The question everyone always asks... should I rent or buy my next home? Well the answer is, that depends! The right answer is different for everyone. Here are some things to think about when making this decision.
Is it a short term move? Or will you be staying there for a few years? While apartment costs can be more affordable upfront (no inspections, no lender fees, no closing costs, etc.), there's also no opportunity for wealth accumulation. When buying a home, you have higher costs upfront but you also have the opportunity to build equity.
Equity is the difference between what you owe on your mortgage and what your home is worth. You build equity on your home with each monthly payment that goes towards the principle. This equity can then be used for a multitude of reasons including home improvements, paying for college, planning for retirement or even consolidating other debts.
When renting, you have the flexibility of packing up and moving a little bit easier (depending on your lease). When you purchase a home, the process to up and leave is a little bit trickier and more time consuming. If you turn around and sell your home within 2 years of owning it, you will be looking at paying capital gains tax on any profit you make. The tax rate varies due to certain factors, but you could expect to see 15-20% as this rate.
Since we're talking about taxes... Don't forget about your tax breaks! Homeowners can apply for numerous tax exemptions, including a Homestead Exemption. The main requirement to be eligible for this exemption is that it needs to be your primary residence and you have to have lived there for 1 full year. Have you been in your home for a year and don't have a Homestead exemption? Ask us how to get started and we'll point you in the right direction.
While you may not have as much freedom to move, you do have the freedom to remodel! When you're renting, your options are very limited and you may not be able to make your space suitable to you. Want to paint the wall a different color? Possibly, but you need to ask your landlord. Want to tear that wall down to make a bigger closet to fit all your clothes? You probably can't. But when you own your own home, you're free to do as you wish (within reason - some larger projects may require a building permit).
Renting can also be more beneficial in the sense of not having to worry about home maintenance. If a pipe is leaking or if the furnace stops working, you call your landlord and they get it fixed (hopefully). When it's your home, it's your expense. If you've been in the home long enough, this is a great time to take advantage of your equity!
While there's plenty of predictions out there about what the market will do or what it will look like in the next 5-10 years, we truly have no idea. We're in a crazy market right now and home values are high. We don't know how long this will continue or when it will change. As my dad loves to say, "we don't have a crystal ball". When home prices are up, rent typically goes up. If you already financed your home, your mortgage stays the same and you don't need to worry about the increasing market prices around you.
Are you concerned about the down payment for a mortgage? There are various types of home loans out there. A lender can help you weigh the pros and cons of each one. Not sure if you have a high enough credit score? We have a video that we've shared about this, click here to watch it!
There is also a price-to-rent ratio that can help you determine the affordability of renting versus buying. Keep your eyes open for that blog post 😊