Buying vs Renting
For many years, buying a home in America was a symbol of success and the American dream. Recently, this perspective has shifted along with financial circumstances homeowners and renters are experiencing. More people are deciding to rent homes as opposed to owning them for a variety of reasons. If you are a renter or thinking of purchasing a home, consider these three questions before making an offer.
How long will I be here?
The amount of time you spend in the home is a major factor when determining whether to buy or rent. If you do not plan on staying in the house for an extended period of time, it may be in your best interest to rent. There are a variety of fees that can accrue when purchasing a house, including brokers’ fees, appraisal fees, and several others. If you plan on staying in the home for a longer period, you may find it easier to spread out these fees and costs.
How is the housing market?
The state of the housing market is known to fluctuate. Being aware of how the market is performing is an important factor to consider when making the decision. Considering indexes look at a broader range of housing prices across the US, it is best to do research in your local area. When observing the state of the housing market, it is also important to consider how your finances would be impact if the value of your home increased or decreased. Fidelity Investments states, “With 3% annual price appreciation, a $250,000 house would be worth more than $337,000 in 10 years. With a 1% annual price increase, the same house's value would grow to just $276,000 over the same time period. And that’s before accounting for inflation. In real terms, if the rate of inflation is 3% and your home appreciates in value by 1%, you'd be losing purchasing power. As an investment, it wouldn't be a great deal.”
What are the tax implications of this decision?
Due to recent changes in tax laws, homeowners may not get as many tax advantages as they used to. Fidelity Investments states, “Before the tax laws, homeowners could deduct interest on $1,000,000 of debt on a primary or secondary home. Now, for mortgages taken out after the new laws went into effect, deductibility is limited to the interest on up to $750,000 of debt on a primary or secondary home.” Along with this decrease in the amount deductible, your tax benefit may decrease. As you pay off the loan’s principle, you pay less interest. This leads to a smaller deduction. To determine your specific tax implications, talking with a CPA can help you get started.
Making the decision to buy or rent a home can be a big one. By answering these three questions before making your decision, you can make a sounder choice. Meeting with your financial advisor can help navigate you through the decision-making process.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through GWM Advisors, a registered investment advisor. GWM Advisors, Southern Point Investment Partners, and Fidelity Investments are separate entities from LPL Financial.
This material is for general information only and is not intended to provide specific advice or
recommendations for any individual.