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1. You are uncertain about your long-term prospects
Kamila Elliott, a CFP in Atlanta and member of CNBC’s advisory board, said potential homebuyers should feel confident about where they want to live.
For example, do they like to live in a particular city or suburb or in a particular neighborhood for a few years? If they relocated because of their job, would they still want to live there if they lost that job?
If the answer to any of these questions is no, then renting may be the best option, says Elliott, co-founder and CEO of Collective Wealth Partners.
“If you can’t commit to being there for (at least) three years, don’t buy,” Elliott said.
Flexibility is a big plus for renters, Boudreau said.
For example, if you’re moving to an unfamiliar place, “renting might be a good avenue,” he points out, to avoid buying and finding out you don’t like the place.
The benefits can be psychological as well as financial.
Mr Elliott said house prices could be volatile and buyers likely would not make a profit if they sold the property after holding it for a period of time.
Upfront transaction costs, such as realtor fees, are also often “very expensive,” making it harder to break even on a short-term home purchase, Boudreau said.
2. You don’t like the “nuisance” factor
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There are also certain lifestyle benefits to renting over owning, consultants say.
Renters don’t have to deal with the “hassle factor” of making appointments with landscapers and exterminators or paying for home repairs, Elliott said. This is usually the landlord’s responsibility.
“You don’t have to worry about fixing your dishwasher, your garage door, or your HVAC unit,” says Elliott.
Depending on the building, she added, tenants may feel more secure if there are additional security cameras or doormen, or they may gain convenience and social benefits if there are amenities such as a gym or pool.
Instead, a house could be the right lifestyle choice for those who want a large yard, a nice garden and a space for the dog to run, Boudreau said.
3. The benefits of ownership are ‘greatly overstated’
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The economic benefits of homeownership are “greatly overstated,” Boudreau said.
He added that “buying a house because you feel like it’s something you should be doing can be (economically) dangerous” and lead to regret.
One, a financial assessment of affordability is incomplete if consumers are only comparing monthly rent and mortgage costs. The true cost of owning a home also includes the cost of utilities, home improvements and maintenance, property taxes and homeowners insurance, consultants say.
By 2022, the average homeowner will be paying more than $15,000 a year to cover these costs, in addition to their mortgage payments, according to to smart real estate.
Second, a tax deduction Because mortgage interest isn’t as valuable as it used to be, Boudreau added.
The 2017 tax law passed during the Trump administration lowered the mortgage interest threshold; married couples can claim a tax deduction on the first $750,000 in mortgages, down to $1 million.
I don’t think it should be automatic for everyone. You can rent for the rest of your life and be very happy.
Jude Boudreau
Senior Financial Planner, Planning Center
It is also more difficult to obtain the financial benefits of tax breaks in general. The law doubles the standard deduction ($27,700 for married couples in 2023) and caps the deduction for state and local taxes at $10,000.
Overall, the mortgage interest tax deduction “is no longer as beneficial as it used to be,” Boudreau said.
Of course, owning a home is often seen as an investment, as well as securing a place to live.
According to a 2018 report, owning a home “allows families to build wealth and serves as a measure of financial security” Paper By Laurie Goodman of the Urban Institute and Christopher Mayer of Columbia University. Home equity, for example, could play an important role in retirement savings if retirees are able to leverage that wealth, they wrote.
But they said there were “huge differences” in the homeowner’s experience depending on factors such as time of purchase, holding period and location.
For example, wealth accumulation depends on one’s ability to keep a home during an economic downturn; low-income and minority borrowers are less likely to do so, and thus benefit less from homeownership, Goodman and Mayer write. Additionally, homeowner returns in areas such as Cleveland and Chicago are “less favorable” relative to other metropolitan areas such as Los Angeles, Dallas and New York.
Historically, returns on residential real estate and stocks have been “very similar and high,” one analyst said. Paper Published by the Federal Reserve Bank of San Francisco, it examines global investment from 1870 to 2015.
But in the U.S., investors earned a higher net return on stocks than on real estate during that period: an average of 8.3 percent a year, compared with 6 percent a year after adjusting for inflation, according to the paper.
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