As I mentioned earlier this year, we are going to be buying our first house this year and will be taking advantage of the $8000 tax credit. In our most recent newsletter from our apartment complex, they provided us with some renting vs. owning propaganda. It is pretty funny hearing the rent vs. buy arguments shift since the housing market challenges started.
Pros of apartment renting (from apartment newsletter)
- Maintenance, hassle-free living
- Easy to relocate
- Wealth is not tied up in a single investment
- Apartments often are located near transportation, employment, retail, and entertainment
- There isn’t a guaranteed tax advantage. True the IRS allows the deduction of mortgage interest, but for some homeowners, they might not be able to deduct more than the standard deduction.
- Don’t have to pay for maintenance, taxes, and insurance.
- Short-term home-ownership can be expensive. So if you might be moving in the near future, renting may be a better option.
- While buying a house does force you to “save”, historically the returns from investing in the stock market are much greater than investing in real estate.
Apartment renting does have some perks
As a reluctant renter, I have to admit that I have enjoyed not having to deal with any of the maintenance issues. If the sink is clogged – they fix it. If the door handle breaks – they fix it. If the grass needs mowing – they mow it. They even change our furnace filter every 3 months! I know that all this is included into the monthly rent payment, but it is still a nice feature.
The ability to quickly relocate is also an added benefit – if you are a bit more of a nomad. Other than that, I have to disagree with some of the other arguments they made for renting.
Current market conditions that make it a great time to buy
- Extremely low interest rates on mortgages
- A lot of supply in the market with a much smaller demand
- $8000 tax credit for first time homebuyers
A few reasons to buy independent on current market conditions
This is the reason that you can even hear your gas-station attendant tell you that you are “throwing away your money” by renting. It seems to be the one piece of financial advice that everyone seems to remember. While not entirely true, I still think it is a good rule of thumb, only because the majority of Americans are terrible savers. My thinking is, if a 25-year old gets a 30-year mortgage, they will likely have a paid off house (hopefully sooner) at age 55. So even if they haven’t saved much for the future – at least they won’t have to be concerned with a house payment.
Of course the other benefit is that over that 30 years the home value will likely appreciate. Now the returns probably may not be as good as the stock market returns over the 30-year period, but the average American is more likely to pay their mortgage each month than invest extra money in the stock market.
This is nice, but since the IRS standard deduction is so high, unless you are paying a lot of mortgage interest, this might not be as huge a benefit as some people make it seem.
This one is pretty minor, but assuming you have a fixed rate mortgage, your payment should stay the same. This provides a nice protection against inflation. Renters on the other hand, will watch their monthly payments rise as inflation rises.
An investment that you can live in
As far as an investment, even in light of some of the tremendous home value declines, the house still provides the benefit of being able to live in it. As much as I love investing in stocks or mutual funds, they will never be able to provide a benefit like this.
One of the things Linda and I are most excited about is the ability to customize our house. Apartment living is full of rules and restrictions of what you can and can’t do. I am excited to have the freedom to paint the walls, landscape, and install a new faucet – if I would like.
What do you think? What are your reasons for renting or buying?