It’s the American dream to own a home, but is buying a home always the best option? Before dishing out a big down payment, here are some advantages and disadvantages of renting a home, so you’ll know which option is right for you and your family.
Advantages of Renting Versus Buying a Home
Depending on your needs and budget, there are plenty of advantages to renting – especially when it comes to saving money upfront.
You’ll Save on Maintenance
Houses, especially older, fixer-upper homes, can require lots of maintenance. One week it’s the air conditioning that needs replacing and the next you have to pay to have a tree taken down before it falls on your house. When you’re renting, your landlord foots the cost of repairs and maintenance. But as a homeowner, the burden falls on you. The money you spend on repairs, upgrades, and maintenance add up fast. Plus, it’s not always easy to find someone to make those repairs, and who wants to do it themselves? If you have the time to become a do-it-yourselfer, buying a home might be for you, but if you have a demanding job or don’t want to deal with maintaining a house and yard, renting could be a better option.
You Don’t Have to Part with a Down Payment
One of the biggest benefits of renting versus buying is you don’t have to shell out a big down payment for a house. If you manage to buy a home with only a small down payment, the lender takes more risk, so you may be hit with higher interest rates. Plus, the down payment on a house is usually between 5% and 20% of its value. That isn’t a small chunk of change. If you buy a $300,000 house, you tie up $15,000 to $60,000 as a down payment. However, if you rent you may only have to put down a month’s security deposit. That’s a substantial difference.
You Don’t Have to Worry About Property Taxes
One of the main reasons people like renting over buying a home is they don’t have to pay property taxes. The amount you’ll have to pay yearly for property taxes depends on your state and the value of your property. Once you know how much you owe, you can pay it yearly or every six months. Some people also pay it along with their monthly mortgage. Not having to worry about this added tax is an advantage of renting.
You Have More Options
If you want to live in a higher-end area on a less than substantial income, you’re more likely to be able to do it by renting. Rent tends to be more affordable in higher-end areas than the cost of buying. Plus, if you rent a condominium or a high-end apartment, you may get other perks such as access to a swimming pool, clubhouse, or exercise center. The amenities at high-end condos and apartment complexes can be quite appealing. Plus, will save you the cost of joining a fitness center.
You’ll Have More Flexibility
If you’re renting and don’t like where you live, you can move once your lease is up. If you have a house, you have the added burden and uncertainty of putting it on the market and hoping a buyer comes along and pays what you want. In some markets, that can take a while. It’s easier to downsize or make changes if you rent and don’t have to sell a home. Additionally, if you move to a new city and don’t understand the real estate market, renting is a safer choice. To put down a big chunk of money on a house in a neighborhood you know little about is a gamble. In this scenario, the smartest option may be to rent for a while and then decide if and where you want to buy.
You’ll Save on Insurance
Everyone, even renters, needs or should have insurance. The cost of a renter’s insurance policy is usually far less than the price of homeowner’s insurance. In fact, renter’s insurance is only a fraction of what you would pay for homeowner’s insurance. Another savings.
Disadvantages of Renting Versus Buying a Home
Even with all of the advantages above, there are some disadvantages to consider when it comes to renting versus buying a home.
You Won’t Build Equity
While in many cases renting can help you saving money in the short term, it may also cause you to miss out on the potential equity gains of homeownership. As with any investment, there is always a risk involved, but if the market does go up, you won’t get a chunk of those profits if you’re renting.
You Do Not Own the Property
This may seem obvious, but not owning a property is more than just a name on a deed – it significantly impacts where and how you live. For example, painting, renovating, and even pet ownership would all need to be approved by your landlord. Once your lease is up, the property owner will also have the ultimate say on how much longer you can live on the property as well as whether or not they want to increase your rent if want to stay. Depending on the renter rights in your state, you may have some level of say or a grace period if the landlord wants you out. But ultimately, you are living in someone else’s home which means they are the final decision maker.
Renting versus buying a home is a personal decision and the advantages and disadvantages above only cover a portion of the many aspects you may want to consider. For more insight on your unique options, talk to your financial advisor to determine if renting or buying is right for you.
Resources: [Investopedia. “How Property Taxes Are Calculated”][MortgageCalculator.org. “Should I Buy a Home or Rent? – Mortgage Calculator”]
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