Homeownership is the ultimate dream for many people, but renting can have some excellent perks. Choosing to buy or rent is a complex decision-making process that involves careful considerations, not just for the present, but for future sustainability as well.
When deciding whether it's best to rent or buy, there are a few things to consider- such as financial, commitment and how long you plant to stay in one location. The answer will vary by person and lifestyle. To help you make the right decision, we've compiled a list of pros and cons for buying and renting.
Pros of Buying: Stable costs and living situation, building equity, potentially cheaper, and tax deductions
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Building equity is a strong advantage of owning a home. Although location and market conditions vary greatly, home values often rise year-over-year. It can be a key piece of a well-balanced financial portfolio.
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Buying a home can be a great investment and, depending on where you choose to live, a monthly mortgage payment can be more affordable than renting a comparable home. A rent vs. buy calculator can give you insight as to financial feasibility.
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When you buy a home, you're also buying a sense of stability- both in terms of lifestyle and emotional wellbeing. You can establish roots in a neighborhood and build relationships in the community. Unlike renting where a landlord has the option to evict a tenant, sell a home, or end a lease, owning your own home gives you flexibility and control over when you want to leave.
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As home values fluctuate and demand for rentals increase, rent prices can increase, whereas a monthly mortgage payment for a fixed-rate mortgage will remain the same over the course of the loan.
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As a homeowner, you have more freedom to decorate, renovate, improve, and landscape your property.
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When you're ready to move, you have the option to turn your property into an investment opportunity and rent it, use it as a vacation rental, sell it, or keep it empty.
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The interest on your mortgage is usually a tax deduction on your federal income statement, as well as incurred moving costs.
Pros of Renting: Flexibility in location, reduced maintenance costs, potentially cheaper, and fewer upfront costs
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In some markets, renting is more affordable than buying- both from a monthly payment perspective and from not having to save a large down payment if home prices are high.
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As a renter you are free of costs associated with being a homeowner, such as home insurance, property taxes, and maintenance/ upkeep costs. This frees up your money for other things like savings, vacations, or a new vehicle.
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Renting oftentimes provides a more flexible lifestyle- when a lease expires, you can move to a new location without needing to sell or find a renter for your house. As a homeowner, you potentially pay capital gains taxes if you choose to sell a year or two after your purchase.
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A security deposit and application fee for a renting is almost always significantly more affordable than the upfront cost of a down payment and mortgage fees.
Cons of Buying: Long-term commitment, maintenance responsibilities, taxes, high upfront costs, home value can decrease
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Owning a home involves many logistics when you need to upsize, downsize, or more locations. You'll need to sell or rent your current property, or possibly have more than one housing payment of you choose to keep it empty or move before you sell. A monthly mortgage also says consistent, so if you experience professional fluctuations in income, such as a pay decrease, financial stress may become a factor.
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When you buy a home, you also buy into all future maintenance and renovation costs. One month you may find you need to unexpectedly pay for a new furnace or stove. Another month it may be new carpeting or paint.
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Upfront costs of buying a house can be expensive. A down payment could be tens of thousands of dollars on top of closing fees, insurance, and taxes. A good mortgage lender can help you determine loan options if needed and your local market will dictate what financial obligations you can expect.
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In addition to property taxes, capital gains taxes and other taxes may apply to your situation, depending on how long you choose to live in your home.
Cons of Renting: Fluctuating costs, instability, limited home updates, landlords
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The flip side of having a flexible lifestyle is the potential for that lifestyle to feel unstable. Will you renew your lease when it expires, or move elsewhere? There is also limited flexibility to make your space your own when you rent; you're running all decisions about design and improvements by a landlord for approval.
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Your rent could fluctuate or increase when you renew a lease, sometimes quite significantly, depending on your local legislation. Your landlord could also sell the property, and although you almost always have advanced notice, you may find yourself scrambling to find a new place to live.
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When you rent, you work with a landlord or property management company. Sometimes these additional people are fantastic to work with and sometimes they become a nuisance. All repairs must be funneled through the proper channels and there's the possibility of losing your security deposit.
In the end, the "rent versus buy" decision comes down to personal preferences, plans, and finances. If you know exactly how long you want to stay in one place, where you want to live, and possess savings, the decision could be as easy as calculating which option will be more affordable. If your future is less clear however, you may have more to consider. Contact your favorite WK Real Estate agent if you are contemplating which is the best fit for you and would like more information.