When it comes to making major life decisions, especially those when one could make an argument for or against the decision with plenty of evidence, sometimes making a good, old-fashioned pros and cons list can bring some clarity to the decision.
In an unprecedented housing market over the past 12-18 months, prospective homeowners and renters may be feeling confusion, frustration, and uncertainty about where to live and how to pay for it. Below is a basic comparison of some of the arguments and considerations for and against both renting and buying a home.
Pros of Renting
For many, one of the biggest perks of renting is the freedom that comes along with it. There’s the freedom of not being tied down by having to sell a home when it’s time to move on. There’s the financial freedom of being off the hook for repair and maintenance costs, property taxes, homeowners fees, and often a hefty down payment. Additionally, many renters enjoy the benefits of amenities like pools, neighborhood clubhouses, playgrounds, and fitness centers. Renting can also offer the freedom to know that the rent is a fixed expense during the terms of the lease agreement, a helpful tool when budgeting.
Cons of Renting
On the flip side, there are also downsides that come from renting. Some argue that there is less stability when renting. Less stability over being at the mercy or whims of a landlord or management company. Less stability financially knowing that rent costs could continue to rise over time, that rent costs are often higher than mortgage payment costs, and that over time by renting there is no long-term wealth creation through home ownership. Additionally, renters may be subject to many rules and restrictions about pets and remodeling to the renter’s taste.
Pros of Buying
There are many advantages to purchasing and owning a home. Some of the top reasons homeowners share include the stability of not having to move or leave a property unless it is wholly your decision, using a mortgage payment as a “forced savings” vehicle to build long-term equity, having certain tax advantages, and finally having pride of ownership. Owning a home for most people is one of their largest financial assets and in most cases, a home is considered an appreciating asset. Having the ability to redesign home elements, add a personalized touch, and even make improvements to the property ranks high on the list of reasons to own a home. Some homeowners say that if they are going to pay a certain amount monthly for housing costs, those funds might as well pay their own mortgage instead of paying one for a landlord.
Cons of Buying
Just as there are many benefits to buying a home, there are also some disadvantages. Logistically, for those whose professions have them relocating often, it can be stressful to try to sell a home and move. Additionally, the biggest cons to homeownership are the responsibility and cost. When you own a home you are on the hook for all repairs and maintenance. Not only can these become an added expense, but there are also other large costs associated with buying a home such as needing a large down payment, real estate taxes, homeowners insurance, and mortgage insurance premiums. There’s also the risk that the home value decreases over time due to constraints out of the home owner’s control or if there is some major life transition and you need to sell you might be stuck paying a mortgage until another buyer comes along.
A Final Word
While there are many rent vs. buy calculators as well as hard and fast “rules” touted by the experts when it comes to ratios, percentages, and even a home’s gross yield, it is important to understand that not all home decisions come solely down to the financial and economic details.
It is important to understand the costs on paper or a spreadsheet, but realize that other non-tangibles factor into these decisions as well. If you are undecided about renting vs. buying a home, be sure to make your own pros and cons list and remember that outcomes like peace of mind, flexibility, freedom, reward, and opportunity should be considered as well.