Tips Before Renting or Buying

When someone is going to rent any place either for personal living or a business has to think on many grounds. This decision turns even more difficult if he is going to buy some place. For both the decisions, one most important thing is how much money he has? He has to examine some financial issues.

Estimating Your Finances

Estimating Your Finances

In the start you have to calculate the amount you posses and estimate either it is enough for buying or renting new home. For renting down payment is the main issue. It includes advance initial payment and security deposit. In case of buying new home you must see the mortgage payments you need to pay each month. It is suggested that it should not more than 28% of your monthly income.

Cost/Benefit Analysis

The issues related to buying (which are ability to build equity, the tax breaks and the investment value of a home) have both merits and demerits. Let’s see how.

Equity

Merits: The amount of money that you pay as mortgage also contributes in building equity in your home. In case of renting you are giving all of your money but home equity can serve as collateral for a loan. In this way that payments serves you as future cash for you.

Demerits: It takes long time and great efforts to build equity. Also the initial mortgage payments are mainly interest on loan. After few years living in that home, if you want to sell it then still you will have no money as it goes to loan payments.

Tax Breaks

Tax Breaks

Merits: In buying, the mortgage interest and property taxes you pay are both deductible on your federal income-tax return. So you will not have to pay it again if you sell the property. Also if you take home equity loan than some or all of the interest may be deductible on your federal income tax return.

Demerits: The first one drawback is you can get the tax breaks on interest and property taxes only when the amount of your itemized deductions is more than the standard deduction amount. At standard deduction you cannot get tax break at mortgage interest. Normally a standard deduction is of $9,700 and itemized deductions of $8,000. So the people take standard deduction because it’s greater than the itemized amount. So even after your mortgage is paid off, you’ll still have to keep making payments to someone to keep your home.

Investment

Merits: For most of the people, their home is the main assets in their portfolio. It is very satisfactory for them if the price of that property increases with the passage of time. After he retirement they can sell their primary residence at profit and buy less costly place to live.  The profit gained can be used as income for their rest of life.

Demerits: It is very common that the value of property increases. But it is not always true. Each country has some areas where the value of land goes down and the owner has to bear loss. He has to sale his home either at the equal price after many years of it formation or even at lower price.

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