Rent vs Buy: Which is Right for You?
Is it better to rent or to buy? At one point or the other, most adults will ask themselves this question. There are plenty of factors in favor of both options, but what’s right for one person may not be right for you.
To help you decide, I’ve broken down several advantages and disadvantages of each.
Advantages of buying
Stability/sense of community
Personally, one of the biggest pulls towards homeownership was the stability and sense of belonging that I never felt while renting. Since renting is often temporary, it may keep you from establishing deep-rooted connections to people or your community. Most of your neighbors will slowly move on to to new things in new locations.
That’s not to say that my neighbors won’t move away just because they own their house. But I love the inclusion I feel to my neighborhood, my community, and its residents.
I love decorating. I love putting my stamp on a space so it feels truly unique to me. When you own your home, the possibilities on improvement and personalization are truly endless, without the worry of losing your security deposit.
“When you own your home, you take all of the responsibility for that property, but also, all the pride,” says Mortgage Banker Rhonda Branyan. “You don’t have to ask permission to paint a room … or get a dog.”
No landlord/property management company
At my last apartment complex, the property management company was so dysfunctional. They frequently changed our utility companies. They changed the keys to the building several times. They often lost rent payments. I could on and on, but you get the point. When you’re the homeowner, you’re in charge.
Fixed-rate mortgage payment can’t increase
If you’ve ever rented, you probably know the frustration of lease renewal time. You mostly likely got a letter in mail that displayed what your new rent price would be, should you choose to renew. And chances are, the price increased.
However if you choose to own your home, you have the choice of financing with a fixed-rate mortgage. If you do, your monthly payment will stay the same year after year. However, keep in mind that taxes and insurance (which make up your total monthly payment) may increase at any time.
The great thing about a mortgage payment is that it’s an investment in your future. Rent payments, on the other hand, go straight towards helping your landlord. Your home equity is the fair market value of the house minus the amount you still owe. The more you pay off the balance of your mortgage, the more your equity grows.
In addition, the more your property value goes up, the more your equity increases too.
Your mortgage interest is deductible from your income tax. In the early years of owning a home, interest makes up a large component of your mortgage payment, making this a big deduction for many homeowners.
During the first year you buy your home, you can also claim your loan’s origination fees or discount points (if you paid down your rate), even if the seller was the one who covered these fees at closing.
Disadvantages of buying
I have to admit that I miss the days of calling my apartment’s maintenance staff when something was broken. As a homeowner, it’s your responsibility to repair or replace items in your home that aren’t working. If you’re not very handy, some repairs can be very costly. So it’s very important to have a thorough home inspection prior to purchase.
High upfront costs
Even if you have a home loan with a low down payment option, like a VA loan, it can still be very expensive in the beginning of homeownership. Moving, furnishing, and decorating are all expenses to consider in addition to closing costs.
Potential for financial loss
While you may be building equity on your home over time, that doesn’t necessary mean you are guaranteed a profit if you were to sell your home. If real estate market values are down, you have the possibility of selling your home for less than you paid for it.
Can’t move on a whim
Typically, staying in your house for a longer period of time is the best way to get a return on your investment. So it’s not always wise to buy if you’re only planning to live in a place for a very short amount of time.
If you’re renting, moves usually just involves waiting until the end of your lease or paying to break the lease. On the other hand, moving when you own your home means you must sell your home or find renters, neither of which are usually quick or stress-free.
Advantages of renting
No maintenance responsibilities
One of the greatest things about renting is the convenience when something breaks. If you’re dishwasher stops working, you don’t have to worry about running to the store or searching for a repairman; you just call your maintenance staff.
In addition, landscaping and facilities are usually maintained by your landlord as well.
Freedom to Relocate
Since rental leases are typically one year, sometimes less, it’s easy to relocate. You usually can pay a one-time penalty to break a lease early as well. If you anticipate a job or location change, renting may be a good option for you, due to its flexibility.
No matter what the real estate market is doing, you’re safe and protected from potential declining home prices while you’re renting. You don’t have to worry about a financial loss from selling your home.
While your credit is considered before signing a rental agreement, credit terms are usually more lenient for a renter than an individual trying to obtain a mortgage.
“Rentals are often desirable for people who lack the credit or cash to make a home purchase. Mortgage lenders look for a borrower’s ability to purchase (adequate income and assets), and stability (proof that the borrower has the experience making monthly payments for their home in addition to paying their other obligations),” Rhonda says:
“Sometimes I recommend that a borrower get ‘experience’ making those payments with a rental, before they attempt to purchase a home.”
Smaller up-front costs
Most rental leases require a security deposit, which are sometimes refundable. They may also be a pet deposit, if you plan to bring a furry friend. But when compared to a down payment and initial homeowner expenses, these costs are negligible.
Disadvantages of renting
Dealing with a landlord/property management company
At my last apartment complex, the rental staff left a lot to be desired. They changed our water utility company multiple times. They lost our rent check on more than one occasion. I could go on and on, but you get the point. Dealing with a landlord isn’t always a pleasant experience, and it can definitely be a headache if you choose to rent.
You’ll never gain equity/ no tax benefits
While you’re protected from a potential real estate decline, it also means you’ll never benefit from gaining equity. Your monthly rent payments are not building up your savings or being invested in long-term security. Your payments are only helping your landlord.
Regulations and limited personalization
Many apartments have very strict guidelines on how you can customize your rental. They typically don’t allow any renovations or major decorative changes, so you’re usually stuck with whatever you have. And even if you were able to home improvements, you would be helping increase your landlord’s home value, not your own.
In addition, renting also has more restrictions on who and what lives with you, such as how many people can be on a lease or whether you’re allowed to have a pet.
No/limited control over rent increases
Let’s say you’re renting in an area going through gentrification. You have paid a reasonable rent price initially, but the area is becoming really cool. That’s really great for your landlord whose property value is increasing, but it also means that you’ll probably see an increase in your rent when it comes time to renew your lease. While some rent-control situations do exist, it’s rare. While there are a lot of factors to consider, Atlantic Bay would love to help you through the home buying journey, if you think it may be a good choice for you.