Many people face the decision to rent or buy every year. Although there are benefits to each, when looking for Phoenixville luxury townhomes, there is more incentive than ever to buy. The disadvantages of renting are:
- No Equity Building
Unless you’re party to a rent-to-own agreement, every dollar you pay in rent is gone forever. No matter how long you remain in your rental unit or how exemplary a tenant you are, you can’t build equity in the property under a standard lease agreement. If you plan on staying in the same location for more than a few years, buying may be a smarter financial choice than renting.
- No Federal Tax Benefits
While homeowners can deduct property taxes and mortgage interest on their federal income tax returns, renters aren’t eligible for any housing-related federal tax credits or deductions. Depending on your property tax and mortgage interest burden, this shortcoming can raise your federal tax liability by several hundred dollars per year.
- Limited Control Over Ongoing Housing Costs
Unless you live in a municipality with rent control laws, your landlord has the ability to raise your rent once your current lease expires. Rental property owners raise rents to match rent increases elsewhere in the market, to compel current tenants to vacate the premises rather than sign a new lease, and for many other reasons. If you maintain a good relationship with your landlord, you’re less likely to face onerous rent increases from year to year. No matter what you do, though, you can’t exercise complete control over your expenses. By contrast, homeowners with fixed-rate mortgages make fixed loan payments each month, regardless of what the local real estate market does.
- Limited Housing Security
While most jurisdictions have generous renter protection laws that prohibit landlords from eviction without cause and require adequate notice (typically 30 or 60 days) that tenants won’t be given an option to renew their leases, no law entitles you to remain in your rental unit indefinitely. Homeowners don’t face such uncertainty. They can remain in their homes as long as they stay current on their mortgage payments.
With all of that being said, what are some of the advantages of buying a residence in a luxury townhome community?
- Building Equity Over Time
Unlike renters, homeowners build equity over time. On most mortgages, a portion of each monthly payment goes toward the loan’s interest. The remainder pays down its principal. (Your lender’s amortization schedule shows the exact proportions, which change over time, for each month’s payment.) Every dollar you put toward your loan’s principal represents a dollar of equity – actual ownership of the property. Once you reach 20% equity, or 80% LTV, you can tap that equity through a home equity loan or refinance your mortgage to secure a lower interest rate or longer repayment window.You can also boost your home’s value, and thus lower your LTV, through judicious investments in home improvement. For instance, the home my wife and I recently purchased has only a rutted dirt driveway with a small shed at the end. Paving the driveway and building a proper detached garage in place of the shed would substantially increase the property’s functionality and curb appeal, potentially boosting its value by an amount greater than the project’s total cost.
- Tax Benefits
Several tax benefits cater exclusively to homeowners, though not all homeowners qualify for all benefits. These are the most notable:
- *Homestead Exemption*. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax burden that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000.
- *Federal Tax Deductions*. If you itemize your federal income taxes, you can deduct your property taxes and the interest paid on your mortgage, reducing your overall income tax burden (often substantially). This particularly benefits those in higher tax brackets.
These benefits aren’t available to renters.
- Potential for Rental Income
Even if you don’t initially think of your home as an investment property, you can turn it into a source of income. This can partially or totally offset your mortgage, tax, and insurance payments on it.The easiest way to do this is by renting out part or all of the property, provided you follow all local rental property laws. You might rent out a basement bedroom to a friend, or live in one unit of a duplex and rent out the other to strangers. You may even choose to purchase and move into a second home, leaving your entire property free to rent. You can also plunge into the sharing economy and take in short-term renters via Airbnb, *Vrbo,* or another house-sharing platform.
- More Creative Freedom
As a homeowner, your decorating, DIY project, and home improvement choices answer to no one, provided they don’t break local building codes or violate homeowners’ association rules. You can paint walls, add new bathroom fixtures, update your kitchen, finish your basement, or build a patio or deck to your heart’s content. Purchasing luxury townhomes allows you to create a space that completely suits your needs.Radically changing your living environment to suit your whims is a fun, and even cathartic aspect of homeownership – and generally, it’s not available to renters.
- Sense of Belonging and Community
Since homeowners tend to stay in their homes for longer than renters, they’re more likely to put down roots in their communities. This manifests in many ways. You might join a local neighborhood association, sponsor block parties or National Nights Out , volunteer at a nearby community center, join a school group, or align with a business improvement district. As a renter, you might not do any of those things, particularly if you know you may be moving in a year or two.
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