Buying versus renting real estate will always be a personal decision, one that should be based on your lifestyle, goals, and financial well-being. Factors like interest rates, the housing market, and what others are doing around you can be influential, but the final decision is up to you.
All that aside, here are some pros and cons of buying versus renting that you should consider when deciding whether buying or renting is better for you.
Article summary
Choosing to buy or rent depends on your schedule, finances, and lifestyle priorities. Purchasing can provide long-term payment stability, control of your space, and the opportunity to build equity and gain potential tax benefits. However, it also means taking responsibility for repairs, maintenance, and additional costs such as property taxes, insurance, and HOA fees.
Renting offers greater flexibility — especially if you’re not sure how long you’ll be staying in one place — and comes with fewer maintenance obligations. On the downside, it doesn’t provide any equity growth and can leave you vulnerable to rent increases and rent restrictions.
In high-demand markets, renting may be more feasible in the short term, while buying can secure the home and its potential value if you expect to stay put. The best choice depends on what matters most for your current life stage.
stability
One of the best things about owning a home is the fact that your payments will be locked in for the next 15 or 30 years, depending on the length and type of mortgage. Volatile may be an exciting word to describe the rental market, but it certainly is unpredictable.
You can secure the terms of a lease for one year, but you have no idea what will happen after that. Your landlord can raise the rent or choose not to renew the lease. You may also have lease provisions that prevent you from getting a pet, moving to a significant other, or even painting the wall.
Owning a home means owning all the decisions. Want a lizard? Go get one! Does your brother need a place to stay while he gets back on his feet? Show him your spare room. Are you tired of looking at that dirt patch in your backyard? The garden center is just a few blocks away.
There’s great peace of mind that comes from knowing that your home — and housing payments — will remain under your control. With a fixed-rate mortgage, this payment will not change unless you choose to move or refinance.
Repairs and maintenance
On the other hand, you have to keep in mind that all the responsibilities now fall on your shoulders when you own a home. This includes the fun stuff like adopting a pit bull, as well as the not-so-fun stuff like fixing a leaky roof. There is no landlord to call when the dishwasher breaks down or the HOA reports a violation.
A general rule of thumb is to set aside 1% to 4% of your home’s purchase price for annual repairs. This number should be taken into account when calculating the advantages of buying versus renting. Repairs and maintenance are also why it’s important for any home to undergo a thorough inspection before purchasing it.
Many bidders waive inspections nowadays to make their offers look more attractive. This is a risky game: Your home may not appraise as much as you had hoped, or you may discover that you have five figures in repairs that need to be made.
This doesn’t mean that renting is a piece of cake when it comes to maintenance and repairs. Unscrupulous landlords do exist, although they tend to be the exception. However, ordering and completing a repair can take a long time, as you will likely be at the mercy of the owner’s schedule, and then the repair person’s schedule. As a homeowner, you can shop around for the best deal (or the best person) and schedule service on a day and time that works for you.
Home ownership
Buying versus renting shouldn’t just be about whichever is cheaper. The cost of renting a home in some neighborhoods may be less per year than the cost of buying, but that doesn’t mean it’s the right decision for you.
Remember, a home is an investment. While there is no guarantee that an investment will make money, homes historically appreciate in value over time. This makes your mortgage payment an investment in your future. By renting, you simply get the benefit of living in that place for the duration of the lease. Once you’re done, you’ll leave with nothing but what you arrived with.
On the other hand, the landlord gets the added benefit that you will likely cover your mortgage payments – and perhaps more – while you live. This doesn’t mean that renting is all bad. It makes economic sense if you want to save for a home, need to get out of debt, are experiencing a life transformation, or don’t plan to stay in the general vicinity long term.
Renters also do not have to pay property taxes on their homes. This is the homeowner’s job.
Tax considerations
Another major difference between renting and owning is how housing costs are treated at tax time. Homeowners may be able to deduct certain expenses — such as mortgage interest and costs related to qualified properties — depending on their financial situation and current tax laws. These potential tax benefits can help offset some of the ongoing costs of ownership, which also include property taxes and other expenses such as insurance, private mortgage insurance, or HOA fees.
Renters do not receive similar tax benefits, so homeownership can provide long-term financial planning opportunities that renting does not. Because eligibility varies, homeowners should consult a qualified tax professional to understand how these rules apply to their particular circumstances.
location
One of the biggest benefits of renting is flexibility. It’s not just flexibility in pricing or unit size, but flexibility in location. You can pick up and move in when your lease expires. For some, it sounds like heaven.
Here’s the thing, though. If you’re looking for a highly desirable location — for example, a beach city, a dense urban metro area, or an outdoor paradise — the discrepancy in price between buying versus renting may be unaffordable. Renting can give you the ability to live in these destinations for often a fraction of the cost.
We know you knew the other side of this coin was coming…and here it is. Yes, renting will allow you to live in locations that otherwise would not be priced out. However, if you find a location you love, save money and use that money for a down payment, then you’ve secured that location permanently.
Additionally, if an area is attractive to you, it may mean that the potential for future growth is there, which could mean more money in your pocket when it comes time to sell. Depending on your municipality and/or HOA, you may also be able to rent a room or the entire house on a short or long-term basis if the area is really in demand. Becoming an owner is much better than paying the owner!
If you’re renting and the area is really in demand — especially for vacationers — there may be a strong chance your landlord will raise the rent significantly, choose to go the Airbnb route themselves, or sell outright and cash in on those profits. This is not a problem if you are only renting for one year. However, if your goal is to stay in this area, it may become more difficult as prices and demand rise.
The decision to buy versus rent will always be a personal one, but at least you’re now armed with some pros and cons to consider before pulling the trigger on your next home. APM is always here to discuss these factors with you, along with your unique goals and financial situation. Contact an APM Loan Advisor today to get started.
