to love about owning a home is the tax breaks that come along with it. Although becoming a homeowner will leave you with a few extra forms to fill out come tax time, it certainly pays off.

Most savings come from mortgage interest tax breaks and is probably the thing homeowners save most on come tax time. In January, your lender should tell you how much interest you paid during the previous year on your home mortgage.

TurboTax lays out plain and simple exactly what counts as mortgage interest and how much you can deduct.

8. And So Are Mortgage Point Deductions

Do you plan on paying your lender for points to get your home mortgage at a lower interest rate? If you choose to do this at closing, you can usually get a return in the year that you purchase your home. Even if the seller ends up paying for the points, the buyer gets the deduction.

How significant can these mortgage point breaks be? If you’re eligible to get a return in that first year of ownership, you can just add the amount to your mortgage interest deduction. So if you paid $3,000 in mortgage points, you can increase your interest deduction by $3,000. Pretty cool.

If you refinance, you can’t get the deduction in the year that you paid them. However, you can still deduct them over the repayment period. If you paid $3,000 in points and have a 30-year mortgage (360 payments), you can deduct $100 [($3,000/360) x 12] each year. Still pretty cool.

Work With Genevieve

Genevieve's passion for the charm and beauty of this area makes her profession thrilling for her, and she would love to share with you her enthusiasm for this place she call home! Please feel free to contact her anytime, Work with Genevieve today!

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