Is Buying Cheaper Than Renting?
Updated: Jul 1, 2019
Is it cheaper for you to rent or buy? We'll show you how many years it will take before the cost of buying equals the cost of renting – the break-even horizon. If you'll stay in your home past the break-even horizon, consider buying; if you'll move sooner, renting might be a better option.
Use this great tool to see if buying could be cheaper than renting for you in the long term! (click the calculator preview above to start!)
Now what are you going to do with all that extra money?
Advantages of Buying
1. Building Equity Over Time
Unlike renters, homeowners build equity over time. On most mortgages, a portion of each monthly payment goes toward the loan’s interest. The remainder pays down its principal. Every dollar you put toward your loan’s principal represents a dollar of equity – actual ownership of the property. Once you reach 20% equity, or 80% LTV, you can tap that equity through a home equity loan or refinance your mortgage to secure a lower interest rate or longer repayment window.
You can also boost your home’s value, and thus lower your LTV, through judicious investments in home improvement. For instance, the home my wife and I recently purchased has only a rutted dirt driveway with a small shed at the end. Paving the driveway and building a proper detached garage in place of the shed would substantially increase the property’s functionality and curb appeal, potentially boosting its value by an amount greater than the project’s total cost.
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. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax burden that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000.
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.
The easiest way to do this is by renting out part or all of the property, provided you follow all local rental property laws. You might rent out a basement bedroom to a friend, live in one unit of a duplex and rent out the other to strangers, or purchase and move into a second home, leaving your entire property free to rent. You can also plunge into the sharing economy and take in short-term renters via Airbnb, VRBO, or another house-sharing platform.
4. More Creative Freedom
As a homeowner, your decorating, DIY project, and home improvement choices answer to no one, provided they don’t break local building codes or violate homeowners’ association rules. You can paint walls, add new bathroom fixtures, update your kitchen, finish your basement, or build a patio or deck to your heart’s content.
Radically changing your living environment to suit your whims is a fun, and even cathartic aspect of homeownership – and generally, it’s 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. You might join a local neighborhood association, sponsor block parties or National Nights Out, volunteer at a nearby community center, join a school group, or align with a business improvement district. As a renter, you might not do any of those things, particularly if you know you may be moving in a year or two.
Think that buying a home could save you money, or considering purchasing an investment property? Give me a call!
Guild Mortgage Company is an Equal Housing Lender; Company NMLS #3274
Jamie Laskie is a licensed Loan Officer in Colorado for Guild Mortgage Company; Regulated by the CO Division of Real Estate. Licensed in the state of Colorado, NMLS #1641628. The postings on this blog don't necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. This information is not guaranteed to be accurate and shall not be construed as a guarantee of loan approval. All loans are subject to underwriter approval, and are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.
The information provided herein has been prepared by a third party and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.