Should I Buy or Rent?
Is homeownership right for you? If not, would it be better to rent than own? Follow these tips to decide whether to rent or buy.
Homeownership has been a quintessential part of the American Dream. Many people believe that when you buy a home, you’re investing in the future. But when you’re renting you’re “throwing away money.” The reality is more complicated than that.
In fact, homeownership is costly and time-consuming. A common estimate is that homeowners spend 1% of the value of their home per year just on maintenance and upkeep. With median home values in the U.S. hovering around $245,000, that means homeowners will spend about $2,400 annually in addition to taxes and mortgage payments. Before making the leap into homeownership, it’s important to assess the pros and cons and economic impacts of buying vs. renting.
In defense of renting
Renters have the luxury of not paying property taxes, repairs, or for addressing any major issue that arises in the rental unit. That’s not their problem. While some rental properties require renters insurance, the cost of these insurance policies is far less than the average homeowner’s policy.
This is one of the best perks about renting. Renters can simply enjoy living where they are for a fixed monthly cost. As of early 2020, national average rent for a 2-bedroom apartment was about $1,800 per month. While this expense doesn’t buy you an asset, as a renter you are paying for a place to live, which is not exactly nothing.
When you rent, you have more lifestyle freedom, too. You can pick up and leave relatively quickly if you want a change of scenery. There are fewer emotional attachments and less to consider overall.
So renters are actually paying for convenience and flexibility. Though it may not seem on par with a long-term investment such as buying a home, having a roof over your head is a necessary and worthwhile expense. It’s also a fairly stable expense, as rent prices only change incrementally usually at the end of a 12-month term. On the other hand, a four or five-figure expense (roof replacement) can pop up out of the blue for a homeowner.
In defense of homeownership
When you’re a homeowner, the whole place is yours. Want to paint the walls blue? Go ahead. Want to play your music loudly? You can. Buying a home is buying a space that is yours to do with as you please.
Homeownership also offers the opportunity to be a vested contributor in the health of the overall community. Parks, schools, and the condition of nearby streets take on outsized importance when you’re putting your hard-earned money into owning a property in the neighborhood. This is an importance consideration if you’re looking to stay in one place for the long haul.
On top of that, owning a house can be a financially sound investment. Your equity can build and be worth far more in the future. It can be a tool to build generational wealth and provide a sense of security and stability that a renter may not find.
Further reading: Is Your Home Your Secret Retirement Savings?
Consider your needs
When thinking about renting vs. buying, look at the big picture and consider what’s best for your particular needs.
While you’re renting and have freedom and flexibility, you’re also at the mercy of noisy neighbors, unexpected rent increases, and property restrictions on what you can and cannot do. Also, your landlord could decide to stop renting altogether or sell the building.
Buying a home gives you a piece of property and a space that is yours. That can provide you a sense of pride, but you have to remember that it doesn’t come easy. You have to pay property taxes, insurance, and cover repairs like leaky roofs or broken water pipes. As your home ages, the costs tend to get even steeper. Heating and cooling costs can spike. Staying ahead of wear and tear can become an expensive chore.
The New York Times created a helpful online calculator that helps you decide if you should rent or own. For example, for a typical homebuyer considering the purchase of a $500,000 house who expects to live there five years, it might make more sense to rent if a similar place is available for $2,400 a month or less.
Pros and Cons
Pros of renting
- Less expensive
- Easy to move quickly
- Relatively fixed cost
- Access to shared amenities (pool, gym)
Pros of buying
- Potentially appreciating investment
- Pride of ownership
- Freedom to build, update, design, decorate
Cons of renting
- Less emotional attachments
- No stake in an investment asset
- More rules and restrictions
- Limited ability to change the property
- Potential sharing of living space
- Risk of being forced out
Cons of buying
- Stability and strong ties to community
- Expensive (high costs of mortgage, insurance, taxes)
- Harder to move
- Unexpected challenges and costs (repairs, upkeep)
- Being “stuck” with a bad neighbor
- Heavy emotional investment and potential stressor
Making a decision
The decision to rent vs. buy is a highly emotional one. It’s not just about transaction costs and potential appreciation of your property. It’s also about your life, and the unpredictable nature of the future. Your health can change. Job loss can happen at any time. A family emergency can pop up. All of these things make it harder to leave if you own a home. Selling a home rarely happens on your timetable and can take months — years even, if there’s a downturn.
Whether you rent or buy, you want to weigh all the pros and cons carefully. You’ll also want to work with the right team that can help you get the best price. There are scammers and frauds out there looking to take advantage of people. Being smart and savvy, and doing your research can help.
Further reading: Ways to Say Goodbye to Neighbors