Should You Rent or Buy a House?

It is difficult for most people to decide whether to buy or rent a house. They get confused by contradictory advice and are unable to decide. Actually it is really verysimple. It comes down to simple math and commonsense. If you are going to stay in the home for long then it is better to buy but if you are going to stay there for a short period it is better to rent. However it is not always so simple. You must weigh the various factors involved and the advantages and disadvantages of renting or buying depending on your financial situation and mental makeup.

In the long term the property prices appreciate in value substantially. This appreciation will vary depending on the area and its growth potential, the kind of neighborhood,etc. Housing is a basic human need and you can't keep property prices down for long. Usually property prices appreciate at the average rate of 10% each year taking into account the bad markets when property prices are down. Another advantage of buying your own house is something called leverage.

Here leverage consists of borrowing money in the form of mortgage to multiply your investment. By giving a down payment of 20% you are able to benefit from the appreciation in value of the 100% of the property. Let us suppose you bought a house for $300,000 and had to invest a 20% down payment or $60,000. Consider that the value appreciated by 10% over a 10 year period which is a conservative figure. So you make $300,000 in terms of appreciation only. Even after deducting the interest, maintenance and tax costs you will be still left with a substantial profit because the interest payments would be tax deductible if this were your primary or secondary residence. In effect by investing only 20% you are able to enjoy a return over 100 % of the value of the investment.