Is buying a home the right investment?

For many of us, buying a home represents the American Dream. According to the National Association of Realtors, over 6 million new and existing homes were bought and sold in the United States in 2019, so people across the country are focusing on homeownership as a way of life. In fact, 65.3% of American families owned their primary residence last year, so more than half of us have seen owning a home as a life goal.

Homeownership represents stability and prosperity, and the image of a freshly painted house and a well-kept lawn (and maybe even a nice picket fence) is etched in the minds of many people as a life goal. And, while home-ownership is a laudable goal, there’s an aspect of timing and circumstance that you’ll want to consider when you make the all-important decision about whether or not you’re ready to buy a home. For some, renting an apartment is the right life decision for their circumstances, and knowing which option is best for you can sometimes seem difficult. The good news is, if you consider your circumstances, the decision becomes quite a bit easier.

Here, then, are some factors that you should consider when making this important decision:

1. Investment potential

This is the biggest draw for many people. If you opt for homeownership, your monthly mortgage payments will go toward the house, building equity that you can use in the future, for college payments, further investments, or emergencies. It’s a form of forced savings.

If your credit is good and you’re planning to stay in one place for a while, this can be a wise financial decision. Rather than giving your monthly housing payments to your landlord, you’re investing it in your future. Assuming the right market, and if you can swing the financial investment of the down payment, then take advantage of record-low interest rates, owning a home will pay off in the long run, at least if you’re staying in one place for more than a few years (see below).

For example, if you invest $30,000 in the stock market and it appreciated 3 percent per year for three years, you’ll gain $2,782 on top of your $30,000 invested. But, you’ll get taxed on that gain when you sell it.

If you buy a $300,000 primary residence with a $30,000 down payment (representing 10 percent down) and it appreciates 3 percent per year for three years, you’ll gain $27,818 on top of your $30,000 invested. And, if you sell it to buy your next home, you won’t pay any taxes on the money gained.

Of course, where you buy matters, as well as the home purchase price. Some markets and houses will appreciate more than others.

2. Taxes

There are tax pros and cons of owning a home. Of course, you’ll have to pay property taxes on your home, and, depending on where you live, that could be expensive. With a rental, this is one expense you won’t have.

On the other hand, as a new homeowner, you could be eligible to deduct mortgage interest and property taxes when you file each year. You can deduct mortgage interest paid on the first three-quarters of a million dollars of your mortgage, property taxes, and certain other expenses from your income taxes. In the end, this could be a nice benefit for you. Additionally, when you go to sell the home, assuming you use the appreciation as part of your down payment into your next home, you won’t pay any taxes on the money gained.

3. Maintenance matters

This is as much a lifestyle decision as it is a financial one. When you rent an apartment, you can be confident that your landlord will (or at least should) take care of any maintenance issues you may have, from a leaky pipe to a broken refrigerator to a new coat of paint. You typically don’t have to pay for these expenses and you certainly don’t have to worry about having the skills, time, or supplies to take care of them yourself.

When you own a home, though, this all falls on your shoulders. All of the above matters plus a myriad of other issues — from cutting your lawn to cleaning your gutters to pumping out your flooded basement — are your responsibility. This means that you’ll need to do one of two things: pay a professional to take care of your home maintenance or do it yourself. If you’re handy and you like this sort of thing, it might be a nice project for you. If not, you can use Househappy to help you out. Househappy and their Home Concierge team will take all the legwork out of working with service pros to take care of your home – from simple maintenance tasks to full kitchen remodels.

4. Duration of stay

How long do you plan to stay in your current location? This figure factors significantly into whether or not renting will be a better choice for you than buying. Do your plans call for a short stay (1-4 years or so) in your current location? Will you be moving because of work or school or even a sense of wanderlust? If your stay will be a short-term one, then it might make more financial sense to rent.

Let’s break it down. You can take the average rent for an apartment in your neighborhood and the average cost of a home in the same area. Figure out how much you would put as a down payment and the interest rate on your loan to figure out your monthly mortgage payment. Then, you can use a rent vs. buy calculator to figure out your break-even point — how long you’d need to stay in one location for home buying to be a better option than renting.

5. Finances

For many, the decision of whether or not to buy a house comes down to financial decisions. There are a number of factors that influence whether buying is the right option for you. Consider these:

• Your current finances: How is your credit? What’s your debt situation look like? If you’re struggling financially, it might be a good idea to rent for a few years to get everything in better shape. That way, you can get a better rate on your loan and save yourself money in the long run.
• Consistency and stability: If you’re concerned about these matters, then owning a home is a better choice. If you rent, your landlord can raise the rent on you each year and there’s little you can do about it. Additionally, owning your own house means you have total control over your finances. You won’t have a landlord who can sell the property out from under you or refuse to renew your lease. Also, rents rise nearly every year, your mortgage payment stays the same.

Should I rent or should I buy now?

The decision about whether or not to buy a house is a huge one and not to be taken lightly. A complex set of calculations goes into this decision. You’ll want to consider taxes, how long you’re planning to stay, financial considerations, and more. This can be daunting, but, fortunately, there are a number of available resources you can leverage to help you. One such resource is Roost, a website for renters that helps you make decisions about your living future, like whether you should rent or buy, how you should handle moving, and what your rights are as a renter. No matter what you decide, as long as you take the time to weigh your options and consider all the variables, you’ll be able to make a confident, informed decision. Good luck!