The choice between renting and buying a home is among the biggest economic decisions that many people make. However, the costs of purchasing are more complicated and varied than for renting, making it difficult to determine the better deal.
If you’re a renter interested in purchasing a home or a homeowner wondering whether renting is sensible, perhaps it’s time you evaluated the benefits, relative costs, and drawbacks of renting versus owning your home.
Financial Benefits of Renting
No Repair Bills or Maintenance Costs
A definite benefit renters have is the lack of repair bills and maintenance costs because your landlord takes responsibility for all repair and maintenance costs as a renter. Therefore, if an appliance stops functioning or your roof starts leaking, you don’t have any financial responsibility to fix these things.
On the other hand, homeowners are responsible for their own maintenance, repair, and renovation costs. Bear in mind that these costs can be quite costly depending on the repair.
No Huge Down Payment
When buying a home through a mortgage agreement, you must have a sizeable down payment, ideally 20%. However, you don’t need to save up for a down payment in order to move into a rental.
While the precise amount needed to move differs from case to case, the total amount is considerably less than you would require for a home purchase.
The Inclusion of Some Utilities
Numerous multi-building owners cover the cost of all or most utilities, including non-essentials for instance cable television. While the practice is less common, it’s still possible in smaller buildings like single-family homes and duplexes.
Conversely, homeowners must pay full utility expenses, at times several hundred dollars monthly, depending on usage and dwelling size.
Real Estate Taxes
Another obvious benefit of renting over homeownership is that renters don’t need to pay real estate taxes, which can be a heavy burden for homeowners and differ by county.
Although the calculation of property tax can be complex, they’re determined based on your home’s approximated property value.
Drawbacks of Renting
You can’t build Equity
Unless you’re in a rent-to-own agreement, every money spent on rent is lost forever. Regardless of how long you stay in a rental unit or how exemplary you are as a tenant, it’s impossible to build equity under a normal lease agreement.
Restricted Control over Housing Costs
Unless you reside in a municipality with rent control policies, your landlord can hike your rent upon the expiry of your current lease. On the other hand, homeowners that pay fixed-rate mortgages make fixed monthly loan payments irrespective of the local market.
Financial Benefits of Buying
Tax Deductions
When you live in a rental, the payments aren’t tax deductible. However, as a homeowner, you get to subtract the entire amount of interest you pay on your mortgage from your state and federal tax income.
Asset Diversification
Homeownership over an extended period is typically more profitable than renting. With good planning and implementation, you can learn to decrease the cost of homeownership and capitalize on the capacity to generate real wealth.
For instance, some homeowners rent out a bedroom to pay down the mortgage and gain equity faster.
Financial Drawbacks of Buying
Possibility for Financial Loss
Although homeowners build equity over time, this doesn’t equate to automatic profit. In the event that the home values in your area remain flat or decrease throughout your tenure as a homeowner, you risk losing financially when you sell.
Upfront Costs
Although upfront home purchasing costs differ greatly depending on your home’s value and down payment, don’t expect to pay less than 5.5% of your home’s value. In fact, you could spend more than 20% of the buying price.
Final Thoughts
The choice between to rent and buy is a personal decision. However, it’s important to be open minded and wait before making a rush decision that you’re likely to regret in the future.
For more information on renting versus buying, contact us at Apartment Agents or leave a comment.