Buying a home has long been a tradition in America. The primary reason has been to build equity, although the pride of ownership is a powerful factor in purchasing your home. The housing crisis of 2008 had a sobering effect on many homebuyers, although the effects in Oklahoma were not nearly as painful as those in other parts of the country. Many home buyers purchased their homes at the peak of the market with little down payment. When the market dropped, some buyers were forced to sell at a significant loss. Since that time we have seen an increase in rentals nationally as potential buyers are leary about making a long term commitment to purchasing a home. Luckily in Oklahoma, the market remained much more stable and we didn’t suffer the loss in equity of some markets, so the rental market has been steady here for many years.
While most people will find benefits in purchasing their own home, there are some valid reasons to rent a home in the metro Oklahoma City market.
Reasons to Rent Your Home
- Flexibility – Renting allows you to explore and learn about an area before making a long-term financial commitment. You may want to spend a year exploring the area before making a final commitment to purchase a home.
- Career Uncertainty – Oklahoma has always been an economy dominated by energy and agriculture, and the energy industry in particular has fluctuated in jobs over the years. If you are uncertain of your job and may be forced to move soon, then renting may be the best option for you.
- Weak Credit – A lot of people go through tough times and end up with a blemish on their credit report. Don’t despair. Renting allows you to create a history of on-time payments and repair your credit so that you can eventually purchase your OWN home. I have guided many buyers with challenging credit to lenders who have helped them get back on the right track to home ownership.
- Income Uncertainty – If you expect an increase or decrease in pay soon, you may want to hold off on purchasing your own home until your income stabilizes. Renting allows you to “buy time” until you are more sure of your income and can purchase a home that fits your new budget.
- No Maintenance – If you travel extensively, move frequently, or are unable or unwilling to perform regular home maintenance such as mowing the lawn, repairing faucet leaks, or applying new paint and wallpaper, then renting might be the best option for you. We find many elderly people choosing to rent so they can spend more time traveling and less time caring for their home. Be aware that you can purchase a condominium and have the same benefits of low maintenance costs.
There are downsides to renting. You have no control over fluctuating rents, which can be a big budget item. You can also get stuck with a poor landlord who doesn’t provide proper maintenance. You often cannot control parking, or the sale of the home, nor can you profit from upgrades and a possible future sale.
Reasons to Purchase Your Home
- Build Equity – When you pay rent, you are handing over money to your landlord. Often they are paying their own mortgage or just increasing the size of their bank account. When you own your home and pay a mortgage payment, you increase your ownership stake in your home with every payment. As a general rule, if you plan to stay in your home at least 5 years, your increased equity offsets the cost of purchasing and maintaining your home. This can be accelerated by an increase in the value of your home. As your equity builds, you will possess a major asset than you can then use to finance other purchases such as other rental homes. The equity is yours to do as you see fit. You can save for retirement, pay for your kid’s college education, take an around the world trip, or maybe buy the sports car you have always wanted.
- Tax Savings – There are significant federal and Oklahoma tax savings available when you own your own home. The federal government encourages people to own homes rather than rent by allowing citizens to deduct their mortgage interest and property taxes from income. Renters are not afforded this significant tax break, which can add up to hundreds or thousands of dollars per year in tax savings.It gets even better. When you sell your home, most people won’t have to pay “capital gains” tax on the profits from their home. Check with your accountant, but in most cases you get to keep the first $250,000 in profit from the sale of your home if you are single, and the first $500,000 if you are married.But wait, there is more! If you work from home, you can deduct the cost of a home office and a portion of your utilities.
Yes, Uncle Sam likes people to own homes rather than rent.
While a home is always a good investment – and you have to live somewhere anyway – you shouldn’t buy a home just as an investment. It should be a place you raise your family, where you take pride in ownership, and something you want to improve over time. Historically, real estate market increases have been slow and steady. Oklahoma was spared the meteoric rises and subsequent falls seen in other areas of the country, so an investment in a home in the Sooner State has been much more solid than in other parts of the country. But we are not immune from the wild fluctuations that can happen in the housing market, as seen by the recent drop in prices because of the oil industry woes. Some industry experts like to point out that while housing prices are cyclical, the stock market has been less so over the past few decades. Yes, stock prices go up and down, but overall have steadily increased decade to decade and have proven better returns than many US housing markets. But then again, you can’t live in a stock certificate.
So is Renting Cheaper than Buying a Home
That is a very good question. It generally depends on where you live, the overall marketplace, and whether you mind doing the inevitable maintenance that is required when owning your own home. You an use our Rent versus Buy calculator to help determine if renting is cheaper than buying a home for you.
Face it. Homes cost money. Appliances break. Roofs leak. Paint deteriorates in the sun. If you are a renter and have a problem, the landlord fixes it. If you own your own home, YOU are the person who gets to foot the bill. If you don’t mind doing some maintenance chores yourself you can save a lot of money, but some tasks such as electrical repairs you have to hire a professional. The tax breaks afforded home owners can help offset these costs, but in the end they come out of your pocketbook. If you own a home it is a good idea to put money away for unplanned repairs and home maintenance.
Rent vs Buy Calculator
This rent versus buy calculator at Realtor.com is one of the most comprehensive I have seen. You can plug in the amount of monthly rent you expect to pay, then plug in the amount for a home mortgage that you can afford, and calculate how long it takes to start saving money buying your home versus renting your home. Of course don’t expect to rent a $400,000 home for $1,200 per month – try to be realistic in your pricing calculations. But this gives a good starting point to understand when renting is better than buying or visa versa.