Choosing whether to rent or buy a home is a decision that requires you to consider the pros and cons of renting vs. buying. Both buying and renting affect income, lifestyle and long-term goals.
As you choose between renting vs. buying, don't let the wrong perceptions throw you off. Many people feel that renting is "throwing away money." We unconsciously consider homeowners to be more responsible, and many people buy homes because they feel it's what they "should" do.
By the same token, many people rent for years, even when purchasing a home would be the better financial decision, because they think buying is reserved for those who are completely financially secure.
Neither of these assumptions is 100 percent accurate, so instead, weigh the actual pros and cons of renting vs. buying to make this decision.
Renting doesn't have to be just a stepping stone to homeownership. It can also be a smart housing decision for people in all walks of life. Here are the pros and cons of living in a rental property.
There are many benefits of renting, most importantly: You likely know your exact housing expenses each month, give or take, depending on utilities, if you pay those. You won't have to pay for big home surprises, like a new roof or broken washer, nor do you need to worry about any of the property taxes or mortgage payments.
You also enjoy location flexibility, which makes renting ideal for those who aren't quite settled in one area yet. Renters who need to relocate for a new job, or simply want to try living in a different area, won't need to worry about what to do with their homes. There's also the potential to live in an area where you couldn't afford to buy, before settling down somewhere more affordable later.
At the end of the day, one of the greatest benefits is that you can rely on the landlord to fix the broken sink or deal with the expensive foundation issues. While the repairs may not be done quickly or to your standards, there's something to be said for passing along that responsibility to someone else.
While rent may remain stable from month to month throughout the year, some landlords increase rent annually, which could make your current apartment out of your price range. Some cities and states have introduced rent control in order to combat this. For example, rent control is being implemented in San Francisco, one of the most expensive cities to live in.
You also don't have as much flexibility with painting and making updates and upgrades when you're a tenant. In most cases, you need to express permission to do so from your landlord who may allow it, but request that you put things back to normal (repaint the walls, for example) when you leave.
Purchasing your own place means a little more freedom, but comes with a big financial investment. Here are the pros and cons you need to think about before buying a home.
There are many long-term benefits of owning a home, including long-term security, equity, and, if the house increases in value, the potential to increase personal growth. The value of a home can appreciate more than time, especially in these areas of the U.S., so there's also potential to profit from the sale whenever you're ready to move onto something new.
When owning your own home, you don't need to ask a landlord about painting the walls or renovating the kitchen. You can update and change your own home any way you like, all that you have to worry about is the budget, and in some cases, permits.
Finally, owning your own home gives you the option of renting out the property to generate income outside of your paycheck. You can rent an extra room, a finished basement or move out and rent the whole home.
At the end of the day, the property you own is an investment for the long term. Property isn't a liquid asset, meaning that just because your house is worth $500,000, does not mean that you have $500,000 waiting in the bank. It can take a long time to sell a house, especially if the market changes quickly. So, buying a home if you want to make quick money is not often a wise choice.
Even more importantly, it's entirely possible for your home to lose value over time. The neighborhood could decline, a major employer could leave the area or there could be a construction boom, all of which makes real estate prices decline and could cause your house to appraise for less than what you paid — meaning you'll lose money on the house.
In general, homeownership is an expensive endeavor. You have to pay taxes and fees that renters don't need to worry about, such as:
The key things to remember when it comes to weighing the pros and cons of renting are:
When choosing between renting vs. buying, either path can be right for you, depending on your circumstances.