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Table of Contents
The decision to purchase a house is always a challenging one for many individuals around the world. The reason for it is the failure associated with evaluating marginal costs and benefits that emanate from the decision. I am personally interested in this decision because of the economic significance it has for individuals around the world. I have always desired to own a house, and it would be vital for me to understand associated marginal costs and benefits. In this scenario, I am the decision-maker, and I believe it will be vital to capture all marginal costs and benefits that I will accrue as a house owner. Some of the most significant marginal costs associated with purchasing a house include maintenance costs, amortization costs, travel costs and time, and property tax. The key benefits include tax advantages, increased privacy, and stabilization of payments.
This paper explicates marginal costs and benefits that will emerge from my decision to purchase a house.
The most significant marginal costs emanating from the decision to purchase a house are maintenance costs. Purchasing a house comes with additional expenditures relating to maintenance aimed at ensuring that the house remains in good condition at all times. Unlike in a rental apartment where the property owner is responsible for maintenance, purchasing house transfers this responsibility to a single individual hence leading to additional expenses. Patton (2009) agrees that maintenance costs are seen in terms of repairs. It would be vital to repair the house at different times to keep it in the appropriate state. Another element of maintenance costs is painting costs. Purchasing a house usually involves painting costs, especially in instances where the current color does not match the new owner’s requirements. Paying for such services and the purchase of paint increases overall costs associated with purchasing a house. There will also be maintenance costs relating to security. A new home requires a secure fence or security personnel that are part of maintenance expenses.
Another crucial marginal cost associated with purchasing a house is amortization costs. A new house owner might incur additional amortization costs, especially if he/she has been paying rent in another apartment. Steinemann (2011) opines that the purchase of a new house is always followed by an additional sum for amortization payments from the monthly rent. The difference between the two amounts is referred to as the marginal cost. This comes about when the costs needed for the purchase of the house are more than rental costs that an individual incurs. Mortgage insurance costs are other additional expenses emanating from the decision to purchase a new house. Extra amortization costs tend to be discouraging in some instances because they may prompt individuals to consider renting cheaper and more convenient for them. Therefore, purchasing a new house usually involves amortization costs that are higher than the costs incurred while renting an apartment.
The third marginal cost emerging from the purchase of a house is additional travel costs for the individuals. In most instances, one is likely to purchase a house in suburban areas. This will lead to additional transportation expenses, especially if the previous residence was located near one’s workplace or school. A new house owner will have to spend more time and additional money when moving from the new home to the workplace or school. Car owners will incur additional costs on fuel and car maintenance. They will also have to wake up earlier than usual or start the journey earlier to ensure timely arrival to different destinations. Thus, purchasing a new house comes with additional transportation costs, especially if the house is located far away from one’s workplace or school.
The last significant marginal cost associated with the purchase of the house is property tax. Owning a house leads to additional expenses in the form of property tax. A house owner will be required to pay property taxes to the local government to ensure that he/she is appreciated in the society. Hodges (2012) reiterates that the local government requires individuals to honor the payment of property taxes every month hence leading to extra costs relating to the house maintenance. This might be costly in the future compared to renting where the owner of the apartment pays property tax. Property tax tends to inflate the overall price of the property in the future, especially where the new house owner is not used to incurring such costs. Therefore, the decision to purchase a new house should be evaluated thoroughly in terms of the extra taxation expenses that would be incurred by an individual.
The first significant benefit of purchasing a house is tax advantages. The decision to purchase a house tends to serve as a tax shield for individuals. Arnold (2008) confirms that this is influence by the fact that the mortgage interest is usually deducted from one’s tax in line with the IRS code. This means there will be an increase in the payments that one is supposed to receive every month because of the untaxed mortgage interest. Tax savings are marginal benefits because they present individuals with new opportunities to engage in other vital investments with the money saved. The government is always able to intervene and ensure that many people are encouraged to purchase new houses by offering these tax benefits. Individuals purchasing new houses are always exempt from excessive taxes, which ensures they enjoy ownership.
The second benefit of purchasing a house is the enjoyment of comfort and sense of privacy. Patton (2009) emphasizes that buying a house gives individuals a high level of comfort, as they do not have to think about the payment of rent. This also enables people to concentrate on other worthwhile investments without having to pay rent every month. Apart from comfort, purchasing a house gives individuals the opportunity to enjoy their own privacy. There is no interference for house owners as they have security and can make personal decisions relating to the use of their property.