When it’s time to move and you’re looking for a new place, you may wonder which is better, renting or buying a home. Buying might be considered a risky investment, but some may tell you that renting is essentially throwing money away when you could own something that gathers equity. So what do you do?
Let’s take a look at some of the pros and cons for both to help you make that final decision. Just remember that once all’s said and done, you are the only one who can decide what is truly right for you and your family.
Pros of Renting
You Can Always Move
Perhaps you’ve relocated to a new city or area for a new job. Maybe you’re not sure how long you will be in this new job or if you’ll stay in this particular city or area long-term. When you rent, you always have the option of buying out your lease (yes, not financially ideal) and leaving, or better yet, moving at the end of your leasing period. If your job or career goals change, renting allows you to move much easier with no strings attached.
You Don’t Need to Worry About Maintenance and Taxes
When renting, home or apartment maintenance is the landlord’s responsibility. While you will need to maintain the area that you are living in, you won’t have to worry about taxes or homeowners’ insurance or maintenance on the property. Some places, especially if you are in a condo or a complex, will even take care of the yard maintenance and snow removal which means less hassle for you, the tenant..
For many people, one of the biggest pros of renting is simple affordability. Many of us don’t have the savings or credit history necessary for the down payment on a home.. Rent affords the option to be able to live where we want within our budget. Plus, the money saved through renting, (and not spent on home maintenance expenses) can be used for other investments and even saved for a future home. Renting also gives you time to pay off debt so that your mortgage company sees you as more financially sound when you eventually do decide to buy yourself a home (and work up that credit score!).
Cons of Renting
There are Rules
When you rent, you have to abide by the rules of the lease, which is a legal contract. That means if you want a dog but the lease says “no dogs”,they can evict you if you decide to get yourself a canine companion. You have to read everything thoroughly and know if you are following all the rules in your lease. And what if you want to repaint the place when the lease states you can’t? Well, sorry, you’re just going to have to live with that color on your walls. Some leases even have noise ordinances that you have to comply with – a real party killer! A lease is a contract and if you don’t follow the rules, you may find yourself on the street.
You Don’t Own It
This means that when your lease if up, if the owner decides that they don’t want you there anymore, they can choose not to renew your lease agreement.. Equally, they can up the rent at renewal or at a time specified in your contract. Also, if the owner decides to sell the home you are renting, the only thing they’re obliged to give you is advanced notice.Then it’s up to you to find a new place.
The bottom line is that you have very little control over your lease arrangement.. So, what happens if the rent increases? While you can negotiate if it’s a private property, a space in a complex won’t afford you the option of bargaining. Your landlord’s holding a lot of the cards. Depending on the state, though, renters may have more power than in others, but regardless you’re not exactly the master of your own destiny.
Pros of Buying a Home
When you buy a home, you are buying an investment. The home itself will usually appreciate over time. That means if you bought it this year for $100,000, in a few years –and potentially some renovations and upgrades later– you can sell it for a profit, one that is all yours. Profits don’t always happen in the real estate market (think 2008), so proceeding with caution and paying attention to the market is essential if you’re buying a home. Don’t kid yourself, home maintenance is a thing and something you should factor into your annual budget when calculating your mortgage and other costs after buying a home.
There is a debate in the investment world if becoming a real estate baron is worth it. A lot of people make their money on rental home properties (or commercial real estate properties, cough, our Prez, cough). Depending on your cash flow, liquidity, and lifestyle, buying and then renting a home (or flipping it if you have the cash) is a real option. There are many cons to this too–think property management, contractors, and tenants–but we won’t go there for now. The point is home buying can also be a potential source of future income if you make savvy real estate investments. You are also building your credit with monthly mortgage payments, which will help secure future investments.
You Own It and Make the Rules
Another big draw to many homeowners is that you now own a piece of property that you can literally call your own. Of course, not maintaining mortgage payments and random acts of the Universe (fire, tornadoes) could take it away prematurely, but that’s why homeowners insurance and buying a house you can afford even in hard economic times is key. Otherwise, the house is your investment and you now have every right to do what you please with it, up to and including selling it.
So if you want that dog we spoke about earlier, you’re free to have it and a whole houseful of puppies! When it comes to decorating, landscaping, or any home improvement, your pocketbook is the limit! Also, you gain a sense of community when you own your home. This is now your domain, your neighborhood, where your children can grow and thrive -it’s yours and you can feel good about that.
Cons of Buying a Home
You Are Kind of Stuck
Imagine you get a promising job offer in another state or an area that is not anywhere near your current home. You will have to consider selling the home or renting it to someone else. The trouble is, with supply and demand being what they are, you can never be 100% sure you’ll be able to rent it at a price that covers your mortgage or that you’ll find tenants when you need them.
In reality, buying a home costs a lot of money. Down payments, inspectors, escrow, taxes and then your mortgage. It takes time for the equity in your house to increase so that the amount of cash you sunk into your home is now covered by the price you can sell it for, with a profit. If you are not going to stay in a place for an extended period of time –i.e. your career could take you anywhere– it doesn’t make sense to drop a lot of money and energy on a house that you will leave within a couple years. (Again, unless real estate investment and owning rental property is your thing and you’re happy to invest the time to make some cash).
Maintenance and Taxes
When you buy a home, everything falls on your shoulders. Has your washing machine died? It’s up to you to replace it, out of pocket unless you’ve paid for a home warranty. Is the roof damaged and needs replacing? Yep, that’s all you. The dishwasher springs a leak and floods your kitchen? Also your expense.
As the homeowner, you can’t just call a (rental) maintenance line and have it fixed the next day or have a 24/7 maintenance person come out to fix your furnace in the winter at midnight when it doesn’t work. And remember, just having a service person come out to diagnose your problem will cost at least $50 if not more. Lawn maintenance and yard work, also up to you, which means that if you don’t have the tools necessary to mow the lawn, they will either have to be purchased, or you’ll have to hire someone. You also have to pay annual property taxes and get homeowners’ insurance. While you do get tax breaks for owning, there are still plenty of other costs that you could incur.
As stated earlier, the decision on renting versus buying a home is solely up to you and what lifestyle fits you. The first step is considering your interests, career (projecting income) and your future plans. If you aren’t totally committed to one city or area, or you anticipate a career change, factor that into your decision making.If you like the idea of house maintenance, and look at it as an investment, be realistic that it will cost money and time, but that’s just part of the game.
In the end, buying or renting is a decision that should be taken seriously. Crunch the numbers, be realistic about the pros and cons, and most importantly, take your time to really learn your real estate market.
Image credit: Mirjana Jesic