If you’re currently renting, you’ve probably heard more than once that it’s better to buy than rent. And you’ve probably heard all the standard reasons: rent is just wasting money; if you own your own home, you can do what you want with it; and so on. That’s all true, but the undeniable financial benefits are the most compelling reasons to own. So let’s see, from a financial perspective, why it is better to buy vs. rent in Los Angeles.
Rents Go Up
For some people, the best reason why it is better to buy vs. rent in Los Angeles is the predictability and stability. When you own your home, you’re not subject to the whims of a landlord. Unless you’re in a rent-controlled building or neighborhood, your monthly rent payment can go up at any time. If, on the other hand, you buy a home with a fixed-rate mortgage, your monthly payment will always remain the same. You have stability, and you can budget for other expenses without any surprises.
Automatic Savings Account
While you do have to have a place to live, the old argument that rent is wasted money has some truth in it. When you make your monthly rent payment, that money is gone forever. But it’s different when you make your monthly mortgage payment because you’re building equity.
Although part of the monthly mortgage payment goes toward interest, at least some of it is applied to the principal. And that amount of the loan principal you pay down is equity. It’s like an automatic savings account, and the loan pay-down amount increases over time – and so does your equity savings account.
Appreciation and More
Another reason why it is better to buy vs. rent in Los Angeles is that buying a home is usually a good investment. That is, you can make money in the long run. And investing in a home is often a sounder investment than in stocks, not only because it can net you more, but also because it accrues faster owing to the down-payment investment.
Most of the time, homes appreciate over the years – they increase in value over the long haul. The home -appreciation value is usually at least 3% (often more), which is considered a pretty decent return on stock investments. In addition, if you sell your home at some point, you will be exempt from paying taxes on the money gained through appreciation.
For a final reason why it is better to buy vs. rent in Los Angeles, consider the tax benefits. As a renter, you have basically none. As a homeowner, you can deduct mortgage interest and property taxes each year when you file federal income tax return.
Here’s an example. Suppose you purchased your home for a sale price of $300,000, with a 10% down payment ($30,000). Using fairly standard calculations, your total monthly housing cost would be about $1,700, including mortgage payment, property taxes, insurance, and mortgage insurance. Your tax deductions for mortgage interest and property taxes would save you approximately $335 per month, which would make your monthly housing cost closer to $1,400. The upshot is that, in some cases, the savings from tax benefit can make owning more affordable than renting. And there are also that automatic savings and appreciation to keep in mind.
Now that you’re convinced about why it is better to buy vs. rent in Los Angeles, maybe you’re ready to look into buying. And it’s always best to enlist the aid of qualified real estate professionals for such a huge, life-impacting purchase.