Life is good and stretches before you. You’re young and employed. You’ve found your dream job. Perhaps you’re ready to start a family. Financial decisions made in your twenties will have a lasting impact on your life. A big question is, do you rent or buy? There are pros and cons for either decision, along with some not-so-obvious factors to take into consideration. Let’s take a look in the crystal ball, and see what it tells us about what lies ahead.
The Pros of Buying
Real estate is the classic good investment. It has made many people rich. Your mortgage payments go toward your investment. Real estate typically appreciates slowly over time. Even if the value of your house does not increase, though, you still build equity as you pay off your mortgage.
Homeowners are allowed certain income tax deductions. You can deduct the interest on your mortgage and the property taxes you pay. In addition, most of the income you receive from selling your house will be tax exempt.
As a new homeowner, you become part of a community that can support you as you and your future family go through life. You have a built-in savings motivation factor. It’s harder to spend on consumer toys when you’re facing house costs every month. Spending on toys, of course, changes when you have kids.
The Cons of Buying
You own a house. You now have to fix it yourself, or pay someone to fix it for you. Maintenance of a house is ongoing, and it will always take up some or much of your free time. And it can’t be put off. When your boiler breaks in the winter, you just have to fix it.
On the other hand, you are free to do anything you want to the house you own. Paint it red, add a pool, or rent out the basement apartment.
The Pros of Renting
You enjoy your career. Moving up the ladder may involve being relocated by your company or getting your next job in another location. If you want to take a break to travel and can afford it, renting allows you to pick up and go. If you own a house, you can always put it on the market, but selling a house is not a quick source of cash.
You meet the person of your dreams. Your family grows too large for your present residence. As your income grows, you decide to move to a better neighborhood or a better school district. The crystal ball says, you’re not the same person at the end of your twenties as you are at the beginning.
The landlord fixes everything.
The Cons of Renting
The disadvantages of renting are the flip side of the advantages of buying. Since the property isn’t yours, you can’t make any changes to the property without prior approval of the owner(s). There’s no equity in renting. After years of paying rent, you have no assets to show for it. Neither are there tax benefits. Given homeowner deductions, that makes your rent payments comparatively larger than their mortgage payments.
The crystal ball can’t show you everything. Your future is yours to decide, to make happen, and then to change when necessary.