Is It Better to Rent or Buy Your Home?
Owning a home is the American dream, isn’t it? To own a slice of land and call it your own is a great accomplishment.
Renting, however, frees people from certain financial responsibilities like costly home repairs and property taxes. Yet, people often feel like they’re throwing their money at someone else’s dreams.
So, is it better to rent or buy? Truthfully, the answer is, “It depends.” Let’s take a look at the pros and cons of renting or buying.
Renting
Who doesn’t dream about a loft apartment in a big city or a well-appointed studio in a gorgeous home?
Moving into a fresh, clean space for a year or two offers a lot of upward mobility. You’re not tied into a 30-year loan and can reassess your situation at the end of your lease.
Should you rent or buy? Let’s start with the pros of renting.
Pros of Renting
Let’s begin with the financial freedoms that come with renting an apartment.
Freedom from Large-Scale Costs
One of the biggest perks of renting is that clogged drains, leaky dishwashers, and faulty washing machines are not your problem. If you live in a reputable apartment complex, having these issues resolved can be as easy as submitting a service ticket through an online portal.
If you rent from a private owner, this, too, falls upon the landowner’s shoulders. In some instances, it may be difficult to track down an individual when things go kaput. But, it’s still their responsibility.
You also won’t be obligated to pay property taxes. Can you imagine paying an additional $14,000 a year in taxes on top of your mortgage payment and homeowner’s insurance?
As a renter, you still want to take out renter’s insurance. But, it’s a far cry from the cost of homeowner’s insurance plus property taxes.
Flexibility Regarding Your Credit Score
A solid credit score matters much more when you’re asking a bank to lend you hundreds of thousands of dollars. They’re not as likely to approve a loan for an applicant with a shaky past.
When renting, you still need a good credit score. But, there’s a little more leeway with the landlord. Typically, you have to come to the table with the first month’s rent, last month’s rent, and a security deposit.
From there, it’s easier for a landlord to come down on a tenant that doesn’t pay rent. They can have the police evict the tenant; they can pursue legal action.
With a provable flow of steady income, the likelihood is high that you’ll be able to find a way to secure a lease, even if that requires a co-signer.
Freedom to Move Around
Most leases last about a year. Some go for 13 months; others may be short-term; some may extend out to two years. The point is, they’re temporary.
If you’re not certain where you want to settle down or you’re just beginning a new job, you may not want to lock yourself into a certain locale for what may be 30 years.
Of course, you’re not chained to the ground upon which your house is built, either. You can always sell the property and move if the need arises.
However, it’s far easier to break a lease and move than to turn around and sell your home.
Cons of Renting
Renting tends to have a bad rap when you consider you’re spending money that doesn’t go towards a definitive investment.
In the great debate of whether or not to rent vs. buy, let’s explore some of the drawbacks of a life of renting.
No Financial Gains
When you own a home, that $1,400 mortgage is going towards a definitive goal - owning that property free and clear. When you rent, that $1,400 goes into someone else’s pocket. They use it to maintain the property or provide income for their employees
If you’re renting from an individual, you could also be building their credit score. When dealing with a private owner, they don’t typically report their rent to the credit bureaus. In which case, your steady, on-time payments aren’t contributing to your financial fitness.
Potential Increases
Imagine a scenario where you’re just able to make ends meet. Your rent eats up a substantial portion of your monthly income and you’re just able to live a nice life outside of those terms.
What if your rent increases the following year and you haven’t seen an increase in pay? Unfortunately, there’s not much that can be done. These rates are set by the landowner and, although negotiating is always an option, it may not always go in the tenant’s favor.
Lack of Security
Instead of increasing your rent, your landowner could also decide not to renew your lease at the end of the term. What if you’re very happy where you are, but can’t stay?
That creates a terrible burden to have to cough up the expenses related to yet another move.
Buying
With all your savings lined up, a healthy credit score, and the home of your dreams on the table, purchasing a home could be one of the greatest thrills of your life.
The question remains: is it smarter to rent or buy? Let’s examine a few of the pros of homeownership.
Pros of Buying
With your finances in order, that hefty down payment could continue to pay itself forward for years to come. Here’s how.
Financial Wealth
Unlike car ownership, home ownership tends to appreciate, not depreciate. If you live in a popular city and take good care of your home, should the time arise when you’re ready to sell, you could stand to make a profit.
As you build equity, you also put yourself in a position to take out a home equity loan for major life events. It’s a nice option to have on the table, as the interest rates are typically lower than other loans.
Tax Breaks
Homeowners receive certain financial breaks around tax season. They can claim property tax deductions and interest deductions on their mortgage.
In the early days, most of the monthly payments on a mortgage go toward interest. Being able to claim a deduction on, perhaps, your heftiest bills has a certain ring of satisfaction to it.
Is it better to own a home or rent? These tax breaks sure are enticing.
Ability to Customize
In an apartment, what you see is what you get. In many cases, you can’t even change the color of the paint on the walls.
When you own a home, you can have some fun over time. Sure, home renovations are costly. But, once you have the wherewithal, the sky’s the limit.
With the right renovations – such as the kitchen or the bathroom – you could further appreciate the value of your home.
Cons of Buying
Even in light of all that financial stability and freedom, there are a few drawbacks to homeownership that prevent people from pulling the trigger. Here are some considerations.
Added Costs
While coughing up the first month’s rent, last month’s rent, and security deposit for an apartment is no small feat, the requirements for home ownership are far more severe.
Costs include the down payment (which, alone, could be tens of thousands of dollars), closing costs, homeowner’s insurance, private mortgage insurance, and property taxes. You really have to be in a prime position to take this major leap.
The Weight of Repairs
Unfortunately, when that washing machine goes kaput, the refrigerator breaks down, or – perhaps worst of all – the roof springs a leak, there’s no one to turn to.
Major expenditures fall squarely on the homeowner's shoulders. Considering the price one pays to get into a home, funds may be limited, at least initially, and these major repairs can really take a toll.
Difficulty Moving
Should a new job opportunity arise or the need to move closer to family, packing up a house and home, selling it, and relocating is not a one-two-three sort of situation.
Do you try to sell the home? Do you try to rent it out? And how long will it take for either scenario to unfold?
Selling is not quite like moving on from a lease. It’s certainly not impossible; people do it every day. But, it’s not quite as fast and easy.
What Do You Think? Is It Better to Rent or Buy?
You can see why the answer to, “Is it better to rent or buy?” is not a one-size-fits all scenario. It depends on your funds, life situation, and future plans.
Each opportunity comes with its own pros and cons. And no answer is right or wrong. All we can do is make the best decisions for ourselves based on the data we have in hand.
In the end, both scenarios have positive financial gains and we wish you continued success down whichever road you take!
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