Copyright © 2003, Linda Breen Pierce. This article may be reprinted with prior written permission of the author. Please email Linda Breen Pierce if you would like to reprint it.

To buy or not to buy, that is the question. Like most of life, there are no easy answers. For many, it's a simple matter of economics. If you can afford it, you purchase a home. After all, isn't home ownership an essential element of the American dream?

For others, it's not so automatic. Some folks are overwhelmingly enthusiastic about renting versus owning. They cite many reasons, including the freedom to spend their weekends doing things other than mowing the lawn and house repairs.

In many areas of the country, it's less expensive to rent than to buy a home, depending on mortgage interest rates. But what if you are able to buy your home outright with no mortgage? Your obligations for property taxes, insurance and repairs may be considerably less than rent. However, it's important to remember you are spending the "opportunity cost" of your purchase money. For example, if you buy a home for $200,000, that money could conservatively earn you $12,000 per year at a 6% return if you didn't buy a home (less your income taxes on that $12,000). Can you rent the same home for less than the amount of $12,000 (less your taxes) plus your property taxes, property insurance and repairs? If you are paying a mortgage, you can do the same number crunching by using the opportunity cost of your down payment money plus your mortgage payment (adjusted for any benefit of income tax savings).

But what about appreciation? This is an investment issue. Where do you feel most comfortable investing your savings? If you really believe residential real estate is a good choice, then you might want to buy a home. But don't tell that to the people who lost significant amounts in the early 1990's when they sold their homes in down markets. You need to be prepared to keep your home for many years to be confident of appreciation. We are a mobile, changing society. How many people can feel sure that their needs and desires in housing won't change over the long haul?

People who prefer to rent talk about other, more subtle benefits. Renting an apartment often involves having less room to store things that we really don't need or want, less space to clean. Renting eliminates concerns about property taxes, property insurance, and the economic risks of earthquakes, floods and hurricanes. There is a sense of freedom with renting. If you lose your job and need to reduce your expenses, you can change your housing more easily without suffering further economic losses.

Now let's consider some of the tangible benefits of owning a home. Some people love to garden and it is often difficult to get a landlord's permission to tear up existing landscaping for a garden. Others want to have pets, which are rarely popular with landlords. Privacy is often mentioned as a benefit of owning a home. While this is undoubtedly relevant when considering a home versus an apartment, a rented home can offer you the same privacy as a home that you own.

There are also intangible benefits of owning a home. People talk about a sense of security and a sense of pride. When you rent, your landlord can kick you out when your lease expires. If you own, you are unlikely to be forced to move (unless your local government decides to build a freeway through your living room).

Some people feel they should buy instead of rent because of the tax deduction for mortgage interest and property taxes. But be careful here. The tax deduction for mortgage interest has the effect of reducing your mortgage payment by roughly your tax bracket rate. So, for example, if your mortgage payment is $2000 per month and you are in a 28% tax bracket, your effective mortgage payment would be approximately $1440 per month, most of which will go to interest at least in the early years of a mortgage. If you could rent the same home for $1000 per month, you may be better off renting, notwithstanding the tax deduction for mortgage interest. It may come down to a choice of paying the government or a landlord.

Why do we have a greater sense of pride in owning than in renting a home? The answer to this question reveals the underlying symbolism we ascribe to home ownership. In our society, home ownership represents a form of status. It means that you have arrived at a certain socio-economic level. We have been taught that home ownership is a wonderful dream, a significant accomplishment. So, it's understandable that you would feel a sense of pride when you reach this milestone.

For some reason, we take better care of our homes when we own them. Perhaps it is because we view our home as an extension of ourselves, a reflection of our status in life, a way to impress others. Unfortunately, some people devote their entire lives working in jobs that are exhausting and stressful to pay for increasingly larger, more expensive homes that they have neither the time nor the energy to really enjoy.

In our society of "more is better" we want to own as much as possible. But this desire is counterproductive in some instances. In some cases, we may be better off economically and otherwise renting rather than buying a home. The key is to base your decision to buy or rent on economics and the tangible benefits that affect your quality of life. Home ownership is not an essential element of the American dream.