The benefits of owning a home vs renting are numerous, especially if you value a sense of physical and financial security. Putting down roots might seem like a daunting proposition if you’ve never owned a home before, but the benefits far outweigh the drawbacks.
If you’re not convinced or prefer the flexibility of being able to move when your lease is up, that’s of course, your decision to make and I honor it.
However, you can always move out and rent your home if you decide to move elsewhere or need a larger home to suit your needs in the future, which is what my spouse and I did. We lived in the first home we bought, a townhouse in Northern Virginia, for about two years. Then, we moved out to buy a bigger house with more land and have now rented it for about 8 years.
Thus, we’ve been able to reap the benefits of home ownership both during our time living there and during our time renting it out.
Benefits of Owning a Home vs Renting One
There are many benefits of owning a home, and they’re further reaching than the obvious. Of course, not having to pay rent is an undeniable blessing, one which all homeowners enjoy, but there’s more to homeownership than escaping leases and often controlling landlords.
Debt Paydown
The argument that paying for a mortgage is similar to paying rent is an interesting point and is often raised. The key difference to understand is that you will be required pay rent forever, whereas a mortgage will be paid off eventually, leaving you with a home of your own. Most mortgages have terms of 15 or 30 years, although other terms lengths sometimes exist.
The key point to understand is that when you’re paying off your mortgage, a portion of your payment every month is applied toward paying down your mortgage. When you pay rent, you instead pay down the landlord’s mortgage, increasing the equity they own in the property every month.
When thought about in this manner, the decision to rent a home suddenly seems a lot like throwing your money away.
A key benefit to home ownership is that you are paying down your own debt (the mortgage used to buy the house), not someone else’s. This means that you get to increase your net worth every time you make a mortgage payment.
Tax Deductions
Tax deductions are always worth looking into, and as a homeowner, you’re entitled to some tremendous tax benefits. Homeowners can apply for deductions on their mortgage interest payments and property taxes, too.
Generally speaking, you can deduct the mortgage interest you pay during any given tax year on the first $750,000 of the mortgage debt that you took out to acquire your primary home. A primary home is defined as the home where you have lived for most of that tax year.
Refinancing a home loan is also possible while paying a mortgage, making the process a lot easier on the wallet when necessary.
Home Sale Exclusion
Another key tax benefit is the home sale tax exclusion that is allow by the IRS.
When it comes to the sale of a primary residence, the IRS allows an individual to exclude up to $250,000 in profit from taxes and a married couples to exclude up to $500,000 in profit from taxes. This refers to only the profit from the sale, not the total sale price.
Thus, if you and your spouse bought a property for $600,000 and sold it for $900,000, you wouldn’t have to pay taxes on your $300,000 gain.
Best of all, this tax exclusion works for any primary residence that you lived in for two years in the last five, so you can use it multiple times. For obvious reasons, this tax exclusion is often called the “$250,000/$500,000 Home Sale Tax Exclusion.”
Price Appreciation
If you buy a home, there’s also a very good chance that it will grow in value over time. While real estate values can vary substantially in the short term, they typically trend upward over time because of the force of inflation. Inflation is a force that drives down the value of money, but drives up the value of assets, like real estate.
As the value of your home appreciates over time, you will own more equity in it. This means you can sell it for a greater profit. You could also do a cash out refinance to access some of this equity for other purposes.
For some people, owning a home can act as a safety net, eliminating many of the worries that often plague renters.
You Get to Benefit from Home Improvements
Landlords and property managers often don’t allow for a personal touch. Most attempts to personalize things are frowned upon. Personalization of a home means the next tenant might not like the space due to differing tastes, which results in a lack of interest, and therefore lack of payment.
When you own your own home you get to control:
- How it looks
- What improvements you make
- When and how repairs are done
This control that be very rewarding. More importantly, when you make improvements to the property, it increases the value of a property that you own, not your landlord.
This means that you get to financially benefit when home improvements are completed, such as adding a deck, improving the landscaping, or upgrading the kitchen, for example.
Privacy and Control
When you rent, you unfortunately don’t have full rights to the home. This means that the landlord has a right to come inspect the property if they provide you with adequate notice Usually adequate notice is defined as 24 to 48 hours of lead time, but this can vary slightly and will depend on what is stated in your rental lease.
It also means that they will control who, when, and how home repairs are completed.
Sometimes, these repairs will impact your privacy, or if you work from home, they could also impact your ability to focus.
Benefits of Home Ownership
There are a few drawbacks to owning a home, but in general home ownership will stand you in better stead than renting, depending on your outlook and personal finances. However, owning a home isn’t cheap, as maintenance and general upkeep are up to you as the owner.
The benefits of owning a home vs renting are clear, but they’re not always what everyone is looking for. It’s important to consider your preferences and your ability to cover the costs of repairs and unexpected expenses. What works for one person might not work for you, after all.
If you enjoyed this article, explore the real estate section of this site.