Homeownership has been a quintessential part of the American Dream. Many people believe that when you buy a home, you’re investing and when you’re renting you’re “throwing away money.” While those beliefs have some merit to them, they’re not the whole truth. In fact, homeownership is costly and time-consuming — facts that need to be considered when weighing the economic impacts of buying vs. renting.
In defense of renting
Renters have the luxury of not paying property taxes, repairs, or for any other major issue that arises. That’s not their problem. And therein lies one of the best perks about renting. They can simply enjoy living where they are at. The whole “throwing away money” argument doesn’t hold up either as you’re still paying for a place to live. That’s not exactly nothing.
When you rent, you have more 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 be seen like an investment such as buying a home, it’s still a necessary and worthwhile expense. It’s also a fairly stable expense, meaning that it will still mostly be the same or within a smaller margin. On the other hand, four or five-figure expenses can pop up easily for a homeowner out of the blue.
In defense of homeownership
When you’re a homeowner, the whole place is yours. Want to paint the wall blue? Go ahead. Want to play your music loudly? You can. Buying a home is buying a space that is just yours.
On top of that, it can be a financially sound investment. Your equity can build and it can be worth far more in the future. It can be a tool to build generational wealth and provides a sense of security and stability that a renter may not find.
Pros and cons to consider
When thinking about renting vs. buying, it’s important to look at the big picture and consider all of the pros and cons.
So while you’re renting and have that freedom and flexibility, you’re also at the mercy of noisy neighbors, unexpected rent increases, and restrictions on what you can and cannot do. Also, your landlord could stop renting altogether or sell the building.
Buying a home buys you a piece of property and a space that is just yours. That can give you a sense of ownership and pride but it’s a lot of work.
You have to pay property taxes, insurance and cover repairs like leaky roofs or broken water pipes. In fact, maintenance costs can add up to anywhere between 1% – 4% of a home’s value, depending on its age and location. As your home ages, the costs tend to get even steeper. Heating and cooling costs can spike. Upkeep can become a chore.
Here are some general financial considerations to evaluate:
The New York Times created a helpful online calculator that helps you decide if you should rent or own. For example, for a typical person considering the purchase of a $500,000 house who expects to live there 5 years, it might make more sense to rent if a similar place is available for $2,400 a month or less.
While all of these things are important to evaluate, the decision to rent vs. buy is also a highly emotional one. It’s not just because transaction costs amortization. It’s that life gets more unpredictable in some ways. 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 just up and 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.
Making a decision
Whether you rent or buy, you want to weigh all the pros and cons carefully. You 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.