Renting vs. buying is an important decision that affects many aspects of our lives. It’s also a big financial commitment. This article offers important points that outline the good and bad of renting versus owning your next home. Here are some things to consider before making a decision.
Renting Pros:
- Lower Payments
If you rent, you’re likely paying less than if you were to buy. You won’t be responsible for property taxes, insurance, maintenance, and repairs. And because you’re not tied into a long-term contract, you can move at any time without penalty.
- Flexibility
Renting also offers you flexibility not always given with homeownership. Leasing an apartment also gives you options to move to another apartment complex or to another city. You will not be waiting on a seller to buy your home, which could take more time.
Although on the surface, these appear to be pros. Upon closer look, these points can be cons which we will discuss below.
Renting Cons:
- Poor service
Renting forces you to to rely on the landlord for home repairs. You might not get the same level of service from your landlord as you would from a homeowner.
- Lose Deposit Money
Changes in your lifestyle habits or career can force you to move and relocate. When this happens, there is a high chance you will lose the deposit you put down at the beginning of the lease. Buying a home might be a better financial choice if you decide to live in one place for a longer time.
- Let net worth
You'd think you'd have more flexibility to take vacations and fewer things to tie you down, right? Actually, having less net worth makes it harder to go on a vacation. Rent continues to increase year after year creating problems with saving money for a vacation. For example, if rent prices rose $200 a month, that is a total of $2,400 additional yearly expenses. This is commonly the difference between a beach vacation and having a “staycation” at the apartment complex pool.
Homeowner Pros:
- Wealth Creation
Homeownership is wealth creation. The average net worth of a homeowner is over $255,000 versus only $6,300 for renters. That's 40x the difference! In reality, wealth creation from homeownership creates more flexibility than renting since you have a higher net worth and more money to work with when you decide to move.
- Flat Payments
Homeowners create that big wealth gap through a fixed-rate mortgage. Your mortgage and payment stay flat, unlike rent prices that experience inflation and yearly growth. A fixed-rate mortgage is housing appreciation and inflation. As home values continue to rise, you will be able to gain extra value and net worth in your pocket.
- Principal Reduction
Making a monthly mortgage payment allows a portion of that payment for principal reduction. In other words, your mortgage savings account will gain more cash as you do a home equity line of credit. Principle reduction also applies when you decide to sell your home.
- Tax Incentives
As a homeowner, you will receive tax incentives, putting extra cash in your pocket at the end of the tax year. The government wants to incentivize you to purchase homes since homeownership is positive for the community. Additionally, the government has so much debt that it helps them when you take on more debt with a fixed-rate mortgage.
- Retirement
It is hard to retire if your net worth is $6,300 and your rent payment continues to increase monthly. Homeowners have a lot of flexible financial products right now. Reverse mortgages and home equity lines of credit allow you to pull out cash for retirement as you age.
Renting vs. Owning: The Conclusion
There you have it, owning a home can make you 40x’s richer, provides greater stability and options, and can even help you hit the beach every year. Many are saying the US could become a nation of renters, buying your home now helps you to lock in your price before you get priced out of the market due to rising costs.
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