Renting vs. Owning

I get many questions about today's market and if we have reached the bottom. The Denver area's home inventory is lessening month over month and is down over 20% since last year. Timing the bottom in any real estate market is nearly impossible. By the time the bottom has been reached, prices have already started increasing and the smart buyers have chosen the best values from the inventory.



If you are making the decision to continue renting or think it is the right time for you to buy, this will help you make a more informed decision by weighing the pros and cons of each. In most cases, the scales tip in favor of purchasing a home over renting one.



Advantages of Homeownership:
Tax Breaks: Mortgage interest and property taxes are generally tax deductible on your federal and state income tax returns.

Investment Appreciation: Real estate appreciation historically has paralleled or exceeded the rate of inflation. On average, homes have appreciated at an average rate of about 5% annually while some years have been more or less. Appreciation varies across the nation by geographic market.

Capital Gains Benefits: Homeowners are allowed considerable profit without incurring capital gains tax when selling their primary residence. Federal law was revised in 1997 allowing an individual up to $250,000 in gain. Homeowners should consult their legal or tax advisor regarding this popular tax benefit.

Housing Cost Stability: For buyers with a 30-year fixed rate mortgage, mortgage payments typically remain the about the same for the life of the loan. Tax and insurance rates may vary affecting the payment amounts, but principal and interest do not change. Homeowners may experience salary increases over time, while their housing costs remain stable. Rent typically increases along with the renter's paycheck based on current economic conditions.

Equity: Money paid into a mortgage over time helps the owner build equity in their investment. Renters never see their money again after rent is paid to the property owner.


Advantages of Renting:
Financial Issues: Renting may be practical for those who do not or cannot afford the financial commitment of homeownership. Some people move frequently, have credit problems, or simply cannot afford the type of home that they prefer.

Maintenance Responsibility: When renting, the landlord assumes the costs affiliated with upkeep and repairs, and renters save time and energy on maintenance. Homeowners must accept the physical and financial responsibilites of such necessities.

Lower Income Considerations: For some lower-income families, cash is hard to come by and renting requires smaller amounts of upfront to move in. Likewise, the tax benefits may not be great enough to offset the costs of homeownership.

*Buying a home is a huge decision and one of the largest investments a person may ever make. It is good to consult your real estate professional, legal and tax advisors when considering a purchase of a home. Most people want a home they can enjoy living in and not just a good tax deduction, so it is very important to consider the aspects of ownership versus renting.