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2 Sep 2011

Costs Associated with Owning versus Renting a Home

I am a fan of buying and owning one's home, my choice for now. It’s the only way for me and my family. I realize though that the benefits are more psychological for me than they are financial. I feel very empowered when I know I can chop and change things in my space. I seldom make structural changes, break walls, but I still want to know I can, if I wanted to. I am a far from being converted to a "renter by choice". However, I am very objective and see the high costs associated with home ownership.

There are a number of online financial resources that assist individuals to take a decision to either own or rent their homes. most of those base their results on the costs of buying versus that of renting for a given period. The results don’t usually take into account other non financial aspects of home ownership. They also tend to fail to encompass the ‘hidden’ costs of home ownership. Apart from the initial down payment and the cost of capital, a home owner needs to afford rates and taxes, insurance, improvements and maintenance. These costs are often higher that home buyers anticipate. That I know. 

 The Cost of Buying a Home
The cost of buying and owning property has risen steeply since the ‘baby boomers’ home buying days. The current generation of home buyers spends a lot more than their parents did. The first time buyers often rely on their parents and even grandparents to help them with achieving their dream of owning their first home. 
 The National Association of Realtors reported that 24% of first time buyers in 2004 received gifts for a down payment from friends or relatives compared to 18% in 1991.
 Other financial help options include having adult children stay at the parents’ homes for longer than it would be expected in the past, whilst they raise the down payment for their first homes. Some parents buy their adult children their first properties or co-sign their mortgages as second owners. It is clearly becoming more difficult for the young professionals to buy their first homes, and with the home ownership pressure they receive from their peers and family, renting is also not an easy option to take. 

Renting is also not so cheap. The obvious is the negative equity that renters get from the renting, and the unexpected rental rate hikes. Not to mention the loss of any improvements they may have made to their rented homes.

 
The Cost of Owning a Home
Buying a home can be a very costly exercise and even more so, owning one. The question that each family should be asking is whether these financial costs outweigh the benefits. In most cases, families blindly choose ownership. I am like that. Just remember to budget for your:
  1. Interest rates as they go up and down, 
  2. Monthly rates and taxes are really not always cheap, 
  3. Home insurance is essential, 
  4. Home improvements is inevitable. Properties get outdated and need some changes from time to time. 
  5. The responsibility of maintenance also adds up more costs
When you know what you want, you make it happen. Just be ready for the responsibility, whatever your choice.

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