Renting vs Buying a House - What Are the Differences
09.15.2020 | Category: Homebuying
Did you know that a homeowner’s average median net worth is 40x greater than that of a non-homeowner (according to recent data from the Federal Reserve’s Survey of Consumer Finances)? While that statistics greatly favors buyers, we know that the benefits and advantages of homeownership over renting are not always so clear cut.
If you’ve found yourself dreaming about owning your own place, it may be time to take a deeper look at the pros and cons of buying vs. renting as part of your evaluation process.
Renting Vs. Buying - What are the Pros and Cons?
To help your decision-making process, let’s review the different pros and cons of both renting and buying a home.
Pros of Home Ownership
- You can build wealth through equity - Every month you make your mortgage payment is not only another month you’re paying down what you owe, but it’s also a gain in equity. It might help to think about it in a different way - think about your home as a giant piggy bank and your mortgage payment like a long-term savings plan. Every month you make your mortgage payment, you’re putting money into the piggy bank - or expanding your equity position. As you build equity in your home, you’re also adding to your net worth.
This is perhaps the big difference between buying vs. renting; with renting, you see no long-term returns on the money you spend.
- Lifestyle - Buying your own home gives you the privacy and space to be able to make your space what you want it to be. Gone are the days of having to abide by rules in your lease or being confined to beige walls. The world is your oyster!
- Tax benefits - In most areas of the country, the tax code usually allows homeowners to deduct their mortgage interest from their tax obligation. For many, this is a significant deduction, especially in the early years of owning your home when interest payments can be a large portion of your mortgage payment.
Cons of Home Ownership
- It’s more difficult to pick up and move - Unfortunately, selling your home isn’t as easy as getting out of your lease. Want to take a work assignment for 6 months overseas or take a job in a new city? What to do with your house, and your mortgage payment, is going to have to be part of your decision-making process.
- There are more expenses - From property taxes, insurance, HOA fees and utilities many find that there are more expenses compared to renting. As you continue to evaluate the benefit of buying a home, it is important to also consider other expenses you may incur as a homeowner.
- Maintenance - Many homeowners find that there are always projects around the house that are on the to-do list. From fixing a leaky pipe or dealing with the lawn - both routine and unexpected maintenance costs can impact your budget, and you’ll want to make sure that you account for these as you evaluate your budget for buying a home.
To summarize key differences of buying compared to renting, homeownership gives you the power to build long-term stability with control squarely in your hands. However, if you’re not yet ready to invest time and resources, the flexibility of renting may be better fit for now.
Pros of Renting
- Flexibility - One of the biggest benefits of renting is that it’s a short-term commitment, giving you lots of flexibility. Every time your lease ends, you can explore your options and move without penalty.
- Low maintenance - Often the burden and cost of repairing and maintaining the property falls on your landlord. This can be great for your budget since you know exactly how much you’ll be spending on housing each month. You generally don’t have to worry about unexpected repairs.
- Less money upfront - Renting generally requires less money upfront, unlike purchasing a home, which often requires a down payment (depending on the type of mortgage that you’re looking for). Typically, a rental will require a refundable security deposit, a refundable pet deposit and the first month’s rent in advance.
Cons of Renting
- Rising rent - That dreaded notice comes in the mail once a year alerting you to a pending increase in rent. There’s not a lot of consistency in the industry about how often and how much rental prices increase, but it’s frustrating to residents and can make it hard to plan year over year.
Less freedom to customize your space - A lot of leases include stipulations about making changes to paint, flooring, or really anything in your rented space. This can drastically limit what you can do to customize your space to fit your tastes. You can also expect to have limitations on renovations. If you needs change, you will likely need to find a new residence since you are most likely not going to be able to make structural changes to your current space as a renter.
- No financial upside - As a renter, you’ll never be able to realize the upside of owning real estate - no tax benefits, equity or gains from rising property values.
When it comes to renting vs. buying, there’s not a single right answer about which is better. It really depends on the vision that you have for your life, and what your goals are.
If you’re ready to discuss the possibility of purchasing a home, we’d like to help! A financial specialist can help understand your buying options and explore how much house you may be able to afford. Give us a call or get started at 1-800-24-RATES.