For many Americans, there are at least three things they want to do during their lifetime: go to college, buy their own home, and travel the world. But is it actually better to buy your own home than it is to rent? Given that for decades owning a home has been promoted as the single most important investment anyone can make, this might sound like a strange question to you. In this piece, we’ll cover renting vs. buying to help you decide.
But there are a growing number of people who are not so sure about the value of owning their own home versus renting it. These people advise that if a person really wants to achieve financial independence they should forgo homeownership and rent instead, says Limehouse Management.
On the other hand, those on the opposing side think this is bad advice and that owning a home remains the best route to achieving financial stability. But, as with most controversies, there is merit to the arguments of both sides; each side is partly right and partly wrong.
At the end of the day, you must decide for yourself between renting vs. buying. To make an informed decision on the issue you must first be aware of the pros and cons of both options.
Pros and Cons of Home Ownership
- A long-term investment: A home is an investment. When you buy a home, you are investing in an asset that can grow and put money into your pocket. Moreover, it does this in the long term.
- Opportunity to build equity: The equity you have in your home grows as the property increases in value. You can also build equity when you improve the appearance and function of the home.
- Greater privacy and more control: When you live in your own home, you have more control of your environment and the level of interaction you want with neighbors.
- Customized living space: As a homeowner, you don’t need to consult the opinions of others to style your home; you can design it any way you want.
- Predictable monthly payments: Fixed mortgage payments mean you know what your housing costs are every month and how long it will take to pay off the mortgage.
- Stability for your family: Owning your own home means more stability for your family; you can put down roots without worrying about being forced to move.
- High upfront costs: One of the biggest hurdles in the renting vs. buying debate is the upfront costs. In addition to the down payment, you must think of the closing costs associated with buying a home.
- Unpredictable costs: It is hard to predict the monthly cost of home ownership since it is not unusual to have unexpected problems that will cost you thousands of dollars.
- Less mobility and freedom: As a homeowner, you can’t just pack up and leave, even if you no longer like a neighborhood or there are better opportunities elsewhere.
- Maintenance costs: A home will always take money out of your pocket. Buildings have several systems with lots of moving parts; something is bound to go wrong sometime.
- Lost opportunities: Your home equity takes years to grow. Meanwhile, your capital will be tied up and you cannot take advantage of other more profitable investments.
- Property values may fall: The neighborhood may decline or there could be a construction boom in the area. Both events will depress your home’s value.
Renting Your First Home
- Rent payments may be lower: The cost of renting your home may actually be less than the monthly mortgage payments for owning your own home. Then again, in many markets, it’s actually cheaper to buy a home than rent.
- Predictability: One of the biggest pros of renting is you know what your monthly housing cost is, at least, for the duration of your lease.
- Zero maintenance costs: Once your rent is paid, you have no obligations to maintain the property. This is the responsibility of the landlord.
- Flexibility and mobility: You have the freedom to decide where you want to live. You are only tied to the home for the length of your lease.
- Low upfront costs: Your costs as a renter are your weekly rent and the security deposit. You don’t need to tie up your money in a property.
- You can’t alter the home: As a renter, you are stuck with the design of your home. The landlord will not let you customize the home to your taste.
- Rent may increase: Although you are sure of how much rent you will pay for the lease term, your landlord can later raise the rent beyond what you can afford.
- No future benefits: Your rent payments don’t make any long-term contributions to your wealth. Your history as a renter does not count toward improving your credit score.
- Less control: If your landlord sells the home you live in, you will be forced to move. This could also happen if the rent in the area becomes too high.
So, which one is better for you: renting or buying your first home? This is one of those questions where the right answer is that it depends. Only you, based on your current circumstances and future plans, can answer that question fittingly. But if you have additional questions, make sure to take advantage of your local real estate expert.