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Buy vs. Rent Analysis
The first decision most prospective home buyers face is whether to buy a house or rent. Real estate ownership provides many advantages over renting. Interest payments and real estate taxes are itemized deductions on an individual income tax return, the repayment of principal builds equity, real estate can create financial gains during certain economic cycles, and there is the pride of ownership, achieving the American Dream. However, there are also costs associated with home ownership. These may include: insurance, association dues, and repairs. Buy vs. Rent attempts to provide the financial analysis of the costs of owning a home as compared to the costs of renting. The analysis is presented simply by comparing the average cash outflows for the first two years.
The economics of this issue are really quite simple. Over a period of time (in this case, we use 24 months), is it cheaper for you to continue to rent or for you to purchase a home? Based on the tax benefits of purchasing a home (deductible interest and property taxes), a potentially higher cash outlay when purchasing a home may in fact be cheaper than a moderate rent payment.
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