Renting vs buying is one of the big debates of our time. Those in favor of renting claim that living is easy when you don’t have to worry about pricey repairs. Those who push buying say that real estate is the best investment a person can make.
The truth is, everybody needs somewhere to live. That means you’ll pay money either way. The choice of whether to rent or buy a house comes down to a desire for flexibility versus equity.
Should I Rent or Own a Home?
The rent vs owning debate comes down to personal and financial goals. Renting offers flexibility and freedom from maintenance. However, renters miss out on the stability and predictability that comes from ownership.
Homeowners enjoy a sense of stability and consistency while building equity every single month. But, they take on the burden of all maintenance and repairs. Buying a home also requires the gamble of pouring a sizable investment into a property without any guarantee of a return on investment.
These renting vs buying pros and cons will provide some clarity if you’re stuck between buying or renting.
A Look at the Pros and Cons of Renting
Are you really just throwing money away every month as a renter? The answer may depend on where you place value in terms of time and money. Here’s a look at why renting is better than owning a home.
Renters Pay a Flat Fee
The big argument against renting is that you’re paying your landlord’s mortgage instead of building your own equity. While this is somewhat true, people who repeat this point often ignore the fact that not all costs associated with owning a home go toward paying a mortgage.
A home often has hidden costs in the form of utility bills, shoveling services, landscaping services, homeowner association (HOA) fees, emergency repairs, and more. Not every cost of owning a home goes into building equity.
Renters Ofter Have Lower Costs
By contrast, renters pay one flat fee per month that takes care of everything. In some cases, landlords may even cover utilities. Even renters who pay their own utility bills generally pay less than homeowners simply because apartments tend to be smaller than houses. Renters enjoy predictable monthly payments without any surprises.
Renters Can Build Equity Outside of Homeownership
There is also a way that renters can build “equity” without owning a home. By saving money on maintenance and improvements, some renters are able to put money into investment funds or businesses that will have higher yields than home ownership.
Renters Don’t Have to Make a Long-Term Commitment to a House
The perks of renting aren’t confined to saving money. Renting is also an “easier” way of living for many. First, people who aren’t ready to be tied to a single spot can use renting to live in a city without making a long-term commitment. Renters are free to move when a lease is up!
For people on certain career trajectories, buying a home may simply not work because they need to go “where the jobs are” whenever they chase a promotion. Some people also simply want to move to new cities every few years without worrying they will lose money when trying to sell a home.
Renters Don’t Have to Spend Weekends and Evenings on Maintenance
Time is another factor. Renters don’t have to worry about devoting their weekends and vacation days to making improvements around the house. There’s never a need to spend a Saturday mowing a lawn, repairing a fence, or painting a room. All of those tasks fall under the responsibility of the landlord. There’s also no risk of being on the hook for a major structural investment if a property has issues with mold, rot, termites, faulty wiring, or a broken septic system. A renter will never need to purchase a new appliance.
There’s also the luxury factor. When renting, a luxury property with a pool and other fancy amenities may be within budget.
When Renting Isn’t Better Than Buying
The potential to “throw away money” while renting is real. The obvious way renters lose money is by making monthly rental payments that they’ll never see again. Meanwhile, homeowners can watch the value of their homes grow over time.
There’s also a misconception that renters are insulated from unexpected costs associated with homeownership. Landlords often pass these costs down to their tenants. For example, many renters assume that they don’t have to care about property taxes. The reality is that landlords will typically fold increases in property taxes into rental prices.
Renting can also be unpredictable. A renter has little control over pricing. Here’s a list of things that can throw a renter for a loop:
- A landlord suddenly raises rent by 10%, 20%, or 30%.
- A landlord decides to sell their property. In some cases, this means that the renter may need to leave because a full-time resident is moving in. In other cases, a new landlord may raise rates.
- A landlord could suddenly stop including utilities in the rental cost.
- A noisy or hostile tenant could move in next door.
- A landlord stops making improvements that maintain a property’s safety and appearance.
Finally, renters sometimes lose money with every move. Many landlords and rental companies today demand three months of rent just to move in – nearly as large as an actual down payment for a home. What’s more, it’s very common to pay much more for each new rental home due to rising rates.
A Look at the Pros and Cons of Buying a Home
Many people dream of homeownership because it is seen as a sign of stability and upward mobility. There’s no doubt – a home can be one of the best investments a person can make. A home is often the single biggest asset a person will own in their lifetime. However, it’s important to understand the financial commitment needed when debating buying a home vs renting.
Let’s start by examining why it’s better to own a home than to rent.
Homeowners Can Plant Roots
One of the chief motivators for buying a home is a desire to plant roots in a particular place. This reason alone can be enough to justify the commitment required to own a home.
Most Homeowners Benefit from Rising Home Values
A home is one of the best investments most people can make, as over time, most homes grow in value. In addition to being a valuable retirement asset, a homeowner can borrow against their using a reverse mortgage or home equity line of credit (HELOC).
“Single-family homeowners typically accumulated $225,000 in housing wealth over 10 years,” according to data from the National Association of Realtors®. In fact, this same report shares that the median value of a primary residence is worth about 10 times the median value of financial assets held by families. A house is truly the key to wealth for most American families.
There are Many Loan Options Available
Many people feel intimidated by the idea of buying a home because of the 20% down payment banks require for a conventional home loan. However, many borrowers can qualify for FHA, VA, or USDA home loans that only require 0% to 3.5% down for those with credit scores above 580. In many cases, a down payment is similar to the three months of rent required by many landlords at lease signing.
Mortgages Provide Predictable Monthly Rates Over Decades
A mortgage provides a predictable monthly payment for 15 to 30 years. Unlike rental prices that can go up and down at the whims of both the market and individual landlords, a mortgage amount and rate are locked in at closing. Renters need to be vigilant about protecting their credit scores to get approved for a mortgage when the time comes. While homeowners also need to protect their credit scores, their interest rates are locked in regardless of where their credit score goes after closing.
Homeowners Can Update and Personalize their Home
Many people also enjoy the freedom that comes with updating their homes as they wish without getting permission from a landlord. Homeownership means being able to landscape a yard, paint walls any color, complete endless DIY projects, and more. Generally, homes also provide more space than rental apartments.
Homeowners Can Take on Tenants
Owning also provides the freedom to earn extra income by taking in a tenant. Once you learn how to rent out your house, it’s possible to cover some or all of the monthly mortgage bill.
A Mortage Payment Might Be Lower than Rent
Finally, monthly mortgage payments are lower than rental rates in many places around the country. That means someone who is able to put together a down payment can actually save more money every month.
When Buying Isn’t Better Than Renting
Buying a home can create limitations and expenses that simply aren’t feasible for some people.
It’s not always possible to afford a home in a market where you want to live and work. In many cases, people settle on a location. Settling in a lackluster location can diminish the quality of life by creating long commutes, a lack of access to public transportation, and a sense of isolation.
It’s also important to be aware that monthly costs can go up when you own a home, even if rent increases are no longer in the mix. That’s because property taxes can rise each year. In addition, rates for homeowners insurance can also creep up over time.
Homeowners are also 100% responsible for all repairs and updates. That means that a homeowner needs to budget for:
- New roof
- New siding
- Mold remediation
- Storm damage
- Driveway repaving
- Age-related repairs
- Pest infestations
- Broken appliances or systems
Finally, buyers only get the perks of homeownership if they are able to stay in an area for a while. It’s important to stay long enough to build up enough equity to recover the down payment and closing costs before selling a home. The general rule is to only buy when planning to live in a home for at least five years.
The unpredictability of the market means that there’s never a guarantee that a buyer can sell a home for more than they paid for it.
Renting vs Owning a Home: Final Thoughts on Making the Smarter Investment
The choice to rent vs buy is as much a “heart” decision as it is a financial decision.
The answer to buying v renting a house skews slightly more toward buying if a person plans to stay in an area for the long term. The cost of mortgage vs rent can be close in many markets around the country. Many homeowners pay less for their mortgage bills compared to renters. What’s more, they are building equity every single month, which may help them to cash out six figures at some point between today and retirement. A house is also an asset that homeowners can pass on to family.
Owning a home also protects you from the whims of the market. There’s no need to worry about rising rents, a property changing hands, or the whims of a landlord. A mortgage’s payment amount and interest rate are locked in for the life of the mortgage.
Of course, many people simply find that renting serves them better regardless of the pressure they feel from friends and family to buy. Parting with a large down payment, anticipating costly repairs, and being stuck in one spot is unattractive for someone with a busy lifestyle that includes lots of job hopping, travel, and leisure.
The final word is that everything from personal preference to local market conditions can determine if a person is better off buying or renting. It’s always smart to crunch the numbers based on local rental and housing costs to see if buying could actually lower the cost of living before considering the case settled.