Should You Rent or Buy?

There’s no doubt that buying a home is a major life decision, but is it right for you? Of course, there’s no single correct answer as there are pros and cons to both renting and buying. A major factor in anyone’s decision-making process comes down to finances. In most cases, renting seems to be the more affordable option.

However, if you’re thinking down the line, then renting won’t be the affordable option in the long run. Your decision can come down to your lifestyle and how you want to live such as whether you want flexibility or stability, what your career goals are, and whether you want a place to truly call your own.

If you’re on the fence about whether you should rent or buy, we’ve dove into what you should consider. 

Renting Pros And Cons:

PROS

• Mobility/freedom to move around
• Landlord pays for maintenance
• Doesn’t require expensive closing costs
• No fluctuation in monthly housing expenses
• Allows you to test-drive different living spaces and cities/states

CONS

• You don’t build any equity
• Limited ability to customize your living space
• Rent could go up over time
• Landlord might sell or decide to stop renting
• Limited sense of home stability/permanence

Buying Pros And Cons:

PROS

• You build equity over time
• Home value may increase over time
• You may reap tax benefits
• Unlimited freedom to customize your living space
• Sense of home stability/permanence

CONS

• Closing costs can be prohibitive
• Responsibility for maintenance and repairs which requires time and effort
• Less flexibility to move (at greater difficulty/expense)
• Home value may decrease
• Recent tax laws could hamper tax benefits

Rent Vs. Buy: How To Decide In 5 Steps

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? Many people who have a civilian job are more likely to stay in one place longer than those who serve in our military. However, because of the VA loan, many service people will purchase a home to live in during their time at a specific duty station and either rent it out when they PCS or simply sell.

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. Something you can only partly do in an apartment building. Plus, you have to share walls with your neighbors.

However, renting is the better option if you prefer to be more nomadic. For example, let’s say you’re really hoping to get that job promotion but it’s halfway across the country. You don’t want to have to deal with the hassle of selling a home while transitioning to a new position. Or perhaps you’ve moved to a new area and want some time to get to know different neighborhoods before settling down somewhere. Or you may be trying out new cities/states before you settle down.

Sure, you can buy a home and then sell it within a few years or months (not recommended), but the costs are hardly worth it. Aside from initial closing and moving costs, you may be paying more closing costs when selling a home in addition to other costs such as repairs and renovations that would make the house sell for top dollar. However, there is always the option to rent out the house if you plan on moving. This will put more money in your pocket in the moment and down the line.

2.  Estimate The Cost Of Renting Vs. Buying

In many cases, 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. However, with renting, if you have to break a lease at any given moment, there are additional fees that come into play.

That said, just because you can afford a mortgage payment doesn’t mean you can afford 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 fees.

On the other hand, buying a home can be cheaper in the long run and it offers you an opportunity to build equity. (Hopefully, your home will increase in value when you sell the home.) Not only that, but there are tax savings to being a homeowner.

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 dead 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. However, if you do pay off your mortgage and continue to live in the home, the savings can be significantly cheaper even with home maintenance costs. Or you can take what would be your mortgage and put it aside to pay for another house to then have an investment property.

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

As cliché as it sounds, life happens. Even with the best of intentions it’s hard to predict what can happen next. If you intend to stay in one place for a long time and have the financial means to do so, buying a home may make 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. Because if it does, your housing needs could also change.

You could take up a new job in a completely different city, or you and your SO are interested in living the nomad life and figuring out where it is you want to settle down.

In both these cases, it might be a good idea to rent for the time being 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

As mentioned above, there are risks for both renting and buying a home. Although you can build equity when buying a home, there are some financial risks. For one, you could lose money if there’s a downturn in your local real estate market. Or, if you sell your home sooner than you want, you may not be able to make up for what you spent on closing costs or renovations.

Let’s not forget maintenance costs. These are expenses you’ll need to pay to keep the home in top condition. Think checking air filters and vents, testing fire alarms, landscaping, fixing plumbing issues, among other things. Unlike renting, these things don’t come “free”.

If you’re focused on other things in your life right now, like a career that requires you to travel often or you have multiple young children to attend to, adding home maintenance to your list of responsibilities may not be the best choice.  

On the flip side, renting means you won’t have the opportunity to build equity like you would with buying. Your 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. Consider using a mortgage calculator to estimate your monthly payments as well as how much home you can afford.

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

There isn’t always a clear answer to the question of whether to rent or buy. Depending on your life situation and finances, the answer might change over time. There are other options such as rent-to-own property where you start out renting then move onto becoming a homeowner. No matter what decision you make, it’s crucial you make an informed decision based on your financial situation and lifestyle.