Deciding Whether to Rent or Buy a Home

With all of the recent turmoil in the United States housing market, many people are revisiting the pros and cons of renting versus buying a home. For starters, buying a home is a terrific long term investment, and while short term price appreciation is unlikely, long term price appreciation is quite certain.

There are however many other factors to consider outside of potential price appreciation when deciding whether to rent or buy a home. While there are many advantages to owning your own home, not everything is a bed of roses. Like every major financial decision there are pros and cons to owning a home.

First of all, some of the positive attributes of home ownership:

Owning your own home does give you the discretion and flexibility to do whatever you want with your property both inside and out. Paint a room neon green? Sure. Have a life size statue of Elmo made out of corn cobs in the back yard? Go right ahead. You can do just about anything you want since you no longer have a landlord to answer to. However don't presume that you still don't have people to answer to about your behavior. Frequent parties or loud music, lack of maintenance on the house, or having a yard that is an eyesore will wear out your welcome with your neighbors faster than you can mutter "sack of moldy potatoes". You may no longer be living in an apartment complex with people on either side of you, but you're still part of a community.

There are also significant tax incentives to owning your own home. The interest that you pay on your home mortgage is tax deductible, as are the property taxes that you pay. However you can only benefit from these if you itemize your deductions (Schedule A on Form 1040) each year. Traditionally, the amount of home mortgage interest and property taxes paid is more than enough to allow you to itemize deductions, but check with your tax professional, or consult with online Internal Revenue Service publications at www.irs.gov.