Cons of home ownership and renting

This was originally published on Monday, September 12 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Buying a home is a major financial step. Home ownership is a big responsibility and although many try to achieve it, it is not for everyone. As with any big move in your life, you should do some research and investigate the pros and cons. Take into consideration your personal preferences, upcoming plans, and your overall financial status.

Disadvantages of buying a home

  • Long-term commitment. Probably one of the biggest decisions in buying a home is taking on the commitment of being bound to a mortgage. Most mortgages run for 15 to 30 years. Although you may pay off your home sooner, it will still take longer to complete than a rental agreement.
  • Maintenance. When something breaks while you are renting, the landlord is generally responsible to get it fixed and to pay for it. As a homeowner, the responsibility falls squarely on you. Some repairs like fixing a roof or the foundation can be very costly.  Not only do unforeseen repairs cost money but so does the normal upkeep of your home like leaky faucets or air-conditioner maintenance.
  • Additional costs. There are large, upfront costs that are associated when you purchase a home. Costs such as a down payment, title clearance, appraisal services, and other fees should be saved for starting the purchasing process.
  • Furnishing. Most homes, unlike some rental units, do not come fully furnished. If you do not have furnishings when moving into your new home, you may have to save for furniture and appliances.
  • Financial loss. Homes over time start to depreciate. As they get older, houses go through normal wear and tear. New homes generally cost more than older ones. Property value also changes. Sometimes your property value drops depending on the economic factors of your neighborhood.
  • Hidden costs. When renting, your landlord takes responsibility for many of the hidden costs such a property insurance and taxes. As a homeowner these now become your responsibility.
  • Less mobility. A tenant can leave a property after fulfilling their rental term. Homeowners may take longer to find a buyer or renter.

Disadvantages of renting

  • No equity. As a homeowner, every dollar you pay on your principal goes toward building your equity. As a renter every dollar you spend goes to your landlord and does not benefit you.
  • No tax deductions. Homeowners receive an incentive to buy homes through tax deductions at the end of the tax year. Renters generally cannot claim a housing deduction on their yearly taxes.
  • Lease. When you signed your lease you agreed to certain conditions. Some may take away the creative control to create the space you want. Some constraints like no painting or drilling may come with a lease. Some may agree to no pets or keeping the landscaping the way it is. Your lease can impact the freedom you would have as a homeowner.
  • Increased costs. Rental prices generally go up at the end of the lease term. Landlords can raise your rent once your lease term expires.
  • Security. Unless you fall behind on your payments you are pretty much guaranteed a roof over your head.  While most laws protect the renter there are laws that also protect the landlord. With adequate notice your landlord can give you notification to be ejected.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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