Should you buy a home or rent? It’s a question many of us have faced, and one that doesn’t have the same answer for all. Let’s take a look at why either buying a home or renting a property might be best for you.
The Pros of Renting
Here’s the biggest misconception about renting: the money you pay in rent each month is wasted compared to the money you could be investing in a home. While true, that’s not the entire story.
Sure, mortgage payments go toward building equity and rent payments don’t, but only part of the money one spends on a house goes directly toward wealth building. Many of the expenses of home ownership — property taxes, interest on mortgage loans, maintenance, to name a few — are out-of-pocket costs that aren’t entirely recoupable. And these costs don’t exist when renting. The money renters may save compared to homeowners could be invested and work to build wealth that way. And, rather than wasted cash, monthly rent payments give you something valuable in return: a roof over your head. Here are a few more pluses of renting:
- Fewer responsibilities. Water heater not working? Got a leak in the roof? If you’re renting, you just call the landlord or property manager, so no paying contractors or the need to fix things yourself. Many properties use property management companies in order to take some stress out of their lives. As a tenant, your property manager will make it known that they are there to help with any maintenance or emergencies you may have.
- More flexibility. If you’re looking for a change in your life, maybe a new neighborhood, a new city, or perhaps even another country, that’s much easier if you’re renting. And not just in terms of the lease; if you own a home, chances are you have lots more stuff to fill that home, making a move all the more complicated, and thus all the less likely.
- Lower initial costs. While the longer-range economics of renting versus buying may favor home ownership in many cases, the initial outlay of money to buy a home is often considerable. Saving for a down payment and closing costs can be difficult. With renting, it’s usually just the first month’s rent (and maybe the last) and a security deposit.
The Cons of Renting
Real estate is by far the most common way most Americans build generational wealth; if you’re renting, you’re missing out on this highly effective financial tool. That’s the most obvious con of renting and the one that most folks understand. But there are a few other downsides of renting to consider:
- Rising rents. While the rent control that’s in some states can keep rent increases moderate, your rent will probably rise each year. That adds up. And if you want to move, your new rent price is bound to be significantly higher depending on the market in your location.
- Less security. What happens to you if the landlord decides to sell the building? Or if the landlord decides that there’s a reason not to renew your lease? This uncertainty can take away from your sense of permanency.
- Limits on your space. Rental properties generally have less space, both indoor and outdoor, but the physical limits of renting go beyond that. Renting may make it impossible for you to do any modifications or improvements to make your place truly feel like home. Plus, that pet you want may not be possible.
The Pros of Buying a Home
While most people see the ability to build wealth alone far outweighing any downsides, owning a home isn’t for everyone. There are people who simply don’t want the responsibility that comes with home ownership; being tied to a house may be the last thing that a digital nomad wants. Saving for a down payment on a home may seem like an insurmountable task to others. But for the majority who can meet the financial requirements, they enjoy these benefits of home ownership:
- Cheaper than renting. It’s true — in over half of America’s biggest cities, buying is more affordable than renting. And that’s just based on monthly costs, not even taking into account what gains homeowners get through accumulated home equity. So even if your mortgage payment is somewhat higher than your rent, you likely still save in the long run.
- Being the king or queen of your castle isn’t just a cliché; you decide what your space will be when you own a home, from simple decorations to major renovations. And you decide how long you will stay in that home. That can give you true peace of mind that renting doesn’t. Plus, there’s the financial stability of sitting on ever-increasing home equity.
Tax advantages. Homeowners reap tax benefits that renters don’t. These can include deductions on mortgage interest and private mortgage insurance, plus tax credits for things like investments in energy-efficient upgrades such as solar panels.
The Cons of Buying a Home
Home ownership is a cornerstone for many in life. Still, there are many important factors to recognize before deciding between renting or buying a home. Owning a home is typically a long-term investment that can be complex and can require large upfront costs for down payments, closing fees, and more. Let’s look at some restraints when it comes to buying a home:
- Property Taxes. Based off the appraisal value of your property, property taxes are used to pay for roads, emergency services, and a variety of different public services. Depending on your mortgage terms and location, you may be able to pay on these taxes monthly, quarterly, or annually.
- HOA Fees and Utilities. As a renter, some owners will cover certain utilities like water, trash collection and more. As a property owner, all utilities and Home Owner Association fees are your sole responsibility. These fees and utilities can be extensive depending on the size and location of the property.
- Maintenance and Repairs. Owning your own home also means that you are in charge of footing the funds for any repairs that may be needed on the property. This means that if your air conditioner stops in the heat of the summer, your sewer backs up, or water pipes burst, you are financially responsible for all repairs needed to keep your home livable. Because these kinds of disasters can be sudden and unexpected, it’s always a good idea to have an emergency fund on reserve.
Regret can go either way. You may wish you hadn’t spent so many years as a renter and not invested in a home. Or, you may regret buying the home you did. So weigh the pros and cons of renting versus buying to see which is right for you.
Thinking of Buying a Home?
AllView Real Estate Management has an experienced team who can optimize everything about the investment process—from start to finish. At AllView, delivering an exceptional real estate buying and selling experience is our obsession. AllView Real Estate is Orange County’s premier real estate company and investment firm. We offer not only exceptional real estate investment consulting, but also elite property management services if you ever decide to turn your home into an investment property. Call us at (949) 400-4275 or send us an email at firstname.lastname@example.org for all your real estate home buying, selling and investment needs.