Every adult faces the decision to rent or buy at some point in their lives. Your decision depends on many personal factors, including your location, lifestyle and financial situation. However, there are some general rules you can follow to make the choice easier. Let’s discuss the pros and cons of buying vs. renting to help you make the most practical decision.
Pros and Cons of Buying a Home
Buying a home is usually the best decision for young couples who have children or plan on having children in the future. Since you need more space and stability to raise a family, buying a house is in your best interest. A one-family detached home is the most common homeownership arrangement in the United States. Still, everyone’s situation is different.
PRO: Builds Financial Equity
Home ownership is one of the most successful long-term investments to build financial equity. Your property can gain value over time with proper maintenance and a few strategic renovations. This benefit lightens the financial burden of your mortgage and gives you more budget flexibility.
CON: Large Down Payment
Although you have the opportunity to increase your home’s value, the down payment is still expensive compared to paying a monthly rent. However, it’s worth noting that the average homeowner’s mortgage payment is less than the average rent after six years. The first few years of home ownership are the most financially challenging.
PRO: Tax Deductions
Becoming a homeowner makes you eligible for many tax deductions, including the coveted homestead exemption and federal tax credits. You can also get additional tax deductions by making specific renovations. For example, the government offers a 30% tax credit for homeowners who install solar panels.
CON: Lots of Expenses
While renters only have to worry about paying their monthly dues, home ownership involves a laundry list of various expenses. Your mortgage, closing costs, utilities, maintenance, renovations, insurance and homeowners association fees are among the largest contributors. That’s why it’s extremely beneficial to have two incomes when paying off a house.
PRO: Creative Control
Despite the numerous expenses, homeowners have full creative freedom. You can add new rooms, upgrade appliances and decorate the house however you see fit. This benefit is most important for growing families, who often need to remodel their homes to make room for more children.
CON: Lack of Mobility
Home ownership requires you to settle down in one place, which might limit your job prospects or put you far away from family. You must be prepared to live in the same community for decades, and perhaps the rest of your life. Young couples need to have this conversation before committing to any house purchase.
Pros and Cons of Renting
Renting a home, apartment or condo has become much more popular in the 21st century. As of 2018, only 64.2 percent of Americans are homeowners compared to 87% in 2000. This trend is due to many factors, including increased urbanization, fewer families and higher cost of living. These are the main advantages and disadvantages of renting.
PRO: Simple Monthly Payment
The main benefit of renting is that you only have to make one monthly payment. As long as you pay your rent on time and keep your place clean, you will have no issues with the landlord. A consistent monthly payment helps you budget more accurately and avoid overspending. That’s why renting is so attractive to young people just starting their careers.
CON: Potential Rent Increases
However, landlords can increase the rent if they need more money to pay for the property. Year-over-year increases are common to make up for the higher cost of living, building repairs and other expenses. Every time you have to renew your lease, you can expect a slight uptick in your monthly payments. Many people relocate to new apartments after just one or two years for this reason.
PRO: No Maintenance Responsibilities
Renters have much less responsibility than homeowners. They have to keep their rooms clean, but they don’t have to worry about building maintenance, remodels or repairs. This is another reason why renting is so popular among young adults. They can save money and focus on their careers while the landlord takes care of the essential home improvements.
CON: Landlord Can Sell Property
Since renting for a year is very common, there could be a time within that year when a landlord decides to sell the property. There are a few reasons why landlords sell, but it ultimately means you’ll need to find another place to live. It might cost you more money to live somewhere else, and it might not check the other boxes on your list. If a landlord does sell, they will likely give you a 30-day notice.
PRO: No Property Taxes
Renters are also exempt from all property taxes, which simplifies the financial situation even more. You don’t have to deal with any bills either. This arrangement is less stressful and time consuming than being a homeowner. However, the landlord might raise your rent if your state’s property taxes increase, so taxes can still indirectly affect you.
CON: No Financial Equity
Although renting is much cheaper than home ownership in the short term, you can’t increase its value and achieve long-term financial equity. If you want to maximize your income and savings, home ownership is the better option. Renting can hold you over for a few years, but it shouldn’t be your permanent living arrangement.
Buying vs Renting — No Clear Answer
As a general principle, young couples looking to have children should strongly consider buying. Renting is usually better for single people, college students and other individuals looking to minimize their expenses. However, there is no definitive answer to the buying vs renting debate. Your unique financial situation is ultimately the deciding factor.