Are you fresh out of college, eager to escape your tiny dorm? Or perhaps you have rented for years and you’re finally ready to settle down and buy a house? It can be stressful deciding whether renting or buying is right for you.
There are advantages to both renting and buying; it used to be the norm to buy a home as soon as possible, but the choice isn’t one-size-fits-all. In fact, many Americans are choosing to buy real estate later in life, waiting until their mid-30s or later to become first-time homeowners.
How you choose to dwell is a personal preference. Let’s explore the pros and cons of buying and renting a home and compare the two so you can make the right choice for yourself or your family.
Buying A Home
PRO: Buying Is A Great Long-Term Investment
Whether you should buy or rent comes down to how long you are planning to stay. If you are looking for long-term investment and plan on staying in the home for 3 years or more, buying is a great option. You can begin to build equity in the home and diversify your assets, and over time, you will be able to build wealth as the property appreciates.
The other great aspect of buying as a long-term investment is that buying allows you to earn a second source of income by renting your property out. Unless you have the cash on hand, you’ll likely need to find a rental loan program to acquire the home you want, but once you own the home, you can fix it up and start searching for the right tenants so you can start earning a steady and reliable source of income. While renting out your property, you could consider staying with your family for a while to save up while you earn.
If you aren’t sure this is the area you want to settle down in or you aren’t ready to commit to a house, you are better off renting. While your monthly rent cost will likely be higher than a mortgage, nothing is more expensive than trying to get rid of a house you were not quite ready for.
CON: It’s More Expensive Than You Think
While your mortgage payments will likely be less than the cost of rent, owning a home is not inherently “cheaper.”
Consider the downpayment. For example, an upfront payment on a rental unit is likely to be a few thousand dollars once you factor in the security deposit and several month’s rent. A downpayment is likely to be $30,000 or more, depending on the price of the home.
Consider the upkeep. Once you buy, you will be responsible for all repairs, landscaping, appliance malfunctions, and other wear-and-tear. While buying a house is an investment in your future that will save you money in the long-run, you need to be sure you have the time and the money required for upkeep before you commit to a house.
Renting A Home
PRO: Flexibility + Freedom
Renters have the freedom of mobility that buyers don’t. Renters can be flexible, signing one-year or even month-to-month lease agreements and moving as often as they’d like. This is a great option if you love to travel, if you’re a creative freelancer, or if you’re a gig worker.
Renting is also a great option if you want to live in a city center without paying for astronomical housing costs. For example, you may not be able to afford a $4 million property in NYC, but you can rent one short-term for $1200 per month and still stay under budget. You’ll likely pay more over time in rent than you would with a mortgage, but you get the perk of living where you want with no strings attached.
Is a leaky faucet dripping in the night? Furry friend scurrying at your feet? Call the landlord! A huge pro of renting is that while you’re paying more per month, you aren’t responsible for any home repairs or disasters. Homeowner headaches like freshening up the paint, eradicating mold, fixing the air conditioning will never be your problem.
Con: You’re Not Investing Your Wealth
The big con to renting is you are giving thousands of dollars to your landlord that you could be investing in your own property. Buying property and paying the mortgage will grow your wealth as the home appreciates. When you rent, you aren’t building any equity and the money you pay for the dwelling is going into someone else’s pocket.
No matter what stage of life you are in, finding a new home is an exciting adventure. If you are at a crossroads in life, it can be hard to know whether to continue renting your home or take the leap and buy. Consider these pros and cons, and remember, at the end of the day the decision is yours to make.