The Pros and Cons of Renting vs. Buying a House
How do you know it’s time to buy a house vs. rent? It’s an age-old question that we hear over and over again in the real estate industry. But here’s the deal — it’s not a one size fits all approach, and we wouldn’t give everyone the same advice. However, there are a few common things to consider before leaving the rental market to purchase your own property. Below, our team breaks down how to know it’s time as well as the pros and cons to both buying and renting a house.
Timeline to Make it Worth Buying
First of all, double check your time frame. One of the first major things to consider before buying is the length of time you’ll spend in the house as well as what you have in your savings account. We pulled together a quick checklist to determine if it is the right time and you’re able to buy.
- You plan to stay in the home for at least three years.
- You are out of debt, or at least in little debt.
- You have at least 3% of the home price to put as a down payment on the home.
- You have enough saved for closing costs on top of the down payment. Closing costs typically fall between 2-5% of the home cost.
Did you make it past the checklist? That may signal you’re in a solid position to buy, but there’s more to consider.
The Pros to Buying a Home
There are several benefits to buying a home, but maybe the most important is the long term advantage. Not only can you make money off of your home in the long run thanks to appreciation, but you build equity with each mortgage payment. The longer you stay in the home, the more equity you have. Now, compare that to renting. You might pay a couple-hundred-dollar cheaper rent, but you don’t build equity with those payments. Instead of investing money into a potential sale, you’re helping your landlord do the exact same thing.
The next major benefit to owning a home is Uncle Sam’s tax breaks. Thankfully, the tax code is set up to favor homeowners in comparison to renters. Here are a few of the major tax advantages to reap as a homeowner:
The Cons to Owning a Home
If the pros to owning a home convinced you, take a step back, because there are some cons to consider. With renting, you call your landlord everytime something goes wrong. It’s a simple fix when you aren’t the one footing the bill. However, when you are the homeowner, you’re responsible for any breakdown from a water leak to pest control, renovations, electrical issues and more. In addition, there are more taxes and expenses that come with the purchase of a home. Potentially, there are HOA fees and more utility bills including water and sewage, which renters don’t always pay. In fact, these are what some call “hidden costs” to owning your own home.
These additional taxes and costs shouldn’t scare you out of buying a home. However, it’s crucial that you take these extra costs into account to avoid putting yourself in a financially risky situation.
The Pros to Renting a Home
It makes zero sense to buy a home if you relocate often. Thankfully, renting allows you to relocate without the additional stress of having to sell your home first. Plus, consider that three year threshold in the checklist above. If you only plan to stay in the home for one or two years, there's a chance you could lose money because of a lack of equity. In that case, it makes the most sense to rent.
A major pro to renting a home is the access to your landlord or property management company. Notice an ant infestation? Call the landlord. Catch a water leak in the downstairs toilet? Call the landlord. See where we’re going with this? As the renter, you aren’t responsible for any maintenance fees, which ends up being a major reason why many continue to rent. If paying your rent is challenging enough financially, these extra costs of homeownership will add up.
The Cons to Renting a Home
The most noticeable con of renting a home is the lack of equity. Basically, you’re gifting $30,000+ to your landlord each year — ouch! When you put it like that, it becomes increasingly attractive to invest in your own home.
Rent prices can also fluctuate depending on your lease agreement. It’s not uncommon for a landlord to increase rent prices, so needless to say, it can happen. And depending on the size of that increase, it could price you out of your home. Lastly, there is no freedom to make any sort of renovation to your rented home. Some landlords are so strict that even a new paint color is a flat out no. If renovating or redecorating is important to you, renting could prove difficult.
So, is it better to buy or rent? There are plenty of pros and cons of buying vs. renting a home, and it’s important to consider each of them before pulling the trigger on a purchase.