Renting vs Buying a Home?

In this ever-changing housing market, the decision to rent or to buy can be as confusing as ever. And it's not something that people usually ask and answer just once. Buying a home is a huge part of the American Dream. Choosing to buy or rent, though, is a major decision that affects your financial health, lifestyle, and personal goals. Whichever option you opt for depends entirely on your lifestyle and financial situation.

But there are several differences that make renting and owning property distinctly different. Renting a property doesn't come with all the responsibilities associated with homeownership and you have more flexibility, as you aren't necessarily tied down to your property. Owning your home gives you a sizeable investment, but it does come at a big cost—both upfront and over the long run.

Owning a home isn’t always better than renting, and renting is not always as simple as it seems. If you’re on the fence about whether you should rent or buy, read on to find out what you need to consider before taking the plunge.

1. Decide How Long You Plan To Live In The Same Place

In other words, are you planning on putting down roots in your community or are you craving more flexibility? If you feel certain you’ll stay in a home for at least 5 years, buying a home could make sense. That’s because it could be a good fit both financially and emotionally – you can put personal touches on your home and really make it feel like it’s yours.

However, renting may be the better option if you prefer to be more in the sense of a migrant. Renting your home makes it possible to move whenever you need (or whenever your one- to two-year lease allows) without being bound by any major financial commitments or repercussions. You don’t want to have to deal with the hassle of selling a home while transitioning to a new location. Or perhaps you’ve moved to a new area and want some time to get to know different neighborhoods before settling down somewhere.

2. Estimate The Cost Of Renting Vs. Buying

Renting can be cheaper than buying a home because of the upfront costs involved. This includes a down payment, closing costs, moving costs, any renovations, and other home maintenance tasks.

And just because you can afford a mortgage payment doesn’t mean you can afford to own a home; expenses add up. In addition to a monthly payment that’s more than the principal and interest on your mortgage, you’ll also have property taxes, homeowners insurance, and (in many cases) mortgage insurance as well as homeowners association (HOA) fees. On the other hand, buying a home is almost always cheaper in the long run and it offers you an opportunity to build equity. 

In most areas of the country, buying a home is actually cheaper. According to a National Association of REALTORS® report, after 6 years, a homeowner’s mortgage payment is lower than that of a renter. This is assuming the rent has a 5% increase each year and the homeowner is paying a fixed monthly payment. That’s not to say you should dive right into homeownership. It’s perfectly fine to rent for a few years, save up and purchase a home if you’re set on having a place of your own. The savings in costs of being a homeowner also assume you’ll stay in a home for the long term and may not factor in maintenance costs.

3. Mobility Vs. Putting Down Roots: Which Is More Important To You?

Even with the best of intentions, it’s hard to predict what can happen next in your life. If you intend to stay in one place for a long time and have the financial means to do so, buying a home makes the most sense. 

However, it’s important to take a look at your current life situation and think about whether or not it’ll change within the next few years. If it does, your housing needs could also change and you may want to hold off on buying a home. It might be a good idea to rent so you have time to figure out what you want in a home, what your budgeting needs are, and what kind of home might be the best fit for the lifestyle you hope to have in the future.

4. Weigh The Risks Of Renting And Buying

There are risks for both renting and buying a home to keep in mind. Although you can build equity when buying a home, there are some financial risks. For example, if you sell your home sooner than planned, you may not be able to make up for what you spent on closing costs or renovations.

On the other side, renting means you will never have the opportunity to build equity wealth. Your monthly rent could go up at any given moment. You’re also at the mercy of your landlord, such as being asked to move out or having to deal with maintenance requests being deferred. 

5. Assess Your Financial Situation

It’s important to note that you need to be realistic about your financial situation when deciding between renting and buying. Once you estimate the costs of renting versus buying, be honest about whether you can afford other upfront costs like a down payment, repairs, moving costs, and buying new furniture.

In either case, do some careful budgeting so no matter what you choose, you’ll be able to afford to buy or rent.

Is Renting Cheaper Than Owning a Home?

Renting can be a very predictable expense. You know what your costs are upfront and can plan accordingly. On the other hand, if you enjoy a lavish lifestyle, you may find renting to be more expensive than owning a home, even if there are repairs and regular maintenance you have to make with purchasing real estate.

Is Homeownership a Good Investment?

Buying a home can be a very good investment. You may be able to build equity. But as with any investment, just how well your investment performs depends on a number of factors. When it comes to real estate, factors like location, the economy, maintenance, and environmental concerns can affect the overall value. And keep in mind, that it's never static, so things can change over time.

The Bottom Line, Is It Better to Rent or Own a Home?

There is no definitive answer as to whether renting or owning a home is better. The answer depends on your own personal situation—your finances, lifestyle, and personal goals. You need to weigh out the benefits and the costs of each based on your income, savings, and how you live. There are other options, such as a rent-to-own property, where you start out renting and then move on to becoming a homeowner. 

Credits: The photo is not mine, credits to the rightful owner.