Stedman Place: Buy or Rent Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Benefits of Homeownership and Renting:

There are plenty of benefits for the Homeownership and Renting which makes it a difficult decision when it comes to determine whether to rent or buy a house.

Homeownership has the advantage of building the equity, the prices of houses rise in value everywhere from 4% to 6% yearly. Even if the price of the property doesn’t increase in value the owner will build the equity as they pay down the mortgage and as long as the home maintains the value. Homeownership also has the advantage of tax breaks as they can deduct the mortgage interest payments and property taxes through itemizing their federal income taxes and these deductions offset the cost of housing.

The payments for the house owners will stay stable if the owners choose the fixed-rate mortgage through which the principal and interest payments remain the same for the duration of the loan. However the insurance for the home and taxes which imply on property can change.

Homeowners can also use their homes as an investment. Leaving a home and renting it has the ability to generate income which can cover the mortgage and can wait for the property prices to go up before selling it.

On the other hand renting also has its own benefits as it provides freedom and flexibility.

Renting a house saves the tenants form the maintenance expense like if any maintenance is required the tenants can get it done by asking the owner of the property. Another benefit of renting the property is that it is very easier to move like if the tenants want to relocate because of any situation it is much easier to switch to a month-to-month lease or to sublet than to sell the home.

Tenants also avoid owning a depreciating asset by renting rather than buying even though the home prices might grow but there is no guarantee that the price of home will increase over time.

Cost of Homeownership and Renting:

The cost of renting is minimal compared to the Home ownership. In renting the tenant just needs to pay the monthly rent payments which replace all the traditional expenses of property ownership.

However the cost of owning a property is much more complex and has many variables working over different time frames. The price of the property may be fixed but the price bears very little relation to the actual cost of the homeownership.

To own a property the future of the owner will need to make a down payment for the Mortgage which is not a small amount in most of the cases and then the interest which will be paid monthly to the loan provider. Closing costs includes legal fees, home inspection, and title search which will also be incurred to buy the property.

Property taxes also need to be paid on the property and it will increase with the rise in the value of the property. However property taxes are deductable from taxable income at the federal level.

The maintenance cost is also a part which the owner need to incur and on average 1% of the value of the property in needed to be incurred on the property per year and the cost may rise with the overall inflation. Home insurance also costs the owners of the property and most contracts have the clauses to increase the initial payment made for the insurance.

Another cost for home ownership is when the owner will try to sell the property. If the price of property decreases it will cost the owner and owner will also need to pay the brokerage commission and the capital gain tax if the gain exceeds $500,000 over the five year period................

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