Renting vs Buying Your Next Home
Renting vs buying your next home is completely a personal decision. There is no right or wrong just what feels right or wrong for you. Each option has its own set of pros and cons.
Pros of Renting:
- Not tied to the home – if you are new to a city and unfamiliar with the different neighborhoods, renting allows you to get to know your new home city before settling on a neighborhood or subdivision.
- Your desired neighborhood or community is too expensive for you to buy in but there are affordable rental options.
- Not responsible for home maintenance – renting puts the responsibility of home maintenance on the landlord
Cons of Renting:
- Limited control – it’s the landlord’s property so he/she makes decisions about whether you can paint the walls or have family or friends move in temporarily. They also control how quickly things are updated or repaired.
- No tax deductions on rent – Your landlord gets the tax benefit from owning the home not the tenant.
- No control over paying the mortgage – You are paying for the right to occupy the space. However, the landlord is responsible for paying the mortgage. This was a harsh reality during the foreclosure crisis. There were many instances during the crisis where the tenant responsibly paid the rent but the landlord was not as responsible about paying the mortgage.
Just as renting can be the right decision for some, buying your next home can be the right decision for others.
Pros of Buying:
- Your monthly mortgage payment is often less than rent – the mortgage (principal + interest) for a $200,000 home in today’s market is less than $900 per month. Interest rates are typically less than 4%. Even with property taxes included, your monthly mortgage can be significantly less than rent for a similar home.
- A monthly mortgage is a fixed payment compared to a rental payment which often has an annual increase. You can also pay off the mortgage and eliminate the expense (leaving just the property taxes). Renting is a perpetual expense.
- Owning a home often gives an increased sense of stability. Homeowners generally feel a stronger commitment to the community and feel more security about their home.
- Control over your property – paint the walls polka dot, upgrade the kitchen or feel free to have guests and family move in for a few weeks or a few months.
- Tax benefits – owning a home allows deductions for mortgage interest and property taxes which can be significant. This is an important benefit for many people.
Cons of Buying
- Short term costs of buying – although the monthly payment may be less than renting, buying a home involves having enough for the initial down payment and closing costs. Many renters find it difficult to save for the initial costs of buying a home.
- Home Maintenance – if there’s a leak in the pipes or the furnace goes bad, you are responsible as the homeowner.
- Tied to the home – there is less flexibility in terms of moving when you own versus rent. Relocating for a job or changing neighborhoods for a better school district is more complicated when you have to sell before moving.
There’s just no right decision in regards to renting vs buying your next home. It just depends upon what’s important in your life and what are your current circumstances.