Should You Rent Or Buy?
Carey Chesney3-Minute Read
July 24, 2020
To rent or to buy? That is the question. Most Americans face this choice at more than one point in their life and it often results in myriad financial, societal and emotional factors swirling around in their heads. Should it be part of my “American dream” to own a home? Can I afford it? Do I want the responsibility of caring for a house? Is buying a house really a great investment? Is renting really considered throwing money away? It’s a lot to take in, but understanding the pros and cons of the rent versus buy conundrum and how they relate to your particular situation can give you confidence in whatever path you choose.
Is It Better To Rent An Apartment Or Buy A House?
One of the first questions people often ask when they are thinking of moving is “Should I rent or buy a house?” This usually results in an introspective, in-depth look at what drives their lives, what they see for the future, and how they plan on achieving their goals. If you’ve started – or are excited about starting – a family and digging deep roots in a community, buying may be the right path. If you like the freedom to get up and go at a moment’s notice to chase adventures and opportunities, renting may make more sense. If you like the notion of fulfilling the “American dream” and see owning a home as a critical tenet of that goal, you’d probably lean toward buying. If you hate doing any type of house maintenance beyond cleaning, you sound like a renter. Owning a home is a big step, and certainly more of a commitment than renting, so if you dig into these big life questions and are not sure of your answers, rent for at least a little while until your preferred path comes into focus.
Why Is Renting Better Than Buying?
Again, everything is specific to your unique situation, but the age-old tenet that buying is always better than renting is simply not true. Sure, owning a home means building equity each month instead of spending money on rent that you won’t get back, but there are a few key drawbacks as well. Here are a few of the reasons why renting might be better than buying:
- The Additional Costs of Owning a Home: Comparing your monthly rent to a mortgage payment estimate on a house you may be interested in might make buying seem like the smarter move. However, once you factor in insurance, taxes, maintenance – figure 1% of the value of the house per year for this one – and a slew of other surprise costs (new furnace, water heater, etc.), buying might make less sense.
- Maintenance: In addition to the cost of maintaining your home, consider the effort and time it takes. Don’t like cleaning gutters or remembering to replace the furnace filter? Renting has the benefit of just picking up the phone to take care of these pesky tasks.
- Mobility: Not sure what the next 3 years look like professionally? Kindred spirit who loves the idea of moving to Sweden for a year? Renting allows you to get up and go much faster than having to sell your home.
- Relationship Flexibility: For unmarried couples, renting allows for a cleaner break – in terms of housing at least – if things don’t work out. While it’s no fun for someone to have to move out of an apartment you’ve become accustomed to sharing, it’s nothing compared to the litany of legal and financial entanglements that selling a house during a separation can entail.
Is Renting Really Throwing Money Away?
Many people make the argument that renting is just throwing your money away. After all, once that check goes to the landlord, that money ain’t coming back. In contrast, when you pay your mortgage every month, you are building equity in a home that will bring that money back when you sell, refinance, or take out a home equity line of credit. While all of this can be true, simply thinking of renting as throwing money away is a little simplistic and in many cases just plain false. We covered some of the additional costs of owning versus renting already, but add on to that coming up with cash for a down payment (20% of the value of the home if you don’t want to add on mortgage insurance to the list of expenses), and renting can often be more affordable. Also, the assumption that homes will always go up in value and bring that coveted equity you seek is not always a safe one. If you buy in a market or area when property values are stagnant or declining, buying instead of renting can actually be the route to throwing your money away.
So, is it better to rent or buy? From mortgages and rent payments to maintenance and mobility, there’s a lot to consider and it can sometimes seem overwhelming. But now that you’re well versed in the renting versus buying conundrum, you’re ready to make an educated choice.
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Should Millennials Rent Or Buy?
Millennials are facing a different financial situation from what other generations have dealt with, which impacts their ability to buy a home. Because of this, is it better for them to rent or buy?