Rent or Buy a Home: The Pros and Cons

rent or buy

To Rent or To Buy? That is the question.

When you start out and live on your own for the first time, it seems easiest to rent a place, whether it’s a house or apartment. Here we will go over both options to see whether it’s better to rent or buy your home depending on your situation.

Questions to Ask Yourself

The first question you need to ask yourself as you set out on your own is simple. How long do you plan to stay in this location? Is it temporary while you are in school, interning at a job, or just seeing if you like the area? Do you know that you will stay in the area for many years?

The next question is how much money are you looking to put into the move? Initial costs can be steep no matter which way you go, but buying a home has a much pricier up-front cost. Often where you move to depends on how much you can afford at that time.

Renting – The Pros

Ease of Relocation

If you plan to stay in an area temporarily, renting is your best option. Most leases are for a year, and some even let you go month to month. This is great if you are new to the area and want to determine if it’s a good location for you. If you are a college student and just staying for school, or if you have a temporary job in the area, renting is your best bet.

Repairs and Maintenance

One major benefit of renting is fewer out-of-pocket expenses as things go wrong. The homeowner or property manager is the one responsible for most repairs. Air conditioner not working? Dishwasher broken? These are things that the property owner should take care of for you.

Credit Requirement

Most landlords know that many people who are renting are just getting out on their own, building their life, or even downsizing in retirement. This can make them more relaxed on what they think is a good credit score. This could be to your benefit as renting and staying in good standing will help you build that credit as you build your future. Typically, as long as you don’t have a credit report filled with outstanding balances or bankruptcies, you should be able to find a landlord willing to rent to you.

 Some Utilities Included

In some cases (especially with apartments), some utility costs are included in your rent. This could include trash services, water, lawn care, or more. Having these utilities included in your monthly rent will reduce your outgoing expenses.

No Exposure to Real Estate Market

When you are just renting, it is not your concern if the market value of the home you live in fluctuates. Leave those concerns for your landlord!

Renting – The Cons

No Equity Building

When renting, you have no equity gain from the money you are paying each month. Unless you are in a rent-to-own agreement, each dollar you give to a landlord for rent is now gone. If you plan on staying in this location for a long period of time, then buying a home may be a better option for you.

Less Housing Security

Most states have laws in place that do not allow for a landlord to evict tenants without substantial notice, but there is still uncertainty. Even though the landlord may need to give up to 60 days notice, there is still a chance that the landlord could sell the property you are living in or need it for something else. If you own your home, there is no uncertainty that you will be without a house as long as you pay your mortgage.

No Federal Tax Benefits

By just renting your home, you are losing out on the tax benefits that come with home ownership. As a homeowner, you can deduct property tax and mortgage interest rates on federal taxes. When renting, you are unable to do this, and it could raise your federal tax liability by several thousand dollars.

Limited Control over Ongoing Costs

Renting your home leaves you open for the landlord to raise your rent once the lease is up due to housing market fluctuations. Unless you live in an area that has rent control laws, the landlord is allowed to do this. Hopefully you develop a good enough relationship with your landlord that this may not be a problem, but if the housing market takes a nice tumble, you could be facing pricey rent increases.

Buying – The Pros

Building Equity Over Time

With most mortgages, a portion of your payment goes to the principal balance of your loan. Once a loan reaches a certain percentage of principal paid, you are able to take out a home equity loan to make updates to the home or possibly refinance the loan to a lower interest rate. Making updates to the home can boost the resale value if you decide to sell later on, and it will boost the equity you put into the home.

Tax Benefits

There are several tax benefits that are great for homeowners, though not all situations will qualify. You can get deductions on the property tax you pay as well as the interest you pay on your mortgage. Some states offer a homestead advantage credit base on the property tax assessment. There are also some credits that you can get for making your home more efficient with new appliances.

More Creative Freedom

What if you want to update those cabinets or paint that bedroom? If you are just renting, most landlords want you to leave the property as is or get permission for changes. If you buy the home, you have the freedom to do almost anything you want. By updating and improving your home for your own enjoyment, you are also updating the appeal of the home if you do decide to sell later. You can DIY to your heart’s content when you own the home you live in.

Sense of Community

This is a neighborhood where you know you will stay. If you are buying your home, your neighbors can become your friends. The school where your child attends will have families in the area. You will get to know the area, maybe even set up block parties or join the neighborhood homes association. You could volunteer at the local community center. If you are renting, you might feel less inclined to do these things, especially if you will only be there for a short while.

Possibility of Rental Income

Does your home have a finished basement or an extra bedroom going unused? There lies the possibility that you could rent these areas out to a single person or student to get an extra income from your home. You could also use a company like Airbnb if you are interested in subletting your space while you are away or needing some extra money. This is not appealing to everyone, but it is an option you have when you own your home.

Buying – The Cons

Long-Term Commitment

Homeownership is a long-term financial commitment. You are stuck in one area until you decide to sell, and selling a home takes a lot of effort. You have to continue your mortgage payments until a sale goes through, which can take months.

Responsibility for Maintenance

Once you buy a home, you will quickly long for the days when your landlord fixed all of the problems. From small maintenance tasks like yearly pest control and filter changes, to large problems like replacing a furnace or fixing a leaky roof, you are responsible for everything when you own the building.

Buying a House is Pricey

Mortgage payments are fixed over time and progressing you towards completion. However, they tend to be a bit pricier than rental payments per month. If you can’t get a mortgage rate within your budget, you might be forced to continue renting until your financial situation changes. Also keep in mind that there are fees associated with buying a house, including a down payment, closing costs, and real estate agent/inspection fees.

Overall Conclusion

What you decide to do is up to you, depending on your situation. Do you need a temporary place to stay while you study or do an internship? Do you want to make an investment over time? If you are just starting out on your own, then renting may be the best bet for you. If you are set in your career, ready to start a family, and prepared to settle in, then home ownership is most likely a better option. As you start to ask yourself these questions and look over the good and bad of each, the New York Times has a great mortgage calculator that can help you see what option is best for you.

Whether you decide to rent or buy your home, check out Complete Protection’s other guides for home maintenance to keep your house in top shape. This one gives you an overview of the essential tools you will need on-hand for basic home maintenance and repair.