As the housing market continues to change on a day-to-day basis (it seems), you may be considering which housing option is best for you and your financial situation.
When you factor in housing costs, insurance, fees, and other factors, the decision between renting and owning a home isn’t as black and white as it may seem.
In this blog, we will break down the pros and cons of both renting and buying a home so that you feel equipped to make an informed decision.
Should I Rent or Buy a Home? The Pros and Cons
As the real estate market continues to come down from a major housing bubble, and has the general cost of living continues to rise, many people are going back and forth over which housing option is the best for them.
Let’s look at the different pros and cons of renting or buying a house!
Pros of Renting
Let’s first take a look at some of the advantages of renting a home or apartment.
LOWER UPFRONT COSTS
First and foremost, renting sees lower upfront costs from the tenant. There’s no 5-20% downpayment required, no lofty legal fees or closing costs, and no major property tax bill with your name on it.
Instead, many landlords just require the first and last month’s rent to secure the unit and start the lease. This just means paying 2 months’ rent right up front.
Depending on the cost of your rental unit, this payment can be pretty minimal.
Additionally, you will likely need to purchase renters’ insurance, which is, on average, $30/month. This insurance protects you, as a tenant, if any damage might happen to your property while living in a rental unit.
LOWER RESPONSIBILITY AND RISK
Aside from consistently paying your monthly rent on time and keeping the place in order, as a tenant, you have little responsibility for the property.
Depending on the type of rental unit, landscaping maintenance costs, repairs, mortgage payments, property taxes, and other items are not your responsibility to cover or manage.
Additionally, because you didn’t purchase the home, there’s little risk involved in renting.
Cons of Renting
While there are several solid pros of renting, let’s look at some of the cons in order to make an informed decision.
NO EQUITY OPPORTUNITIES
When you rent, your monthly rent payments go directly to your landlord. In many cases, the landlord uses the rent payment to cover the cost of their mortgage payments and pocket the extra – making a profit. The landlord is the one building equity and your rental costs are covering their monthly costs.
If you’re hoping to build equity, renting is likely not the option for you. You are paying somebody else’s mortgage without building any wealth or equity for yourself.
Renting is a great option for many people, but if you want to build wealth, you might consider a different option.
LACK OF PRIVACY
Unless you are renting an entire home, there is usually a lack of privacy that comes with renting. Right now, many basements and upper units are popular for rental opportunities. This usually means sharing part of the house with the landlords themselves or another tenant. Or, if you are a single individual, you might even share the apartment with other roommates.
Not only can this lead to a lack of privacy, but you will likely have to deal with noise, roommate habits, and other people being in the space.
However, sharing a rental unit is a great way to save money and can make more sense for single individuals who can’t afford a whole apartment on their own.
LITTLE ABILITY TO MAKE CHANGES
One other con to renting is the inability to make changes to the property.
While some landlords have different rules on what the tenant can do to the property or unit, in many cases, the tenant is unable to make changes to their rental. From pin holes and paint to patios and porches, all of these smaller renovations and home projects have to be accepted by your landlord before anything is done.
While this is fine for many tenants, others may find themselves wishing for the freedom to knock down a wall or hang up paintings on their walls without risking their security deposit.
Pros of Buying
Let’s now take a look at what the pros and cons are for buying a house.
One of the biggest pros of home ownership is the opportunity to build equity and wealth through capital gains. While housing markets can rise and fall just like any investment on the stock market, a home can offer financial stability to many owners and is considered a wise investment in many cases.
However, it’s important to note that owning a home isn’t the best investment if it leaves you ‘house poor’.
ABILITY TO MAKE CHANGES
Another pro for buying a home is the ability to make changes to the property. Whether you want to add an addition, renovate your kitchen, or add a pool to your backyard, all of these decisions can be determined by you (not your landlord)!
This stability and freedom can allow you to make changes to your home that can also increase its value over time. If, later down the road, you decide to sell your home, you may be able to sell if for more than your purchase price and make a solid profit.
Cons of Buying
Here are some of the cons of owning a home.
CHANGES IN THE MARKET
Like the stock market, changes in the economy are also reflected in the real estate market. As we’ve seen just recently, a housing bubble led to homes selling for way more than the asking price. However, now that the bubble has popped, those same houses have been selling for less than the asking price.
As a homeowner, you have to keep an eye on the market, especially if you’re looking to sell. As housing prices shift throughout the year, it is wise to consider when buying a home is a good investment and when it can lead to unaffordable interest payments.
HIGH UPFRONT COSTS & EXPENSES
Along with changes in the market, buying a home means higher upfront costs. Homeowner’s insurance, closing costs, legal fees, property taxes, down payments, and other recurring costs can all add up to high monthly bills and upfront costs.
Many people save for years before buying their first home. While home ownership is a sort of rite of passage, throwing money at a house can take away your financial freedom and leave you ‘house poor’.
Especially as interest rates have reached record highs, taking out a mortgage right now could leave a large dent in your bank account.
Overall, it’s important to talk with a financial advisor and set a budget so that you aren’t left scraping together your mortgage payment every month.
Ready to Make Your Move?
Want to start the home-buying process? Want to talk to a real estate professional to discuss your options? Look no further!
Voortman Realty is a team of experienced realtors who are dedicated to providing professional, honest, and knowledgeable services while maintaining your trust and always representing your best interests.If you’re hoping to dip your toe into the home buying process, reach out to us today!