Buying vs Renting, Which is Better?
This is a hot topic and one that is discussed often. Buying or renting? Which is the best?
If we are going to answer this question, we need to make sure we know the context that it’s in.
Everyone’s situation is unique, with different needs, different incomes, different goals and different expenses.
When eHome America looks at this question, we look at it from the point of view of ‘what is more financially beneficial for an individual?’
So, here we go.
Let’s take a look at the financial pros and cons of renting.
- Low Upfront Cost
- The biggest expense you’ll initially have when renting is your first and last month’s rent plus deposit. The deposit amount is up to the landlord. This is usually much lower than putting a down payment towards buying a home and can be the wiser financial choice if you are lower on cash.
- Minimal Commitment
- Leases are commonly 12-months long but can vary from month-to-month, 6 month and even 18 month based upon the agreement between you and the landlord. You do not have to commit a large amount of time to staying at that location and your landlord will not expect you to. Planning on traveling the world? Haven’t figured out where you want to plant some roots? Renting a home for a little while until you are ready to commit long term is a smart move!
- Less Responsibility
- Landlord’s will list out the responsibilities of the tenant in the lease for yard and house maintenance. Most of these responsibilities will fall under the landlord because they want their home to maintain a certain level of upkeep and quality. This means that you will be off the hook for the majority of repairs and aesthetic needs, plus this saves you money!
- Less Control
- Your Landlord can increase your rent at the end of each lease term if they choose, and it’s not guaranteed that you would be the next tenant. The Landlord can choose whether they offer you the opportunity to re-sign your lease or not!
- No Tax Benefits
- When you own a home, there are certain things you can write off on your taxes and benefits you receive just by being a homeowner. When you rent, this is not the case! If you are looking for extra tax benefits, take a look at your options for purchasing a home, if not, you’re in the right situation!
- Not Building Wealth
- The longer you own a home, the more equity (cash) you are building up in it. Your home becomes an investment. Later on when you feel as though the home has reached high enough equity, you can sell it and make a hefty return on investment with cash in hand after the transaction is done. When you are a renter, you are helping that owner build up the equity in their home by paying the mortgage for them, but you don’t get any benefit in return.
- Investment Opportunities
- Do you want to be a landlord? Don’t worry if your answer is no, you can always hire a property manager to handle all of the repair requests and communication with the tenant. As a homeowner, you’ll have the option to turn your purchase into a profit by making it a source of income for yourself. If renting doesn’t sound like an interest of yours, try buying a home with repairs needed, flip it and sell it when it’s a seller’s market.
- If you dislike having to ask for permission to change something to the front yard or the paint in the house, ownership might be for you. You’ll have the freedom to do whatever your heart desires at home. Interested in getting a new pet? You won’t need to get it approved by anyone.
- Tax Benefits
- Like we mentioned above, homeowners are able to deduct their mortgage interest payment on their taxes. You’ll be building equity in your home with every payment, which is just an added bonus that you wouldn’t get with renting!
- High Upfront and Long Term Costs
- Buying a home brings a large amount of responsibility and requires more skin in the game. This means that the cost is higher because it’s worth it! You can expect to put more money down for the down payment, closing costs, repairs needed and inspections. You are also now in a contract for 15 to 30 years of payments. Compared to a one year contract for a rental lease, this is a substantially longer amount of time you are committing to. This will come with paying for unexpected costs over that long period of time, so it’s important to be aware of just how much money you’ll need to be prepared to pay.
- More Responsibility
- With that additional freedom to change the aesthetic of the home, decorate how you want to, design the yard how you’d like it...this all comes with more financial responsibility. All of the maintenance is your responsibility, so if something breaks or a natural disaster happens, you will be responsible for those expenses.
- You are also on the hook if you miss a payment, in comparison to missing a rent payment. When you own the home, you risk defaulting on your loan after a certain amount of missed payments and your credit could take a large hit.
- Property Taxes
- Although you can get a fixed interest rate and know exactly what your monthly payment will be, your property taxes can actually go up and increase your monthly cost. If your city raises property taxes in your neighborhood, you can expect a higher payment
With anything in life, there will be high points and low points. You’ll need to weigh the pros and cons when thinking of a life altering decision. Which is the best for you? Which is the best for your family? How could this cost your family over time?
These questions need to be asked so you won’t regret any decisions in the future.
Feeling confident when making financial decisions is what eHome America wants for everyone. Purchasing a home is a huge financial decision that can be a blessing or a curse, it just depends on your situation.
We are able to help potential buyers walk through that process of determining that best option by providing informative and in-depth courses.
Preparing yourself with education is the best way to set yourself and your family up for success.