It’s time to ring in the New Year! Whether you’re choosing to rent or buy a home this year, it is a major decision that affects not only your lifestyle but also your financial health. There are many pros and cons when it comes to either renting or buying. Many people enjoy just renting their homes because it offers flexibility, predictable monthly payments, and someone to handle repairs. On the other hand, homeownership brings intangible benefits. They include a sense of stability, belonging to a community, and pride of ownership, along with the tangible ones of tax deductions and equity. It’s important to remember that owning a home isn’t always better than renting, and renting is not always as simple as it seems. Consider the pros and cons of each to figure out whether renting or owning is best for you.
Renting means you can move without penalty each time your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your apartment complex into condos. Less dramatically, they could just bump up the rent to more than you can afford. You may also face unpredictable rent increases each time your lease is up for renewal.
When you rent, you know exactly how much you’re going to spend on housing each month. When you own, you might pay nothing more than your mortgage and regular bills in one month. Then, the next month, you might need to spend an additional expense on a new roof (which your homeowners’ insurance might not cover). While you might be temporarily inconvenienced by a leaking roof as a renter, it’s unlikely you’ll ever have to pay to replace your roof when you rent. Your monthly, home-related expenses, such as renter’s insurance, tend to be more predictable and significantly cheaper.
Overall, it is up to your preference of how you want to live. There are pros and cons to renting, but if that is what fits into your budget right now, this isn’t a bad route to take.
Homeownership has many benefits compared to renting. Although, owning a home can be difficult when looking at the real estate side of things. You might not be able to sell when you want if the housing market is down. Even if it’s up, there are significant transaction costs when you sell. Changing your mind about where you want to live is far more expensive when you own.
The overall cost of homeownership tends to be higher than the overall cost of renting. That is true even if the monthly mortgage payment is similar to (or lower than) the monthly rent. Perhaps the biggest throwaway expense is mortgage interest, which can make up nearly all of your monthly payments in the early years of a long-term mortgage.
Here are some expenses you’ll be spending money on as a homeowner that you generally do not have to pay as a renter:
- Property taxes
- Trash pickup (some landlords require renters to pay this)
- Water and sewer service (some landlords require renters to pay this)
- Repairs and maintenance
- Pest control
- Tree trimming
- Homeowners insurance
- Pool cleaning (if you have one)
- Lender-required flood insurance (in some areas)
- Earthquake insurance (in some areas)
Once you add up all of these costs, maybe renting is what’s best for you right now and buying a house can be put on hold until further notice. Or maybe you just want to rent for the rest of your life. Either way, both come with pros and cons. It is up to you to choose which way you want to go and what fits into your budget.