One of the biggest decisions that many people will have to make is whether they should rent or purchase their next residence. There are many advantages and disadvantages in each individual decision. Explicit costs, “monetary opportunity costs of using market-supplied resources,” (Thomas & Maurice, 2011) and implicit costs, “nonmonetary opportunity costs of using owner supplied resources,” (Thomas & Maurice, 2011) are important opportunity costs that each household should dissect before making their decision. This is not a decision to be taken lightly and should be reviewed as an individual household decision because each household has different needs and wants along with different economic stability to help sway a decision one way or another.
Rent or Purchase
Rent or buy, this was a question that I had to ponder over two years ago. For the needs of my growing family the answer for me was to purchase a new home that would give them the room indoors and outdoors that they required to enjoy themselves. This question is one that many individuals have to think about when they move to either a new location or just need to expand or downsize. Is the purchase of a new home, townhouse, or condo worth the long term investment or is renting a more economical choice. For me, purchasing was the economical choice but for many others renting may be the most obvious decision. Within this paper I will be discussing the topic of renting or purchasing.
When it comes to the decision of renting or purchasing there are many factors that an individual should consider, such as how long do I plan on living in this community, is my household size going to increase or decrease within the next few years, and am I economically stable enough to purchase a new residence. There are many pros and cons to renting or purchasing a new residence. Some reasons one would consider renting are: •
Save money – “Add up the monthly mortgage bill, maintenance, homeowner’s insurance, and taxes. Then, even after subtracting the tax deduction, renting is probably cheaper. And that’s before you consider the down payment.” (Even After The Housing Crisis, You're Still Better Off Renting , 2012) •
Flexibility – “Do you really want to live in one place for the next 10, 20, 30 years? What if you are offered a great job—but it’s halfway across the country? Or you get engaged and the love of your life sets one condition—a 500-mile DMZ separating you two from your mother? If you own a home and it has lost value, you face difficult, expensive decisions.” (Even After The Housing Crisis, You're Still Better Off Renting , 2012) •
Hassle – “A leaky roof. Ever-increasing property taxes. A backed-up septic system. Are you ready to deal with them? If not, enjoy the carefree life of a renter for a little longer. Houses won’t be skyrocketing in cost any time soon.” (Even After The Housing Crisis, You're Still Better Off Renting , 2012) Some reasons to purchase are:
Forced Savings – “As we learned recently, a house isn’t a foolproof investment. But the requirement to stash that mortgage money away every month for 30 years is a powerful savings tool.” (Even After The Housing Crisis, You're Still Better Off Renting , 2012) •
Good Timing – “Purchasing a house today means buying a depressed asset with other people’s money borrowed at 4 percent—and getting a tax deduction in the process. If inflation picks up, the real cost of that monthly payment will go down while rents climb. Not a bad deal.” (Even After The Housing Crisis, You're Still Better Off Renting , 2012) •
Peace of Mind – “Depending on how quickly you pay off your mortgage, you’ll get to live rent-free in 30 years or so. You’ll be part of a community. Your kids can use thumbtacks to hang their posters, and you can sit on your porch knowing that the land under your feet and the roof over your head are all yours.” (Even After The Housing Crisis, You're Still Better Off...
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Lexington Park, Maryland. (2010). Retrieved from City-Data: http://www.city-data.com/city/Lexington-Park-Maryland.html
Even After The Housing Crisis, You 're Still Better Off Renting . (2012, June 5). Retrieved from Business Insider: http://www.businessinsider.com/should-you-buy-or-rent-a-house-2012-6
Opportunity Cost. (NA). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/opportunity-cost.html
Tax Savings for Homeowners. (NA). Retrieved from Realtor : http://www.realtor.com/home-finance/homebuyer-information/tax-savings-for-homeowners.aspx?source=web
The Tax Benefits of Home Ownership. (NA). Retrieved from All Law: http://www.alllaw.com/articles/tax/article3.asp
Thomas, & Maurice. (2011). Managerial Economic, 10th Edition. New York: The McGraw-Hill Companies.
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