Advantages & Disadvantages of Renting a Home

It's a question that's been asked for years. What are the advantages and disadvantages to renting your home versus buying it? Frankly, there is no one answer to this question because it depends on the condition of your pocketbook, whether you plan to stay in one place long enough to reap the rewards of ownership, and the economy. So before you make the decision to rent your home, it is wise to know the pros and cons.

Taxes

When you rent your home, none of the monthly rent is tax deductible; but when you buy it, most often most of the money you pay on your mortgage is. Furthermore, the taxes on a home that you purchase are tax deductible, too. Assuming that you have reached the 28 percent federal tax rate, about 28 cents of every dollar you pay toward your mortgage is returned to you through lower taxes. And several years hence when you want the equity that has built in your home, you can take out a second mortgage or a Home Equity Line of Credit (HELOC), and the interest you pay on that loan will probably be tax deductible, too. None of that interest is tax deductible if you rent.

Equity

When you buy your home, its equity will usually increase with every mortgage payment, and if the market value of the house increases, as well, all the better for you. But if you rent your home, your landlord will benefit instead. This is an important consideration when homes in your area are going up in price. However, if the reverse is true, it might be better to rent as opposed to buy your house.

Money Upfront

Under usual circumstances, your landlord may ask you to make a security deposit of about one month's rent. That deposit will be returned to you at the conclusion of your lease, unless you have abused the property. However, when you purchase a house, you will be required to make a down payment that can be as much as 20 percent of the value of the house. This disparity in upfront costs prevent many people from buying their homes.

Other Considerations

Regardless of whether your lease is month-to-month or for a year or two, at its conclusion you can simply walk away. However, if you are buying your home, you must first ready it for sale and sell it before you move. Further, if you rent your home, you will have little or no latitude to make changes to make the house more livable for you. If you own it, though, you can make all the changes you want.