Buy or Sell

There are several factors to consider when deciding whether to rent or buy a home. In our case study, Beth and Jon Linton are considering the critical decision of buying or renting at Stedman Place in Newton, which is a western suburb of Boston, Massachusetts. The timing of this decision is important, as the decision is being made in July of 2006, before the housing market downturn. The case gives insight into the couple’s decision-making process, and the pros and cons of buying versus renting are weighed.
There are a few important benefits associated with buying a home that Beth and Jon will want to consider. First, as Beth’s father has mentioned, building equity in a home can be preferable to renting, where there is no chance of recouping the cost. While the benefit of building equity is certainly valuable, the Lintons will be financing with an interest-only loan for the first five years, which means that the only way they will gain equity is though profits of the sale, if the value of the home increases over their intended ownership period. There are other benefits of buying, such as the tax break on both the mortgage interest and property taxes.
On the contrary, there are also risks associated with buying a home that the Linton family must also consider. First, additional costs must be factored in when purchasing a home, such as maintenance and increased insurance premiums. As long as the family rents, these costs are minimal. The other key consideration is the decreased liquidity of assets for the family, as they will be investing a significant portion of their savings in a down payment for their home.
There are factors to consider when making the decision to buy or rent that are not discussed in the case. First, the case indicated that sources were predicting a softening in the housing market; however, the financial viability of the plan to purchase the house is dependent on the home maintaining a certain value. If the market softens more than