The Great Debate: Buying vs. Renting a Home

With interest rates over 7%, housing prices up over 3% from a year ago, and rental prices hitting an all-time high, it's no wonder you're having trouble deciding if you should buy or rent. This age-old debate is a decision that carries significant financial implications and can shape your future in more ways than one. This post is going to hopefully make your decision a bit easier and, if anything, weigh some of the pros and cons of buying vs. renting. While each choice has its advantages and disadvantages, we can help answer the questions that will guide you in making an informed decision. The decision between buying and renting needs to align not only with your financial goals but with your life goals as well. So, let's dive in and get ready to make some big decisions!

To Rent or Not to Rent

Let’s start off with renting. As with any big decision, making a pros and cons list can either make the decision for you or drastically help you identify which would be the better option. Renting has long been a popular choice for individuals seeking flexibility and convenience in their living arrangements. It offers a range of advantages that can make it an appealing option, but it's crucial to consider the potential drawbacks as well.

Pros of Renting

Let’s start off on a positive note by looking at the advantages of renting. One of the biggest perks of renting is the flexibility. This freedom allows you to move locations as often as you want, or at least as often as you sign a lease agreement for. Moving to a new city for that dream job but not sure which neighborhood you should choose? No problem, find a place that will let you do a short term rental or even month to month. This will give you the ability to live in a potential neighborhood for an amount of time that you determine, in order to find the perfect area for you. Not having the commitment of home ownership gives you the freedom to explore different places.

Our first home that we bought was an adorable little condo in a great neighborhood, close to work, right down the street from a grocery store, and also attached to a unit that held a couple who loved to play insanely loud music till the wee hours of the morning and partake in various illegal activities that had the police making weekly visits. This is not necessarily information that is disclosed to someone buying a house during closing, but looking back, if we were renting and hadn’t chucked out a large down payment on that condo, we would have been out of that place within a few months.

Another huge pro of renting is that there is no responsibility for maintenance and repairs. As a tenant, you are generally not responsible for maintaining the property other than common household upkeep like replacing lightbulbs and keeping batteries in your smoke detector. If something major like a leaky faucet or malfunctioning appliance occurs, you can simply notify your landlord or property management, and they will take care of it. This is a major advantage when it comes to large home repairs like air conditioning units or water heaters. As a homeowner, if your AC breaks in the middle of summer, that $6,000-$10,000 is coming out of your bank account. As a renter, the only thing you need to worry about is dialing your landlord’s number.

On the topic of taking less money out of your pocket, renting often requires a lower upfront cost. Most of the time, renting will require the first and last month's rent as well as a security deposit. Sometimes you can get away with just the security deposit and the first month's rent. When you buy a house, most lenders want a substantial down payment along with closing costs. This means a large chunk of cash is coming out all at once.

Cons of Renting

Now it’s time to talk about the downsides of renting. You should have seen this coming since it can’t always be rainbows and butterflies, otherwise, everyone would do it. One of the drawbacks of renting is that it does not allow you to build equity or take ownership of the property. Some would argue that your home is an investment that will help build wealth. While this may be true in some cases, you need to realize that a mortgage would be considered a long-term investment. If you plan on only living in the residence for a couple years, you will not see very much growth and therefore may be better off renting. On the other end of that, if you plan on staying in the area for a significant amount of time, buying a house will allow you to build equity that will then turn into cash in your pocket when you go to sell.

Another con to renting is that you may have little control over the property. This means that if you don’t like the paint color and want to change it, or if you decide to add a four-legged fur baby to your family, you will need permission from the landlord first. This can be frustrating for those who want to customize their space to suit their style.

Lastly, an increase in rental prices can limit your stability. When you rent a property, you will sign a lease agreement with a specified amount for rent. However, once that lease agreement is up, the landlord can change the rent to whatever he/she wants, which can cause some financial instability. These increases can impact your budget and financial planning, making it difficult to anticipate and manage your expenses over time. Additionally, renting provides less stability compared to homeownership, as landlords may decide not to renew leases or choose to sell the property, leading to potential disruptions and the need to find alternative housing.

Buying a Home is the HGTV Dream

HGTV has truly glorified the dream of owning your own home. While most of the time the shows contain a happy ending, there is a lot that goes into buying a home. We’ve talked about the pros and cons of renting, now let’s take a look at some of the pros and cons of buying a house.

Pros of Homeownership

As we mentioned above, owning a house allows you to build equity and gain wealth through appreciation. Historically, real estate tends to appreciate in value over the long term. When you make a payment toward your mortgage, a portion of the payment goes toward the principal, and the rest goes toward paying interest. As you pay down the principal balance, you effectively own more of the property, which results in an accumulation of equity. You can also look at it from the standpoint that when the value of your house increases, so does your net worth.

Owning a home gives many people a sense of pride and accomplishment. Your home becomes a reflection of you and your style, and unlike renting, it allows you to pretty much do whatever you want. Tie dye your walls, fill your rooms with pictures of weird and eclectic art, and mow your lawn in your underwear. When it comes to homeownership, we can literally say, you do you boo.

When tax time rolls around, owning a home can have some nice tax benefits. When you own a home, you can deduct the interest you paid on the property from your taxable income, which can result in some pretty decent savings. Additionally, you can deduct the property taxes paid, which will also reduce your taxable income.

Cons of Homeownership

Here again, we must take the good with the bad. One of the first cons of buying a home is the upfront cost and the ongoing expenses. While you can get a loan with no down payment, lenders prefer borrowers to have a good size down payment in order to minimize the risk the buyer poses. Additionally, closing costs, such as appraisal fees, legal fees, and loan origination fees, add to the initial financial burden. Home ownership also requires additional line items in your budget, such as property taxes, insurance, and maintenance expenses, that a renter would not need to worry about.

Time, effort, and unexpected expenses are heavy responsibilities for homeowners. When you buy a house and they pass you the key, you become solely responsible for maintaining and repairing your property. Plumbing, electrical, and landscaping, all become your burden to bear. Our current home is on three acres of cleared land, which is exactly what Bill wanted. The wide-open space, the views, and the distance between neighbors are exactly what we were looking for. However, after the first few months of mowing, edging, and weeding, we looked at each other and said, Holy crap! This is a lot! When you buy a house, realize that every little detail, from replacing air filters to a leaky roof, falls on your shoulders.

The economy plays a large role in the housing market. These fluctuations can work in your favor but can also cause prices to dip after you have purchased your home (uh, remember 2008?) While these situations are out of your control, short-term market volatility can impact the value of your property.

Buying a house is considered a long-term investment, which, unlike renting, means it can be difficult to move quickly if you need to relocate for work or personal reasons. Selling a home can take time and may involve additional costs, such as real estate agent commissions and closing costs. As a renter, if something comes up where you need to relocate, sometimes all you need to do is provide 30 days written notice and possibly pay a penalty if any terms of the lease are broken. Either way, getting out of a rental is far easier and cheaper than selling your house.

Lastly, buying a home is a commitment and well suited for those seeking stability. If you have a tendency to fly by the seat of your pants and go wherever the wind takes you, buying a home may not be the best option. Consider your lifestyle and how a mortgage would fit into it. Owning a home may require you to prioritize home-related responsibilities over other lifestyle choices. For example, dedicating time and resources to property maintenance and upkeep may limit your ability to travel or pursue other hobbies and interests. While chucking out thousands of dollars to put on a new roof or repair an HVAC system is never something you WANT to pay for, being a homeowner means you need to mentally prepare yourself for when these things happen. Because, trust me, they will happen.

FLAG

When deciding whether to buy or rent, there are a lot of factors to consider. However, we’ve come up with an acronym to help you make the decision that works for you. Think FLAG.

Finances

Lifestyle

Ability

Goals

Finances - determine if you can comfortably afford the costs associated with homeownership, including mortgage payments, property taxes, insurance, and maintenance expenses. Compare these expenses to the costs of renting to see which option aligns better with your budget.

Lifestyle - Assess how important it is for you to have control over your living space. Do you value the ability to customize and personalize your home, or are you comfortable with the limitations that come with renting? Remember, buying a house is a long-term investment. If you know that you will not be staying in that area for long, the hassle of worrying about market volatility and selling may not be worth the stress.

Ability - Playing handyman is no easy task. When things break and your yard starts to get overgrown, owning your home means you must be ready and able to jump in and tackle these things. Or, at least, be willing to pay someone to take care of it for you.

Goals - Consider your future plans and how they might impact your housing needs. Are you planning to stay in the same location for an extended period, or do you anticipate changes such as job relocations or lifestyle shifts? Assess how homeownership or renting aligns with your future housing and financial goals. Understand that when owning a home, travel and shopping sprees may be put on hold if an unexpected expense arises.

There Is No One Size Fits All Answer

Ultimately, the choice between buying and renting is deeply personal and depends on your financial situation, lifestyle, and long-term goals. While homeownership offers the potential for equity accumulation, stability, and creative control over your living space, it also comes with higher upfront costs, maintenance responsibilities, and potential market fluctuations. On the other hand, renting offers flexibility, reduced maintenance obligations, and minimal commitment, but lacks the long-term investment potential and pride of ownership.

The decision to buy or rent should be based on what aligns best with your values and is the best fit for you. As with any big decision, do your research. Consult with professionals or ask family members and friends if they have any opinions or regrets on their housing decisions.

Whatever you decide, make sure it is what YOU want and a choice that brings YOU joy. After all, you are in control of your own happiness.