Buying vs. Renting

The choice between whether to buy or rent a home is a very personal decision based on the lifestyle you lead. There are advantages and disadvantages to both, and we will outline a few of those in the following article.

Pros and Cons of Renting

Renting can be an attractive option for many reasons. As a renter, you are not responsible for upkeep and maintenance of the property, and you can call your landlord to fix any problems that may arise. Since repairs can be costly this can be a very nice benefit of renting.

Renting often appeals to younger people who are just starting out in life for many reasons. Probably the biggest of these reasons are that there is not a big outlay of cash to get into renting, and you are not nearly as tied down to one place as if you owned a home. To purchase a home you usually need a significant down payment which can be very hard to save. Although there are loan programs that will allow you to purchase a home with a smaller down payment or sometimes even without a down payment, these programs often gouge you by having higher interest rates and requiring you to carry private mortgage insurance since you don't have much equity in the home. With renting, however, typically the most that you need to rent a place is your first and last months rent and a security deposit. While this still can be a significant amount of money it is easier for most people to come up with this than a down payment.

The other major benefit of renting is that it is easy to pick up and go. This can be a very important thing especially for younger people since they often have big life changes like a new job, getting married, etc. Even if you have signed a lease to rent a home, you can typically buy your way out of the lease by paying an extra month or two of rent before moving out. If you own a home, however, it can often take months or even years to sell, which can significantly delay any moves you need to make.

Renting also has several downsides. Probably the biggest is that while you are renting you are not building any sort of equity. Instead of your monthly payment going toward ownership of a home it is going into the pocket of your landlord and helping them increase their equity in the home. After years of paying rent you still will have nothing to show for your money.

Additionally, there are tax benefits to buying a home that renters miss out on. If you are buying a home you can typically deduct your mortgage interest and your property taxes at tax time. If you are renter, however, you probably are paying the majority of these costs to your landlord each month with your rent payment, but instead of you getting a tax break for them your landlord gets to deduct them.

Some other downsides to renting are that you typically can't decorate or paint the home to suit your tastes, or do any sort of landscaping or remodeling. If you have a pet, you will most likely have to pay a large deposit to rent a place that will allow your pet, and will likely also have to pay higher rent than someone without a pet.

Pros and Cons of Buying

Buying a home is a big decision, but can be very rewarding both financially and emotionally.

Probably the biggest advantage of buying a home over renting is that you are building equity. Equity builds either by paying down the loan that you have taken to buy the home, or by the value of the property rising over time. For instance, if you bought a house for $160,000 and two years later it appraised at $185,0000, you have $25,000 worth of equity in the home. If you have also paid down your loan during that time the amount you have paid it down also adds into your equity. This is so much better than renting from a financial standpoint. If you had been making the same payment each month to rent at the end of two years you would have absolutely nothing to show for your money.

In addition to building equity, homeowners can also reap some tax benefits. Typically both the mortgage interest and property taxes on a home are deductible from both your state and federal taxes, which can save you a lot of money at tax time.

Along with the financial benefits of buying, there are the less tangibly benefits - things like pride of ownership and a sense of stability. It is your house and you can decorate it or change it however you want to match your taste. You can have as many pets as you want without it raising your house payment or costing you a large deposit. All of these things can be very emotionally rewarding.

As for the downsides of buying, there are several. The first is that as a homeowner you are responsible for repairs and maintenance on the property. This means that if the toilet clogs, the roof leaks, the basement floods, etc. you have to either fix them yourself or hire someone to fix them for you. This can be costly and time consuming. You also have to do things like mow the lawn yourself and pay for power, garbage, water, sewer, etc. which can be a rather large additional expense each month.

If you are likely to move around a lot, you may want to consider renting over buying. Picking up and moving as a homeowner is much more difficult to do than if you were a renter. Instead of just getting out of your lease, you actually have to sell your home. This can sometimes take months or years and can delay you from getting on with your life.

Another downside to buying is that it typically takes a much larger outlay of money to buy a home instead of rent. A typical down payment is 20% of the purchase price of the home, which can be tens of thousands of dollars. Most people can't easily save this much money. If you go with a smaller down payment, or even no down payment you will often get hit with higher interest rate and also may be required to carry private mortgage insurance since you don't have any equity in the home. This can significantly increase your monthly payment.

Summary

The choice whether to buy or rent a home is not an easy one to make. Both buying and renting have their pros and cons, and you should carefully weigh these against your lifestyle before deciding on one over the other