Buying vs renting: it’s an age-old question for adults in the U.S. Does it make more sense to buy a home or rent one? Realistically, the answer is probably different depending on your circumstances and goals. So, we thought we would write up a quick list of pros and cons for Buying vs. Renting to let you decide for yourself.
Buying
Everyone knows there are benefits to buying a home. Every commercial from a real estate company will tell you so! And, in all honestly, there are many big advantages to buying your own home. But, let’s take a look at both the advantages and disadvantages to help you decide if buying is right for you.
Pros
You own your own home. So, you can make changes or renovations and effectively make it your own. This isn’t typically an option when you rent an apartment or house from someone else. Want to update the kitchen or put in new carpet? It’s all up to you. Of course, you have to pay for it as well, but it’s still your decision.
Paying off a loan instead of just paying. Your monthly payment is going toward buying the house, rather than helping your landlord buy it. When you rent, every penny is just for your use of the home during the month. Whey you buy, you are slowly paying down the principle on that home and, if you stay long enough and pay your mortgage every month, eventually (often after 30 years) you will own that house outright.
Equity and appreciation. On top of just slowly paying off your home loan, you will be building equity as you pay down the mortgage and the house appreciates. While there is no guarantee that every house will appreciate in value over time, real estate has proven to be a solid investment as long as you can hold on to the house long enough to ride out the relatively infrequent downward trends in the real estate market.
Tax deductions. Don’t forget that homeowners get to deduct the interest they pay on the mortgage from their taxes.
Cons
Potentially big out-of-pocket costs to buy a home. Have you looked at home prices lately? While they vary from location to location around the U.S., the general trend has been for prices to be on the rise ever since the downturn around 2009. In some places, prices never really had a downturn and have risen even faster than in other areas. Want to buy a home in the Denver area?
Well, a recent average home cost was well over $500,000 in the metro area. Other parts of the country are even higher. The point is that buying a home that you really want, in a location where you want to live, may be extremely expensive. While there are many first-time homebuyer programs that let you buy a house with comparatively little money down, it is also not uncommon to need to come up with 10s of thousands of dollars in cash to help put you in a position to buy a house. That isn’t an easy task for most people
Higher monthly costs for maintenance. When you rent and the fridge goes out, you call your landlord and they take care of fixing it or replacing it. You may be inconvenienced, but as a renter, you won’t be paying for the repair or new fridge. When you own, it’s all on you. Furnace goes out in the winter? It’s up to you to get a repair person in and then pay for them to get your heat back on. Having had a surprise furnace replacement that ran around $15,000 at a past home, I can attest to the pain you feel when this kind of thing comes up.
The volatility of the real estate market. Buying a home can be a real challenge in a hot market, but owning a home when the market crashes can equally be a huge problem. While investing in real estate is generally a safe endeavor, nothing is guaranteed. You are subject to the whims of the market and if you need to relocate and sell a house when the market is down, it just is what it is.
Less ability to pick up and move on. Especially when you’re young, it can be exciting to pick up a move across the country to try out a new city. I’ve done it myself. As a renter, you are subject to the terms of your lease, which may run for 12 months (a bit longer or shorter), depending on what you agreed to. But, in any event, there is an end date on your lease when you can simply pack up your stuff and move somewhere new. For many people, that flexibility is very valuable.
Renting
Pros
Much more affordable upfront. Typically, when you rent an apartment, you may have to write a check for the first and last month’s rent and perhaps a security deposit. But, that is almost certainly far less than the downpayment on a new home. So, from a simple cash-out-of-pocket standpoint, renting can be a much more feasible option for many people
Flexibility to move more easily than if you own a property. As we mentioned above, people who own a home are tied to it more permanently than renters. Not to say that people can’t sell their homes easily enough (they usually can), but it is often a time-consuming hassle. Renters know that once that lease is up, they are free to do whatever they want in terms of moving on.
Hand off the maintenance issues to your landlord. Stove isn’t working? Water won’t get hot? Call your landlord and these problems are fixed, without you paying a dime. Anyone who owns a home can attest to the constant expenses that come with it. For renters, these concerns are largely non-existent.
Cons
You aren’t building any equity. Rent is really just a usage fee. Tenants do have various types of ‘ownership’ rights in various states, but they are all limited to the time of their lease. So, those rent checks are’t geting you any return on your investment long-term.
You don’t own it, so you can’t change it. Don’t like the color of your countertops or that old shag carpet in your apartment? Well, get used to it. As a tenant, you may be able to do something like paint a wall (although you also may have to return it to its original color when you move out), you most definitely aren’t going to be able to change out the flooring or appliances. So, the idea of really making the place your own is a bit limited. But, this makes sense because it isn’t really yours.
Rents can actually cost more than a mortgage. This largely depends on where you are, but in some parts of the country, the average rent may be more than an average mortgage. So, you could be paying more for the same home than you would if you were buying it. That can be a tough pill to swallow, along with the fact that you can’t write off any of your rent from your taxes.
We hope these pros and cons are helpful!
