Why Buying is Not Always Better Than Renting

11/17/2013

How many times have you heard that you should buy a house because it is an investment and when renting you have nothing to show for it? And that your monthly mortgage check would build equity for you? Well, this myth is also true in the business world.

Consider the following example of a Florida company that bought an office building $170,000. Their mortgage payment was just a little more than their old rent, but they had the pleasure of calling their office their own. So, they assumed they were making (or at least saving) money.

However, when they outgrew their office, they were forced to sell their existing building. After owning the building for four years, they were able to get a selling price of only $160,000. In addition to that, closing costs and commissions set the firm back by about another $12,000. Continuing to rent would have saved them thousands of dollars.

Another way this company looked at buying its own office building was to consider that they would be able to deduct the mortgage interest from their taxes. However, this deduction alone isn't enough reason to justify an unneeded purchase which actually saves you only a few cents. If you spend a dollar, it is gone forever and there is no way to get it back.

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