Renting vs Buying a House: How to Decide What to do
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Should you rent or buy a house? This question is not an easy one to answer. There are several factors you need to consider before making this important decision. The major factors include one's personal finances, long-term plans, the state of the housing market, the decision-making process, and credit score.
Both buying and renting have pros and cons. Therefore, before making this important decision, consider the advantages and disadvantages of both buying and renting that we will explore in this article. Besides, it’s important to know the difference between buying and renting, in general.
What are the Differences Between Buying and Renting a House?
Renting a house means you occupy someone else's house and make a certain monthly payment for the occupation of that home. The narrative that by renting you are "throwing away money" every month is the biggest myth there is about renting a house.
Truth be told, you need a place to live, and this will cost you money no matter the arrangement. That notwithstanding, it is true that you won't build equity when renting.
Homeownership, on the other hand, is an investment that will most likely build equity and earn you tax deductions. It also allows you to own your own space, giving you a sense of stability, pride of ownership, and bringing your way lots of intangible benefits.
People often believe that buying a home is a more financially sound decision than renting. This is not always the case. People tend to lean more towards homeownership because of this, and the belief that it’s a straight path to happiness. Homeownership isn't always better than renting, and renting isn't the demon it's been made to look like, but it's also not as simple as it seems.
To help you make the decision depending on your taste, preference, and financial status, consider these objective benefits and drawbacks to renting and homeownership.
Pros of Renting
1. It Gives You Flexibility
Renting is a good idea if you are not planning to stay for long in a given area. It's ideal if your job entails moving around from place to place, or if you're in the military.
Renting is also a good option if you'd like to have a taste of many pieces of real estate of various types but don't have the money to buy multiple houses.
2. Allows You Time to Plan
Renting is a short-term arrangement that allows you to plan for your ultimate homeownership. Impulse buying isn't a smart real estate move, yet you need a place to live in the meantime. So if you are not yet sure about the neighborhood you'd like to live in, rent a place until you have made a solid decision. You can test-drive different living spaces as you make the plan.
3. Landlord Takes Care of Maintenance Costs
When you rent a house, your landlord will take care of all the maintenance and repair costs, though this may not be done as well or as quickly as you would like.
4. No Fluctuations in Your Monthly Housing Expenses
When you are renting a house, you know exactly how much your housing costs will be each month. The housing costs are well-defined, and any increments are communicated by your landlord, but this happens over relatively long periods of time.
Cons of Renting
1. No Equity is Built
The monthly rent payments go to your landlord and in no way does it help you build equity. The house will be your home, but it won’t be your asset.
2. The Risk of Eviction
Your landlord can evict you from the house at any time. He/ she can decide to put the property up for sale if its value has increased in order to make profits.
3. It’s Limiting
As a tenant, you are bound by the rules and obligations spelled out in your lease agreement.
Pros of Buying a Home
1. Increased Stability
When you purchase a home it can give you a sense of stability and settlement. You will feel proud owning a piece of property that is uniquely you.
2. You Get Tax Benefits
As a homeowner, you can deduct your mortgage interest payments. You will also be in a position to build equity as you pay off your loan.
3. Decorate and Renovate However You Like
There is absolute freedom of redecorating and renovating your house to your taste. It’s not as limiting as renting a home.
You also have the liberty to live however you want. You can have pets if you want to, or change your appliances.
4. Its a Long-term Investment
Buying a house can serve as an investment. You can purchase a home and rent it out in whole or in part to earn monthly profits.
5. Increased Privacy
It goes without saying that buying a house allows you to have your own space and, consequently, privacy.
Cons of Buying a Home
1. Risk of Value Reduction
It is possible for the value of your house to depreciate instead of appreciating. You can end up selling your home for the same purchase price you bought it 15 years earlier. Considering inflation, this simply means you’ve lost money on your investment.
2. More Responsibility
You’ve got to roll up your sleeves and take care of business around your home. You have to cater for the maintenance and repair works.
3. Possible Fluctuations in Your Monthly Expenses
Your monthly expenses may vary considerably depending on what you need for your home. You may not spend much in one month (perhaps you replaced just one window pane) but end up spending a whopping $10,000 replacing your HVAC system the next month.
4. Illiquidity of Real Estate
A house is not a liquid asset. That means that if you ever decide to sell your home, the process may not be as quick as you’d have wanted.
So Should You Rent or Buy a House?
Even though money plays a pivotal role in deciding whether to rent or buy your own home, it is not always the only deciding factor. There are many other factors that come into play when making this very important decision.
The state of the real estate market, how long you plan to live in a certain area, your career plans and goals, and your decision-making process all play a vital role.
Rent a house if you’re still unsure about your career plans or about where you want to settle because it offers you greater flexibility. It is also the best option in the short run as you make your homeownership plan.
On the other hand, only resort to homeownership when you’re ready to commit to staying in a particular location for a long time. If you’re ready to settle down and start a family, and probably plan on building your career in a particular place, take the leap and buy a house.
Article Written By: Derek Timmons