Often people ask me, “what are the main differences between renting and buying? And why should I consider buying if I have been renting for many years?”
To a lot of you, this may seem obvious, but for those of you who aren’t so sure, here are my thoughts:
The main differences between renting and buying are that when you rent, you are paying your money to a landlord every month, who then uses is to pay the mortgage that he has on the property and then any other costs that are involved and then puts the rest in his pocket. Over the years, if the value of that property goes up and the landlord decides he is tired of being a landlord, he can at the end of your lease, give you notice and put the property up for sale. Once he sales it, all of that equity in the property (the difference between what he owes on it and what he is able to sell it for) goes in his bank account. As a renter, you don’t get to see any of the benefit of that situation. You just get to either deal with a new landlord, or go find a new place to live. Now as a renter, you also don’t have any of the responsibility of dealing with any of the maintenance of the property or in some cases paying the utilities etc. You also don’t have to pay the property taxes or carry homeowners insurance, although you might have renters insurance to cover your personal belongings.
Now as a homeowner, you get the privilege of paying a mortgage payment vs a rent payment and that goes directly to paying down the mortgage or loan that you carry on that property. Usually included in that mortgage payment is the costs of your property taxes as well as the premium for your homeowners insurance which commonly your mortgage company will collect in an escrow account and then pay them on your behalf when they become due. You also get to pay all of the utilities and homeowner association dues if there are any yourself and you are responsible for all of the repair and maintenance of the property, but as a bonus, you will get a statement from your mortgage company every year that shows the amount of money you have paid in interest on your house. You can then take that to your accountant and write that off on your taxes. That is a great write-off and results in a nice refund for many people. The best part of being the homeowner opposed to being the renter is that when the market improves and the value of your property increases, you can decide for yourself if you want to sell and when you do, the equity that you have built over the years of owning go back into your bank account. For most people owning real estate is the biggest investment that they ever have and in reality, that is what it is, an investment. When you buy real estate, you are investing your own hard earned money into something that is going to hopefully grow for you and be an asset for you when you need it later on.