Rent vs. Buy: The Definitive Guide
In today’s market, there’s a lot of debate about renting a residence versus buying a home. Everyone is willing to offer an opinion based on their limited experience or personal agenda, but how do you truly know which is suitable for your lifestyle?
As with anything, there are advantages and disadvantages to both renting and buying. Here are some key considerations to guide you through making this critical life decision.
Thoughts and Beliefs About Buying
Homeownership has been considered a part of the American dream for some time. The logic behind this purveying belief is solid; why pay someone else when you can pay yourself?
However, there’s a generational divide about homeownership. Many people who reached adulthood at the cusp of the 2008 housing crisis are rightfully skeptical of the financial security offered by purchasing a home. Twelve years later, the global pandemic is also creating chaos in the marketplace. For younger generations, purchasing a home seems like a pipe dream.
Pros of Buying
One of the overarching benefits of purchasing a home is the return on investment. As you pay your mortgage, you’re building equity. This action creates the opportunity to build a nest egg without thinking about investing.
Many aspiring investors are also purchasing homes as rental properties or to flip during a hot market, with many creating sustainable careers from their efforts. Consider it this way: if you can become a real estate agent in New York, get a lead on upcoming properties, and understand the legalities to cut a deal without paying a commission, you’re set.
Another benefit of homeownership is that housing payments are pretty predictable. If you sign a fixed mortgage rate, you’ll know what your monthly payment will be for the next five to ten years. Renters typically experience an increase every year when they renew their lease.
Cons of Buying
There are downsides of buying that make it unattractive for some. When you buy a home, you’re on the hook. It’s your responsibility to pay for maintenance and upkeep, and homeownership often results in costly surprises.
If the economy is in turmoil, you bear the liability of your home. 14 million Americans became unemployed from March to May 2020. While support measures were put in place, the burden is on the homeowner.
Finally, selling your home is an arduous process and quite costly. It’s not easy to walk away from a mortgage, and defaulting will destroy your credit.
Thoughts and Beliefs About Renting
Renting was long thought to be subpar. Now, many people prefer the ease of having a place to hang their hat without it impacting their longer-term plans and goals.
Pros of Renting
The most significant benefit of renting is the lack of maintenance costs. Unless you cause the issue as a tenant, replacing the roof, repairing plumbing leaks, and everything else falls to the landlord.
Even with a lease, the longest you’ll be liable for your tenancy is a year. If you decide to pack up and move overseas or get a job offer elsewhere, leaving is pretty straightforward.
Cons of Renting
In addition to paying someone else rather than building equity, renting often costs more than a mortgage. Consider the fact that the landlord has to cover their mortgage and wants to make a profit. As a renter, you’ll likely pay more upfront monthly than you would as a homeowner.
While you don’t stand the risk of defaulting on a mortgage as a renter, you aren’t immune to housing market instability. Unless you live in a rent-controlled area, your rent could skyrocket at the end of your lease, leaving you to search for a new place.
Which is Right for You?
There’s no black and white answer about whether renting or buying is better. It all depends on your lifestyle, long-term goals, and comfort level. Some people are happy as lifelong renters, while others dream of homeownership. Weigh the pros and cons, and determine your best path forward.