10 Reasons Why Homeowners Have an Edge on Renters
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Homebuying has earned a bad rap in recent years: The subprime mortgage crisis and ensuing economic meltdown left many homeowners underwater, unable to pay their mortgage and even facing foreclosure. Homeownership rates fell throughout the recession and got down to about 65 percent, compared with almost 70 percent before the recession, according to the Census Bureau. While record low interest rates helped entice homebuyers, the bureau reports that the homeownership rate remains relatively low, at 65.2 percent in the fourth quarter of 2013.
If you're among those struggling to decide whether to buy versus rent, consider these 10 reasons to take the plunge into homeownership:
1. You can ramp up energy efficiency. Energy-efficient improvements, from adding insulation to upgrading your air-conditioning unit, can reduce your monthly utility bill, says Jane Hodges, author of the book "Rent vs. Own." While renters can make plenty of green improvements on their own, from unplugging appliances to turning off lights, homeowners can make bigger changes, such as adding solar panels or installing an energy-efficient roof. (Of course, a renter living in a one-bedroom apartment likely uses far less energy than a homeowner in a three-bedroom house, so size can trump energy improvements.)
2. You can customize your space.Whether you need to knock down a wall to make a larger master bedroom or redo the bathroom to reflect your art deco tastes, owning the space you live in means you have the freedom to do so, without worrying about losing your security deposit.
3. Homeowners buy less furniture. "Often when you're renting you need custom furniture that fits the space," Hodges says, such as room dividers for a loft or miniature furniture to fit into a basement apartment. "When people move a lot, they can end up buying a lot of furniture," she says. If you buy a home and settle in for the long haul, you can likely purchase a few pieces that will stick around.
4. Owning a home forces you to save. The so-called "forced savings" argument is a widely-held one: Since homeowners have to pay their mortgage every month, they are routinely putting money away (and into their house, which they own), instead of squandering it on new shoes or fancy meals. Then, if you eventually sell your home after the mortgage is paid off, there's a good chance that "you'll walk away with a payoff," even after subtracting the costs of ownership, Hodges says. (Of course, homeowners who face foreclosure or declining home values often find themselves without such equity to show for their monthly mortgage payments.)
5. Homeownership allows you to build a second income stream. From taking in a renter in a spare bedroom to renting out driveway space to commuters, Hodges says homeowners are increasingly finding ways to monetize their homes. In cities with scant green space, some homeowners even rent out small patches of grass for people who want to grow vegetables.
6. No landlord can kick you out. Renters can face an unexpected eviction notice if their landlord suddenly decides to sell the home, rent to someone else or otherwise end the lease. That's one reason Boston University economics professor Laurence Kotlikoff says that for older people with a fixed income in particular, he recommends homeownership (and a paid-off mortgage). "It's important for older people to be in a home that they own as security against a landlord," he says.
7. In fact, you don't have to speak to a landlord, ever again. Landlords can take ages to fix a broken dishwasher, let the air vents fill with dust and particles, or leave pesky messages about repairs. If you're the homeowner, then you're in charge – which means you have to be home when the plumber calls, but the plumber reports to you. (And, of course, you also have to pay the plumber.)
8. Unlike rent, a fixed mortgage can't go up (even if inflation does). Fixed mortgage rates don't go up, even if the cost of everything else does. To protect yourself, Jack Otter, author of "Worth It ... Not Worth It?" suggests making a 20 percent down payment and taking out a 30-year fixed mortgage to lock in today's low interest rates. "Mortgage rates haven't been this low since GIs were heading home from France. Lock in a low monthly payment, and you've just taken a huge step in protecting your family against inflation," he writes in his book.
9. Homeowners can take tax deductions. The chief tax benefit of homeownership is the ability to deduct mortgage interest payments, but the perks don't stop there. Homeowners can also deduct eligible expenses (certain energy-efficient improvements, for example) and in some cases can avoid federal taxes on earnings from the sale of a home.
10. You can take advantage of currently low interest rates and prices. Despite creeping back up, interest rates remain relatively low from a historical perspective, and at the same time, home prices in many areas remain soft. That can make for an appealing buyer's market. Of course, buying isn't for everyone. If you might move soon or you want the flexibility to upgrade your digs with just a month's notice or your job outlook is uncertain, then renting can be ideal. Hodges says potential buyers should first consider the transaction costs of homeownership, which can add up quickly, especially if a buyer doesn't plan to stay put for very long.
"During the bubble, people were looking at homes as a tool to make money," Hodges says. Now, they just see them as a place to live.
Filed under: News, Advice, Buying
1. You can ramp up energy efficiency. Energy-efficient improvements, from adding insulation to upgrading your air-conditioning unit, can reduce your monthly utility bill, says Jane Hodges, author of the book "Rent vs. Own." While renters can make plenty of green improvements on their own, from unplugging appliances to turning off lights, homeowners can make bigger changes, such as adding solar panels or installing an energy-efficient roof. (Of course, a renter living in a one-bedroom apartment likely uses far less energy than a homeowner in a three-bedroom house, so size can trump energy improvements.)
2. You can customize your space.Whether you need to knock down a wall to make a larger master bedroom or redo the bathroom to reflect your art deco tastes, owning the space you live in means you have the freedom to do so, without worrying about losing your security deposit.
3. Homeowners buy less furniture. "Often when you're renting you need custom furniture that fits the space," Hodges says, such as room dividers for a loft or miniature furniture to fit into a basement apartment. "When people move a lot, they can end up buying a lot of furniture," she says. If you buy a home and settle in for the long haul, you can likely purchase a few pieces that will stick around.
4. Owning a home forces you to save. The so-called "forced savings" argument is a widely-held one: Since homeowners have to pay their mortgage every month, they are routinely putting money away (and into their house, which they own), instead of squandering it on new shoes or fancy meals. Then, if you eventually sell your home after the mortgage is paid off, there's a good chance that "you'll walk away with a payoff," even after subtracting the costs of ownership, Hodges says. (Of course, homeowners who face foreclosure or declining home values often find themselves without such equity to show for their monthly mortgage payments.)
5. Homeownership allows you to build a second income stream. From taking in a renter in a spare bedroom to renting out driveway space to commuters, Hodges says homeowners are increasingly finding ways to monetize their homes. In cities with scant green space, some homeowners even rent out small patches of grass for people who want to grow vegetables.
6. No landlord can kick you out. Renters can face an unexpected eviction notice if their landlord suddenly decides to sell the home, rent to someone else or otherwise end the lease. That's one reason Boston University economics professor Laurence Kotlikoff says that for older people with a fixed income in particular, he recommends homeownership (and a paid-off mortgage). "It's important for older people to be in a home that they own as security against a landlord," he says.
7. In fact, you don't have to speak to a landlord, ever again. Landlords can take ages to fix a broken dishwasher, let the air vents fill with dust and particles, or leave pesky messages about repairs. If you're the homeowner, then you're in charge – which means you have to be home when the plumber calls, but the plumber reports to you. (And, of course, you also have to pay the plumber.)
8. Unlike rent, a fixed mortgage can't go up (even if inflation does). Fixed mortgage rates don't go up, even if the cost of everything else does. To protect yourself, Jack Otter, author of "Worth It ... Not Worth It?" suggests making a 20 percent down payment and taking out a 30-year fixed mortgage to lock in today's low interest rates. "Mortgage rates haven't been this low since GIs were heading home from France. Lock in a low monthly payment, and you've just taken a huge step in protecting your family against inflation," he writes in his book.
9. Homeowners can take tax deductions. The chief tax benefit of homeownership is the ability to deduct mortgage interest payments, but the perks don't stop there. Homeowners can also deduct eligible expenses (certain energy-efficient improvements, for example) and in some cases can avoid federal taxes on earnings from the sale of a home.
10. You can take advantage of currently low interest rates and prices. Despite creeping back up, interest rates remain relatively low from a historical perspective, and at the same time, home prices in many areas remain soft. That can make for an appealing buyer's market. Of course, buying isn't for everyone. If you might move soon or you want the flexibility to upgrade your digs with just a month's notice or your job outlook is uncertain, then renting can be ideal. Hodges says potential buyers should first consider the transaction costs of homeownership, which can add up quickly, especially if a buyer doesn't plan to stay put for very long.
"During the bubble, people were looking at homes as a tool to make money," Hodges says. Now, they just see them as a place to live.
Filed under: News, Advice, Buying
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