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Renting vs. Buying

Should I rent or buy? This is a frequently asked question that rarely has a clear-cut answer. The best option for a particular individual depends on a number of different factors, not the least of which is personal preference. Either way, this decision can have long-lasting financial implications, so consider contacting a Hefren-Tillotson financial advisor to help you through this process. Below are some of the benefits of each option:

The case for buying:

  • Real estate is an investment purchasing a home is an investment just like buying stock, and historically speaking, it has been profitable; according to Freddie Mac, the value of the average single-family home increased by 3.6% per year from 1982 through 2013, compounded annually
  • You may benefit from a lower tax bill if you itemize deductions and your mortgage is considered a secured debt on a qualified home in which you have ownership interest, you are able to deduct your interest payments; you are also able to deduct any property taxes you paid in a given tax year
  • Increasing equity as you pay down your mortgage, the equity in your home will increase (assuming your home price stays the same or increases) leaving you with an additional source of funds that you can access if needed
  • Your monthly payment is unlikely to increase assuming a normal fixed-rate mortgage, your payments will be the same over the life of your loan; on the other hand, rent is likely to increase annually to account for inflation
  • Once paid off, your housing costs can decrease dramatically for many families, paying off their mortgage coincides with the beginning of retirement; this can result in increased cash flow that can be used during the retirement years for travel and medical expenses

The case for renting:

  • You do not need money for a down payment most lenders will require at least 10% for a down payment on a home, which can be a sizeable sum of money depending on the propertys value; many people do not have adequate funds set aside to be able to afford this
  • No need to take out a mortgage for most people, a mortgage will be the single largest liability they incur in their lifetime; depending upon how much debt you might already have, it may be wise to wait to take out a mortgage until you have adequate cash flow
  • Monthly costs may be lower renters are not responsible for property taxes, homeowners insurance (usually much higher than renters insurance), or many of the other extra bills associated with ownership. including water, garbage and recycling pick-up, etc.; if these costs are factored into rent in some way, theyre most likely a fraction of what they would be otherwise since the costs are being split across multiple tenants
  • No maintenance expenses a new roof or furnace can be a large expense for a homeowner, but in the case of a renter, the landlord will be picking up the tab for all repairs and renovations
  • More flexibility if you need to relocate for any reason, you can essentially pick up and leave with no penalty; owning a home will require you to put your house on the market where conditions may or not be in your favor
DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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